ESI Act, 1948

Employees’ State Insurance Act, 1948 (ESI Act)

The Employees’ State Insurance Act, 1948 (ESI Act) is a key piece of Indian labor law that provides social security and health insurance for Indian workers. Below is an overview of the ESI Act, 1948, with copyright-free details.

Introduction

The Employees’ State Insurance Act, 1948, was enacted by the Government of India to ensure social protection for workers in times of sickness, maternity, and employment-related injuries. It established a comprehensive health insurance system for employees working in factories and other specified establishments.

Applicability

• Initially, the ESI Act applied only to factories using power and employing 10 or more workers. Over time, the Act has been extended to various other sectors, including shops, hotels, restaurants, cinemas, and road transport undertakings.
• The Act covers employees earning wages up to ₹21,000 per month (as of the latest amendment).

Objectives

The primary objectives of the ESI Act are:

• Medical Benefits: Provides healthcare facilities to employees and their dependents.
• Cash Benefits: Offers financial compensation in cases of sickness, maternity, disablement, or death due to employment injuries.
• Rehabilitation: Rehabilitation for workers who suffer from employment-related injuries or disabilities.
• Unemployment Allowance: Provides unemployment benefits under specific circumstances.

Key Features

The Act outlines various provisions, which are as follows:

1. ESI Corporation

• The Employees’ State Insurance Corporation (ESIC) is the central body created under the ESI Act to manage and operate the scheme.
• ESIC oversees the administration, fund management, and disbursement of benefits to insured individuals.

2. Contributions

• Employer Contribution: The employer contributes 3.25% of the wages paid/payable to employees.
• Employee Contribution: Employees contribute 0.75% of their wages. Employees earning below ₹176 per day (as of recent updates) are exempt from contributing.

3. Benefits under the ESI Act

• Sickness Benefit: Workers receive up to 70% of their wages as compensation during certified sickness periods, up to 91 days in two consecutive benefit periods.
• Maternity Benefit: Female employees receive full wages during maternity leave for up to 26 weeks.
• Disablement Benefit: In case of temporary or permanent disablement due to employment injury, the employee receives compensation. Permanent disablement leads to lifelong pension payments.
• Dependents’ Benefit: In case of the employee’s death due to employment injury, dependents (spouse, children, or parents) receive pension benefits.
• Medical Benefits: Employees and their dependents are entitled to full medical care, including hospitalization, outpatient services, and prescribed drugs.
• Funeral Expenses: A lump sum payment towards the funeral expenses of the deceased insured person is provided.

4. Coverage

• Employees in establishments with 10 or more workers in various sectors such as factories, businesses, hotels, shops, and educational institutions are covered under the Act.
• The Act extends to all states and union territories in India.

Administration

The ESI scheme is administered by the central and state governments in coordination with ESIC, which monitors contributions, healthcare facilities, and cash benefits.

Amendments

The ESI Act has been amended multiple times to extend coverage, improve benefits, and simplify administrative processes. Some of the notable amendments include:

• Increase in wage ceiling for eligibility.
• Extension to more sectors and geographical regions.
• Enhancement of maternity and sickness benefits.

Penalties for Non-compliance

Employers who fail to comply with the ESI Act’s provisions, such as registration or contribution payment, face penalties, fines, and possible imprisonment. Non-payment of contributions or failure to provide benefits to eligible workers are considered offenses under the Act.

Exemptions

Certain employees, such as seasonal workers or those earning wages below a prescribed amount, may be exempt from contributing to the ESI scheme, although their employers are still required to make contributions on their behalf.

Detailed Provisions of the ESI Act

1. Sections of the ESI Act

The Act is divided into various sections that cover different aspects of the scheme’s implementation and functioning. Key sections include:

• Section 1: This defines the title, extent, and commencement of the Act.
• Section 2: Definitions, including key terms such as “employee,” “wages,” “contributions,” and “insured person.”
• Section 38 to 45: Cover compulsory registration and contributions of employers and employees.
• Section 46: Defines the types of benefits to which employees are entitled under the scheme.
• Section 47: Special provisions for those employees suffering from permanent or partial disablement.
• Section 85 to 86: Deal with penalties for non-compliance, including fines and imprisonment.

2. Coverage and Extension

Initially, the Act applied only to factories but has been extended over time to a broad range of sectors. Coverage now includes:

• Factories and manufacturing units.
• Shops, hotels, restaurants.
• Cinemas and entertainment houses.
• Road transport undertakings.
• Newspaper establishments.
• Educational institutions, including private schools.
• Health institutions.

Contributions in Detail

Contributions under the ESI Act are made monthly and are based on the wages paid to employees. The contributions are deposited into the ESI Fund, which is used to provide benefits to insured workers. Key points include:

• Employer Contribution (3.25%): This is calculated as a percentage of the wages paid or payable to each employee.
• Employee Contribution (0.75%): Deducted from the employee’s wages. Employees earning less than ₹176 per day are not required to contribute, but their employer must still make contributions on their behalf.

Wages for the purpose of calculating contributions include:

• Basic pay
• Dearness allowance
• House rent allowance
• Incentives, if paid regularly
• Overtime wages

The following are excluded from “wages”:

• Gratuity
• Retrenchment compensation
• Encashment of leave
• Statutory bonus

Benefits Offered by the ESI Act

1. Medical Benefits

• Full medical care for insured persons and their families, including:
  • Outpatient treatment
  • Specialist consultations
  • Hospitalization
  • Diagnostic tests and surgeries

Medical benefits continue even after the insured person retires, provided certain conditions regarding service and contribution are met.

2. Sickness Benefit

• Eligibility: An employee must contribute for at least 78 days in a contribution period to be eligible.
• Amount: Around 70% of the average daily wage during the period of sickness.
• Duration: Maximum of 91 days in two consecutive contribution periods (about 6 months).

Extended sickness benefit is available for 34 specified long-term diseases such as cancer, tuberculosis, and mental illnesses, where the employee may receive up to 80% of wages for a longer duration.

3. Maternity Benefit

• Eligibility: The employee should have contributed for at least 70 days in the preceding two contribution periods.
• Amount: Full average daily wage for the period of leave.
• Duration: 26 weeks for the first two children, and 12 weeks for the third or subsequent children. Additional 4 weeks can be availed in case of complications.

4. Disablement Benefit

1. Temporary Disablement: Full wages are paid until recovery from a work-related injury.
2. Permanent Disablement: A lifelong pension is provided based on the severity of the disability. The amount depends on the extent of loss of earning capacity, as certified by a Medical Board.

5. Dependents’ Benefit

• In the case of death resulting from an employment injury, the dependents (spouse, minor children, and parents) receive a monthly pension.
• Amount: This pension is based on the average daily wages of the deceased, and the proportion is determined by the number of dependents.
  • For example, the widow receives 3/5th of the deceased’s daily wage, and each child receives 2/5th of the daily wage.

6. Unemployment Allowance (Rajiv Gandhi Shramik Kalyan Yojana)

• This allowance provides cash benefits to insured persons who lose their jobs involuntarily due to retrenchment or closure of establishments.
• Duration: Unemployment benefits can be availed for up to 24 months.
• Additionally, vocational training is provided to help the insured person find new employment.

7. Funeral Expenses

A lump sum payment (currently up to ₹15,000) is provided to the dependents or nominees of the deceased insured worker to cover funeral expenses.

Medical and Administrative Setup

The Employees’ State Insurance Corporation (ESIC) runs a vast network of hospitals, dispensaries, and clinics to cater to insured employees. Services provided include:

• Primary, Secondary, and Tertiary Medical Care: Insured persons have access to all three levels of healthcare services.
• Specialist Treatment: Services for serious conditions requiring specialist care and surgeries are also included.
• Rehabilitation Services: For employees recovering from disabilities or long-term sickness.

Administration of the ESI Act

1. Employees’ State Insurance Corporation (ESIC)

The ESIC is a statutory body responsible for managing the entire scheme, including:

• Collecting contributions.
• Running medical institutions.
• Processing claims for cash benefits.
• Conducting inspections and ensuring compliance with the Act.

2. Inspections and Audits

To ensure compliance, the ESIC conducts regular audits and inspections of establishments covered by the Act. Employers must maintain proper records related to wages, contributions, and employee details.

Legal Provisions and Penalties

• Non-compliance Penalties: Employers who fail to pay contributions or register eligible employees can face penalties and legal action. Penalties can range from fines to imprisonment depending on the offense.
• Recovery of Contributions: The ESIC has the authority to recover unpaid contributions with interest from defaulting employers.

Recent Amendments

Several amendments have been made to enhance the scope and benefits of the ESI Act:

• Increased wage ceiling: The wage ceiling has been increased from time to time to bring more workers under the scheme (currently ₹21,000 per month).
• Extension of benefits to more sectors: The coverage has been extended to include new sectors such as private schools, educational institutions, and more regions.