10 – Social-security Legislations – Employee Relations Management

Chapter Ten

Social-security Legislations

Social security is one of the key components of labour welfare. Labour welfare refers to all such services, amenities and facilities to the employees that improve their working conditions as well as their standard of living. Social security benefits provided by an enterprise should protect not only their employees but also their family members through financial security including healthcare. Social security envisages that the employees shall be protected against all types of social risks that may cause undue hardships to them in fulfilling their basic needs.

CHAPTER OUTLINE
LEARNING OBJECTIVES

After reading this chapter, you will be able to:

  • Understand the concept of social security

  • List the major central legislations pertaining to social security

  • Describe the major benefits and provisions of these legislations

  • Explain the role of the government, employer and employees in the implementation of social-security measures

An Accident at the Workplace

Badrinath, a senior machinist with one of the major auto ancillaries in Gurgaon, liked to be punctual. No matter how troublesome the 15-km ride to the factory was, Badrinath made it a point to be on time. Of course, putting his two children through school meant that he needed every paisa of his salary each month. Badrinath had his priorities sorted out—good education for his children and a good standard of living for his family. Saving for a rainy day did not feature on his priority list. He was not unduly worried about his job. He was a skilled machinist in a market where trained local technicians were in short supply and the employers were many. Confident of his own professional abilities, Badrinath figured that the need to save for old age was still distant.

On the morning of that fateful day, Badrinath punched his card in the office at 0730 hours in the general shift, as was his wont. He immediately reported to the shop floor. Striding towards bay number 5, Badrinath, through his peripheral vision, vaguely sensed something rushing towards him. Before he could react, it hit him hard on the right side causing him to fall down. A momentary sense of excruciating pain was followed by numbness. Badrinath, lying crumpled on the floor, could see all the workers rushing towards him but he could not move at all—not even his neck. His vision faded as he slipped into unconsciousness.

Eyewitnesses of the accident described to the doctor that the tyre of the heavy dumper crushed his right leg and hit his back, probably damaging the backbone as well. The immediate medical attention that Badrinath received from the hospital he was rushed to could do no more than merely save his life. Badrinath—completely paralysed below his neck—had become a living vegetable with little or no hope of either recovering or finding gainful employment in the future.

What would be the fate of the likes of Badrinath (and dependants) for the rest of their lives? Such accidents in the course of employment do happen more frequently than we would like to imagine.

Accidents, job losses, retirement, sickness, death while on duty—these are realities of working life and leave a person and/or his dependants vulnerable. Social security is an attempt by the employer and the State to institute measures that mitigate such social risks. The concept of social security, though old, was first enacted in the last century in the USA during the 1930s at the time of Great Depression. In India, too, there have been attempts to institute social-security measures in place even though it is still at a nascent stage.

10.1 Major Legislations

India, being a welfare State, has taken upon itself the responsibilities of extending various benefits of social security and social assistance to its citizens. The social-security legislations in India derive their strength and spirit from the Directive Principles of the State Policy as contained in the Constitution of India. Although the Constitution of India is yet to recognize social security as a fundamental right, it does require the State to promote the welfare of the people by securing and protecting a social order in which justice—social, economic and political—shall prevail in the institutions of national life. Article 41 of the Constitution requires that the State should, within the limits of its economic capacity, make effective provisions for securing the right to work, to education and to public assistance in case of unemployment, old age, sickness and disablement. While Article 42 requires that the State should make provisions for securing just and humane conditions of work and for maternity relief, Article 47 requires that the State should raise the level of nutrition and the standard of living of its people and improvement of public health as among its primary duties. The obligations cast on the State in the above Articles constitute social security.

A Social Security Division has been set up under the Ministry of Labour and Employment. The division deals with framing of social-security policy for the workers, administration of all the legislations relating to social security and the implementation of the various social-security schemes. In the context of labour, social security aims at mitigating risks against loss in earnings or earning capacity due to age, illness or work-related injuries.

Social security to the workers is provided, among others, through five major central Acts:

  1. The Employees' State Insurance Act, 1948
  2. Employees' Provident Funds and Miscellaneous Provisions Act, 1952
  3. The Workmen's Compensation Act
  4. The Maternity Benefit Act
  5. The Payment of Gratuity Act

In addition, there are a large number of welfare funds for certain specified segments of workers such as beedi workers, cine workers and construction workers.

The major thrust of social security relating to labour is two-pronged:

  • Those relating to the medical facilities, compensation benefits and insurance coverage to the employees in case of accidents, incapacity, illness
  • Those relating to the provident fund and gratuity provisions

It consists of preventive, promotional and protective measures for labour welfare.

10.2 The Employees' State Insurance Act, 1948

The Employees' State Insurance Act, (ESIC) 1948, is a piece of social-welfare legislation enacted primarily with the object of providing certain benefits to employees in case of sickness, maternity and employment injury and also to make provision for certain others matters. The Act is an effort at achieving the goal of socio-economic justice mentioned in the Directive Principles of State Policy under Part 4 of Constitution, in particular, Articles 41, 42 and 43, which enjoin the State to make effective provisions for securing the right to work, to education and public assistance in cases of unemployment, old age, sickness and disablement. Specifically, there is a scheme in the Act that makes provisions for the following benefits under different contingencies (see Figure 10.1).

It may be seen that the ESI Act aims to provide security (financial and medical) to employees (and their dependents) during contingencies that may affect their earning capacities, temporarily or permanently.

10.2.1 Scope, Applicability and Coverage

The Act extends to the whole of India. The ESIC Act applies to non-seasonal, power-using factories or manufacturing units employing 10 or more persons, and non-power using establishments employing 20 or more persons. Under the enabling provisions of the Act, a factory or establishment, located in a geographical area, notified for the implementation of the scheme, falls in the purview of the Act. Employees of the aforesaid categories of factories or establishments, but drawing wages only up to INR 10,000 a month, are entitled to health insurance cover under the ESI Act. The wage ceiling for the purpose of coverage is revised from time to time, to keep pace with the rising cost of living and subsequent wage hikes. The present ceiling of INR 10,000 has been revised recently. The appropriate government, state or central, is empowered to extend the provision of the ESI Act to various classes of establishment—industrial, commercial, agricultural or otherwise in nature. Under these enabling provisions, most of the state governments have extended the ESI Act to certain specific classes of establishments, such as shops, hotels, restaurants and cinemas, employing 20 or more persons. But no industry has the right to opt out of the scheme.

 

Figure 10.1 The ESI Act.

 

An employee who is covered at the beginning of a contribution period shall continue to remain covered till the end of that contribution period notwithstanding the fact that his wages may exceed the prescribed wage ceiling at any time after the commencement of that contribution period. Wage ceiling for the purpose of coverage is revised from time to time by the central government on the specific recommendation of the ESI Corporation.

The Act, in the first instance, was to be applicable to factories as defined in the Act. The government, however, could extend it to other establishments too. Over the years, the Act has been extended to all kinds of establishments. This is a “beneficient” Act and, therefore, the interpretation of its coverage has been very liberal. The following are excluded from the coverage of the Act:

  1. Factories working with the aid of power wherein less than 10 persons are employed
  2. Factories working without the aid of power wherein less than 20 persons are employed
  3. Seasonal factories engaged exclusively in any of the following activities, viz. cotton ginning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process incidental to or connected with any of the aforesaid activities, and including factories engaged for a period not exceeding seven months in a year in blending, packing or repackaging of tea or coffee, or in such other process as may be specified by the central government
  4. A factory that was exempted from the provisions of the Act as being a “seasonal factory” will not lose the benefit of the exemption on account of the amendment of the definition of “seasonal factory”
  5. Mines subject to the Mines Act, 1952
  6. Railway running sheds
  7. Government factories or establishments, whose employees are in receipt of benefits similar or superior to the benefits provided under the Act
  8. Members of Indian navy, military and air force

Employee: This term includes any person who is engaged or employed for wages/salary in connection with the work of the establishment to which this Act applies. It does not include any person whose wages (excluding OT) exceed the limit prescribed by the central government—currently INR 10,000 per month.

Every employee (including casual and temporary employees), whether employed directly or through a contractor, who is in receipt of wages up to INR 10,000 is entitled to be insured under the ESI Act. However, apprentices engaged under the Apprentices Act are not entitled to the ESI benefits. Coverage of part-time employees under the ESI Act will depend on whether they have “contract of service” or “contract for service” with the employer. The former is covered, whereas the latter are not covered under the ESI Act.

Besides, in the following cases, the employees have been held to be covered under the Act:

  1. Persons employed in a canteen of a club
  2. Drivers employed by the transport organization
  3. Persons engaged in distribution and sale of products
  4. Persons carrying administrative work of processing the orders and executing sales
  5. Hawkers employed for the sale of products
  6. Employees of cycle stand and canteen run in cinema theatres by contractors
  7. Members of editorial and administrative staff of a printing press, publishing, newspaper
  8. A home worker rolling beedis at home
  9. Medical representative
  10. Persons employed in a hospital attached to and maintained by factory
  11. Part-time doctor employed for ambulance room
  12. Book-binders engaged by a contractor
  13. Sales clerk working in a factory

It can, once again, be seen that the interpretation regarding coverage is very liberal. As regards coverage of category of employees or type of establishment, in case of doubt, it will be prudent to err on the side of liberal and inclusive interpretation. More often that not you will be right!

Exemption from Maternity Benefit Act, 1961 and Workmen's Compensation Act, 1923:

An employer/establishment covered under the ESI Act is exempt from the provisions of Maternity Benefit Act and Workmen's Compensation Act. It is specifically provided that when a person is entitled to any of the benefits provided by the ESI Act, then he/she shall not be entitled to recover any similar benefits admissible under the provisions of any other enactment.

10.2.2 Important Terms Used in the Act

Exempted Employee: An employee who is not liable under this Act to pay the employees' contribution

Family: All or any of the following relatives of an insured person:

  1. A spouse
  2. A minor, legitimate or adopted child, dependent upon the insured person
  3. A child who is wholly dependent on the earnings of the insured person and who is (a) receiving education, till he or she attains the age of 21 years (b) an unmarried daughter
  4. A child who is infirm by reason of any physical or mental abnormality or injury and is wholly dependent on the earnings of the insured person, so long as the infirmity continues
  5. Dependent parents

Insurable Employment: An employment in a factory or establishment to which this Act applies

Insured Person: A person who is or was an employee in respect of whom contributions are or were payable under this Act and who is entitled to any benefit under the ESIC Scheme

Sickness: A condition that requires medical treatment and attendance and necessitates abstention from work on medical grounds

Contribution: The sum of money payable to the “Corporation” by the principal employer in respect of an employee and includes any amount payable by or on behalf of the employee in accordance with the provisions of this Act

Employment Injury: A personal injury to an employee caused by accident or an occupational disease arising out of and in the course of his employment, being an insurable employment, whether the accident occurs or the occupational disease is contracted within or outside the territorial limits of India. For example, an insured person, if deployed abroad, or if travelling abroad in course of his employment meets with an accident, he shall be eligible to receive the benefits to which he is entitled under the Act.

Permanent Partial Disablement: Such disablement of a permanent nature as reduces the earning capacity of an employee in every employment that he was capable of undertaking at the time of the accident resulting in the disablement. For example, loss of the index finger of the right hand may result in a permanent partial disability. The Part II of the second schedule of the Act lists the partial disablements and prescribes the percentage of partial disablement.

Permanent Total Disablement: Such disablement of a permanent nature as incapacitates an employee for all work that he was capable of performing at the time of the accident resulting in such disablement. Part I of Schedule 2 contains a list of all injuries considered to be of permanent total nature. If two or more permanent partial disablements (as per Part 2) combine to constitute injury amounting to 100 per cent or more, the same will constitute permanent total disablement. For example, loss of both hands will constitute total permanent disablement.

Temporary Disablement: A condition resulting from an employment injury, which requires medical treatment and renders an employee, as a result of such injury, temporarily incapable of doing the work that he was doing prior to or at the time of the injury

Wages: All remuneration paid or payable, in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock-out, strike that is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months

Wage does not include:

  1. Any contribution paid by the employer to any pension fund or provident fund
  2. Travelling allowance or the value of any travelling concession
  3. Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment
  4. Any gratuity payable on discharge

ESI Corporation

Provisions of the ESI Act are administered by a corporate body called the Employee State Insurance Corporation. It comprises members representing interest groups that include, employees, employers, the central and state governments, besides representatives of parliament and the medical profession. The corporation is headed by the Union Minister of Labour.

Table 10.1 illustrates the components that are to be reckoned as wages for the purpose of the Act.

10.2.3 Administration

There is elaborate administrative machinery for the implementation of the provisions of the most comprehensive of all social security legislations.

ESI CORPORATION.   This social-security programme is administered by a corporate body called the Employee State Insurance Corporation. It comprises members representing interest groups that include employee, employers, the central and state government, besides representatives of parliament and the medical profession. The corporation is headed by the Union Minister of Labour as its chairman, where as the Director General, appointed by the central government, functions as its CEO. A standing committee constituted from amongst the members of the corporation, acts as an executive body. The medical benefit council, constituted by the central government, is yet another statutory body that advises the corporation on matters related to effective delivery of services to the beneficiary population.

 

Table 10.1 Wages for ESI contributions.

To be Deemed as Wages Not to be Deemed as Wages
• Basic pay • Contribution paid by the employer to any pension/provident of under ESI Act
• Dearness Allowance • Sum paid to defray special expenses entailed by the nature of employment daily allowance paid for the period spent on tour
• House Rent Allowance • Gratuity payable on discharge
• City Compensatory Allowance • Pay in lieu of notice of retrenchment compensation
• Overtime Wages (but not to be taken into account for determining the coverage of employee) • Benefits paid under the ESI Scheme
• Payment for day of rest • Encashment of leave
• Production Incentive • Payment of Inam, which does not form part of the term of employment
• Bonus other than statutory bonus • Washing allowances for livery
• Night-shift Allowance • Conveyance amount towards reimbursement for duty-related journey
• Heat, Gas and Dust Allowance  
• Payment for unsubstituted holidays  
• Meal/Food Allowance  
• Suspension Allowance  
• Lay-off Allowance  
• Children Education Allowance (not being reimbursement for actual tuition fees)  

The Corporation is vested with the following powers:

  • To promote measures for the improvement of health and welfare of the insured employees and for the rehabilitation and re-employment of those who have been disabled or injured
  • To appoint inspectors for purposes of the Act
  • To determine the amount of contribution payable in respect of employees of a factory or establishment that has not furnished or maintained any particulars, registers or records

ESI Scheme Financing

ESI scheme is a self-financing health-insurance scheme. Contributions are raised from covered employees and their employers as a fixed percentage of wages. As of now, covered employees contribute 1.75 per cent of the wages, whereas as the employers contribute 4.75 per cent of the wages. Employees earning less than INR 50 a day as daily wage are exempted from payment of their share of contribution.

FINANCE.   Like most social-security schemes the world over, ESI is a self-financing health-insurance scheme. Contributions are raised from covered employees and their employers as a fixed percentage of wages. As of now, covered employees contribute 1.75 per cent of the wages, whereas the employers contribute 4.75 per cent of the wages. Employees earning less than INR 50 a day as daily wage are exempted from payment of their share of contribution. The state government, as per the provision of the Act, contributes 1/8 of the expenditure on medical benefit within a per capita ceiling of INR 1000 per insured person per annum. Any additional expenditure incurred by the state government, over and above the ceiling, and not falling within the shareable pool, is borne by the state governments concerned. The responsibility for payment of all contributions is that of the employer with a right to deduct the employees' share of contribution from employees' wages relating to the period in respect of which the contribution is payable.

CONTRIBUTION PERIODS AND BENEFIT PERIOD.   Workers, covered under the ESI Act, are required to pay contribution towards the scheme on a monthly basis. Contribution period means a six-month time span from 1 April to 30 September and 1 October to 31 March. Thus, in a financial year, there are two contribution periods of six months' duration. Cash benefits under the scheme are generally linked with the contribution paid. The benefit period starts three months after the closure of a contribution period (see Table 10.2).

 

Table 10.2 Contribution and benefit periods.

Contribution Period Corresponding Benefit Period
1 April to 30 September 1 January to 30 June of the following year
1 October to 31 March 1 July to 31 December

 

10.2.4 Benefits in Detail

Employees covered under the scheme are entitled to medical facilities for self and dependants. They are also entitled to cash benefits in the event of specified contingencies resulting in loss of wages or earning capacity, as mentioned above. The insured women are entitled to maternity benefit for confinement. Where death of an insured employee occurs due to employment injury or occupational disease, the dependants are entitled to family pension. In this section, we examine the various benefits that the insured employees and their dependants are entitled to, the duration of benefits and the contributory conditions.

MEDICAL BENEFIT.   Full medical facilities for self and dependants are admissible from day one of entering insurable employment. The primary, outpatient, in-patient and specialist services are provided through a network of panel clinics, whereas ESI dispensaries and hospitals and super specialty services are provided through a large number of advanced, empanelled medical institutions on referral basis. The eligibility criteria for availing the medical benefits are the following:

  • Facilities are admissible from day one of entering insurable employment for self and dependants such as spouse, parents and children—own or adopted
  • For self and spouse on superannuation, subject to having completed five years in insurable employment on superannuation or in case of having suffered permanent physical disablement during the course of insurable employment
  • The rate of contribution for superannuated/disabled is INR 120 per annum payable in lump sum at the local office for availing full medical care for self and spouse

SICKNESS BENEFIT.   Sickness benefit in cash is payable under three types of conditions as mentioned below:

Sickness Benefit: Sickness benefit is payable to an insured person in cash, in the event of sickness resulting in absence from work and duly certified by an authorized insurance medical officer/practitioner.

  • The benefit becomes admissible only after an insured has paid contribution for at least 78 days in a contribution period of 6 months.
  • Sickness benefit is payable for a maximum of 91 days in 2 consecutive contribution periods [one year].
  • Payment is to be made by the local office within 7 days of certificate of sickness at a standard rate, which is not less than 50 per cent of the wages.

[The logic behind fixing of 78 and 91 days of contribution is based on actuarial studies.]

Extended Sickness Benefit: Extended sickness benefit is payable to insured persons for the period of certified sickness in case of the specified, 34 long-term diseases that need prolonged treatment and absence from work on medical advice.

  • For entitlement to this benefit, an insured person should have been in insurable employment for at least 2 years. He/she should also have paid contribution for a minimum of 156 days in the preceding 4 contribution periods or say 2 years.
  • ESI is payable for a maximum period of 2 years on the basis of proper medical certification and authentication by the designated authority.
  • Amount payable in cash as extended sickness benefit is payable within 7 days following the submission of complete claim papers at the local office concerned.

Enhanced Sickness Benefit: This cash benefit is payable to insured persons in the productive age group for undergoing sterilization operation—either vasectomy or tubectomy.

  • The contribution is the same as for the normal sickness benefit.
  • Enhanced sickness benefit is payable to the IPs for 14 days for tubectomy and for 7 days in case of vasectomy.
  • The amount payable is double the standard sickness benefit rate that is equal to full wages.

MATERNITY BENEFIT.   Maternity benefit is payable to insured women in case of confinement or miscarriage or sickness related thereto.

  • For claiming this, the insured woman should be paid for at least 70 days in 2 consecutive contribution periods, i.e., 1 year.
  • The benefit is normally payable for 12 weeks, which can be further extended up to 16 weeks on medical grounds.
  • The rate of payment of the benefit is equal to wage or double the standard sickness benefit rate.
  • The benefit is payable within 14 days of duly authenticated claim papers.

DISABLEMENT BENEFIT (CASH).   Disablement benefit is payable to insured employees suffering from physical disablement due to employment injury or occupation disease.

  • An insured person should be an employee on the date of the accident. Temporary disablement benefit at 70 per cent of the wages is payable till temporary disablement lasts and is duly certified by an authorized insurance medical officer.
  • In case of permanent disablement, the cash benefit is payable for life.
  • The amount payable is worked out on the basis of earning capacity determined by a medical board.
  • Disablement benefit is payable within one month of submission of the complete claim papers.

DEPENDANT'S BENEFITS (CASH).   Dependant's benefit (family pension) is payable to dependants of a deceased, insured person where death occurs due to employment or occupational disease.

  • A widow can receive this benefit on a monthly basis for life or till remarriage.
  • A son or daughter can receive this benefit till 18 years of age.
  • Other dependants like parents, including a widowed mother, can also receive the benefit under certain conditions.
  • The rate of payment is about 70 per cent of the wages shareable among dependants in a fixed ratio.
  • The first instalment is payable within a maximum of three months following the death of an insured person, and thereafter, on a regular monthly basis.

FUNERAL EXPENSES.   Funeral expenses are payable in case of death, subject to a maximum of INR 2,500.

BENEFITS NOT TO BE COMBINED.   An employee shall not be entitled to receive for the same period:

  1. Both sickness benefit and maternity benefit
  2. Both sickness benefit and disablement benefit for temporary disablement
  3. Both maternity benefit and disablement benefits, at his option.

The employee shall be entitled to choose any one of the aforesaid benefits.

10.2.5 Obligations of Employers

  1. The employer should get his factory or establishments registered with the ESI Corporation within 15 days after the Act becomes applicable to it, and obtain the employer's code number.
  2. The employer should obtain the declaration form from the employees covered under the Act and submit the same along with the return of declaration forms to the ESI office. He should arrange for the allotment of insurance numbers to the employees and their identity cards.
  3. The employer should deposit the employees' and his own contributions to the ESI account in the prescribed manner; whether he has sufficient resources or not, his liability under the Act cannot be disputed. He cannot justify non-payment of ESI contribution due to non-availability of finance.
  4. The employer should furnish a Return of Contributions along with the challans of monthly payment, within 30 days of the end of each contribution period.
  5. The employer should not reduce the wages of an employee on account of the contribution payable by him (employer).
  6. The employer should cause to be maintained the prescribed records/registers namely the register of employees, the inspection book and the accident book.
  7. The employer should report to the ESI authorities of any accident in the place of employment, within 24 hours or immediately in case of serious or fatal accidents. He should make arrangements for first-aid and transportation of the employee to the hospital. He should also furnish to the authorities such further information and particulars of an accident as may be required.
  8. The employer should inform the local office and the nearest ESI dispensary/hospital, in case of death of any employee, immediately.
  9. The employer must not put to work any sick employee and must allow him leave, if he/she has been issued the prescribed certificate.
  10. The employer should not dismiss or discharge any employee during the period he/she is in receipt of sickness/maternity/temporary disablement benefit, or is under medical treatment, or is absent from work as a result of illness duly certified or due to pregnancy or confinement.

Most organizations in the organized sector nowadays provide adequate benefits to those in their employment. A number of these organizations have also facilitated some kind of medical, accident and life insurance to the employees. The PSUs have elaborate schemes for the treatment of their employees. A sizeable number of these employees, however, are above the salary limit of INR 10,000 per month. It is those employees in the unorganized sector, the contractual employees, earning less than INR 10,000 per month whom the Act aims to protect from risks in working life, which may impact their earning. From an employee relation point of view, the organization must address this insecurity of the individual employee and benchmark the provisions of the ESI Act as the minimum that can be provided to the employees. Without this security, the organization will not be able to harness the full potential of the human resources that it employs.

10.3 Maternity Benefit Act, 1961

Prior to the enactment of the Maternity Benefit Act of 1961, there were in force several central and state maternity benefit Acts in the country. However, there was no uniformity in their provisions for all women workers in the country. It is true that its object was achieved by the enactment of the Employees' State Insurance Act, 1948, which superseded the provisions of several Maternity Benefit Acts. But the ESI did not cover all women workers in the country. The Maternity Benefit Act of 1961 was, therefore, passed to provide uniform maternity benefit for women workers in certain industries not covered by the Employees' State Insurance Act, 1948. The Act is amended by the Amendment Act No. 29 of 1995. The Amendment Act has come into force with effect from 1 February 1996.

10.3.1 Objectives

  1. To provide for maternity benefit to women workers in certain establishments
  2. To regulate the employment of women workers in such establishments for a certain period before and after child birth

10.3.2 Coverage

The Act extends to the whole of India and is applicable to:

  • Every factory, mine or plantation (including those belonging to the government)
  • An establishment engaged in the exhibition of equestrian, acrobatic and other performances, irrespective of the number of employees
  • To every shop or establishment wherein 10 or more persons are employed or were employed on any day of the preceding 12 months.

The state government may extend the Act to any other establishment or class or establishments; industrial, commercial, agricultural or otherwise. However, the Act does not apply to any such factory/other establishments to which the provisions of the Employees' State Insurance Act are applicable. But, where the factory/establishment is governed under the Employees' State Insurance Act, and the woman employee is not qualified to claim maternity benefit under Section 50 of that Act, because her wages exceed the stipulated amount, such women will be covered under the provisions of Maternity Benefit Act.

 

The Maternity Benefit Act, 1961 was enacted after the enactment of the ESI Act, 1948. Prior to this enactment, there were several such enactments from different state governments and the central government. The Enactment of 1961 brought uniformity in such provisions and also sought to provide coverage to women left outside the coverage of ESI Act, 1948.

10.3.3 Provisions

CONDITIONS AND ELIGIBILITY

  • Ten weeks before the date of her expected delivery, she may ask the employer to give her light work for a month. At that time, she should produce a certificate that she is pregnant.
  • She should give written notice to the employer about seven weeks before the date of her delivery that she will be absent for six weeks before and after her delivery. She should also name the person to whom payment will be made in case she cannot take it herself.
  • She should take the payment for the first six weeks before she goes on leave. She will get payment for the 6 weeks after child-birth within 48 hours of giving proof that she has had a child.
  • A woman worker is eligible for maternity benefit when she is expecting a child and has worked for her employer for at least 80 days in the 12 months immediately preceding the date of her expected delivery
  • The maximum period for which any woman shall be entitled to maternity benefit shall be 12 weeks in all, whether taken before or after childbirth. However she cannot take the benefit for more than six weeks before her expected delivery.

Prior to the amendment of 1989, a woman employee could not avail of the six weeks' leave preceding the date of her delivery; she was entitled to only six weeks' leave following the day of her delivery. However, by the above amendment, the position has changed. Now, in case a woman employee does not avail of 6 weeks' leave preceding the date of her delivery, she can avail of that leave following her delivery, provided the total leave period, i.e. preceding and following the day of her delivery does not exceed 12 weeks.

CASH BENEFITS

  • Leave with average pay for six weeks before the delivery
  • Leave with average pay for six weeks after the delivery
  • A medical bonus of INR 250 if the employer does not provide free medical care to the woman. This was later amended to INR 1,000 with a proviso that the government can periodically increase it periodically subject to an ultimate limit of INR 20,000.
  • An additional leave with pay up to one month if the woman shows proof of illness due to the pregnancy, delivery, miscarriage or premature birth
  • In case of miscarriage, six weeks leave with average pay from the date of miscarriage

NON-CASH BENEFITS/PRIVILEGE

  • Light work for ten weeks (six weeks plus one month) before the date of her expected delivery, if she asks for it
  • Two nursing breaks in the course of her daily work until the child is 15 months old
  • No discharge or dismissal while she is on maternity leave
  • No change to her disadvantage in any of the conditions of her employment while on maternity leave
  • Pregnant women discharged or dismissed may still claim maternity benefit from the employer

Exception: Women dismissed for gross misconduct lose their right under the Act for Maternity Benefit

LEAVE FOR MISCARRIAGE AND TUBECTOMY OPERATION

  • Leave with wages at the rate of maternity benefit, for a period of six weeks immediately following the day of her miscarriage or her medical termination of pregnancy
  • Entitled to leave with wages at the rate of maternity benefit for a period of two weeks immediately following the day of her tubectomy operation

10.4 The Workmen's Compensation Act, 1923

The Workmen's Compensation Act is the first piece of legislation towards social security. It deals with compensation for workers who are injured in the course of duty. The scheme of the Workmen's Compensation Act is not to compensate the worker in lieu of wages. The general principle is that a worker who suffers an injury in the course of his employment, which results in a disablement, should be entitled to compensation and in the case of a fatal injury, his dependants should be compensated. Under the Workmen's Compensation Act, it is the employer who is responsible to pay compensation (as opposed to the Employees' State Insurance. For those establishments to which the Employees' State Insurance Act applies, the liability to pay compensation is on the ESI Corporation).

The meaning of “compensation” in this Act is limited to compensation granted under the Act for employment injuries sustained during the course of work. It is also limited to specifically monetary compensation other than a salary, travel allowance, and any other form of remuneration that could be paid under normal circumstances of employment. To get an overall understanding of the Act, it is useful to look at the “Statement of Objects and Reasons” published with the Act when it was first passed in 1923. To quote, “…the growing complexity of industry in this country with the increasing use of the machinery and consequent danger to workmen, along with the comparative poverty to workmen themselves renders it advisable that they should be protected, as far as possible from hardship arising out of accidents. An additional advantage of a legislation of this type is that by increasing the importance for employers of adequate safety devises, it reduces the number of accidents to workmen in a manner that cannot be achieved by official inspection. Further, the encouragement given to employers to provide adequate medical treatment for their workmen should mitigate the effects of such accidents as does occur. The benefits so conferred added to the increased sense of security, which he will enjoy, should render industrial life more attractive and thus increase the available supply of labour. At the same time, a corresponding increase in the efficiency of the average workmen may be expected.”1

While these were the official objects and reasons, the reality in India today is that the protection offered by the Act does not act as an incentive for workers, most of whom are unaware of it and who simply join work to earn a livelihood. At the time the framing of the bill, two criteria were followed in determining whom the Act would apply to:1

  1. Those industries that were more or less organized
  2. Workmen whose occupations were hazardous

Nowadays, the government (state or central) may extend the application of this Act to other establishments of an industry that may not be organized.

10.4.1 Scope and Coverage

The Act extends to the whole of India.

ESTABLISHMENTS COVERED.   All establishments hiring 20 workers and above must compulsorily register themselves under the Employees' State Insurance Act (ESI Act). The Workmen's Compensation Act is applicable only to those establishments that do not come within the purview of the ESI Act.

Also, if employers fail to register themselves under the ESI Act, they will be held responsible to pay compensation under the Workmen's Compensation Act.

However, the Workmen's Compensation Act will only apply to those persons considered “workers” and those considered “employers”, as defined under the Act.

ELIGIBILITY.   The Act will apply only to persons recognized as a “workman” under the Act.

However, with amendment to the Act in the year 2000, the eligibility has been made more inclusive. In addition, various judicial rulings have forever been expanding the people who are eligible to claim benefits under the Act. The following list would give an indication of the eligibility:

  • The only requirement is that the worker should be employed in an activity, which has to be either listed in schedule II of the Act, or any duty having connection with the specified activity mentioned in the schedule.
  • Schedule III of the Act contains a list of diseases and persons in occupations where infection is possible. They can claim compensation under this Act. They are “workmen” for the purposes of this Act.
  • In addition to persons employed in the capacity mentioned in Schedule II, a driver, a mechanic, cleaner, or person employed in any other capacity in connection with a motor vehicle are also considered “workers” under this Act.
  • In case a part of the work of an establishment is contracted out to a contractor, and a worker employed by the contractor for this purpose is injured, then the principal employer and not the contractor (who is the worker's immediate employer) is responsible to pay compensation as though the worker was directly employed by him. However, this principal employer holds the right to be indemnified by the person who would normally pay for the compensation of an injured/deceased worker, i.e., the contractor.

The Employer: Defined in this Act as a body of person/s whom the worker has entered into a contract of apprenticeship or service with, the term “employer” also extends to his agent, legal representative of a dead employer, or a temporary employer on to whom the worker has been lent on hire basis.

EMPLOYER'S LIABILITY FOR COMPENSATION.   As per Section 3 of the Act, the employer is liable to pay compensation if the worker is injured by an accident that:

  1. Arises out of (i.e., while engaged in) work
  2. Occurs in the course of his employment (i.e., during work hours)
  3. Causes an injury that results in disablement of the worker

If these three conditions are met, the employer of an establishment covered by the Act is bound to pay compensation. While the second condition is easy to prove, the first condition has been difficult to establish in certain cases. (See Box 10.1.)

BOX 10.1   FOR CLASS DISCUSSION

A bus was on its last trip for the day. Some assailants entered the bus, sprayed chilli powder on the passengers and shot the conductor dead. It occurred during work hours, but could such an act be termed as an injury “arising out of the course of work”?

In this particular case, it was argued—successfully—that such an incident is a contingency that can arise during the course of duty. The occupants were exposed to that particular risk by reason of their employment.

The above argument could be extended to almost all situations where the workman was present, either at the workplace, or during duty hours, or both. What, then, could be the purpose of laying down the three conditions when the interpretation could be so broad as to defeat the very purpose of defining the same?

DISABLEMENT.   The definition of “disablement” is very important in this Act, as it determines the extent of compensation that can be claimed by the worker injured in the course of his employment.

Under the Act, there are four types of eventualities, which can be compensated:

  1. Death
  2. Permanent Total Disablement: Disablement that incapacitates a worker from all kinds of work
  3. Permanent Partial Disablement: Disablement that reduces the capacity to work in any employment similar to that the worker was performing at the time of the accident
  4. Temporary Disablement: This may be total or partial disablement, of temporary nature, which reduces the earning capacity of the worker in any similar employment for the period of disablement.

Figure 10.2 presents a schematic representation of the various kinds of injuries (including death) defined in the Act. (Also see Box 10.2.)

Total disability (i.e. 100 per cent disability) has a different meaning under the Workmen's Compensation Act as compared to its meaning in normal language. According to the Act, disability is determined with reference to the work that the worker was doing immediately before accident took place, and if the resulting injury leaves him incapable of performing any work of a similar nature, then his disability is considered as 100 per cent.

If the injury suffered by the worker produces a disease, which aggravates a pre-existing disease thereby causing a death or disability, it is still compensable (i.e. compensation can be paid).

The employer cannot defend himself by saying that the worker already had an existing disease. For example, a worker has a pre-existing heart condition, which due to the strain or over exertion of work causes his death, the employer is still liable to pay compensation. All that is required is that the accident suffered during the course of and arising out of the work immediately led to his death injury. In legal terminology, the injury suffered by the workmen at work should be the “proximate cause” of his death, or that there should be a “close causal connection” between the accident and the injury.

COMPENSATION NOT PAYABLE.   An employer is not liable to pay compensation under following circumstances:

  1. Where the disablement does not last for more than three days
  2. Where the disablement has arisen out of the following:
    1. Drugs or drink
    2. Disobedience
    3. Disregard for the safety measures prescribed

 

Figure 10.2 Classification of injuries (including death).

 

BOX 10.2   FOR CLASS DISCUSSION

Discuss as to the nature of the following kinds of disablements:

Manmohan, a machinist in an engineering shop, got his fingers cut off by accident. This injury has reduced his capacity to work in any such employment.

Gursharan is a helper with the public-health-engineering department. While cleaning an overhead tank, he slipped and fell, fracturing his hand. He could not work for one month.

Binu George lost both his eyesight and his legs when the bus that he was driving met with an accident. He can no longer work as a driver or do any work of a similar nature.

An accident left a worker—a porter—with a defect in his leg, making him incapable of performing his work as a porter. He could, however, do some other work.

The grey area in this section is that there is no definition whatsoever that defines what is “drink”, “drugs”, “disobedience” or “disregard to safety measures”. The employers may take advantage of this section and evade paying the compensation. However, being under the influence of drugs or alcohol is not a defence in the case of death or total disablement resulting from injury. Second, in the case of disobedience, such disobedience should be “wilful”.

OCCUPATIONAL DISEASE.   An occupational disease, while in service, is a disease that inflicts workers in that particular occupation in which s/he was employed in and resulting from exposure to a hazardous working atmosphere, particular to that employment. If a worker contracts such a disease, then the employer is liable to pay compensation, provided that the worker was employed by him for a continuous period of six months.

An occupational disease that is contracted in the course of employment will fall within the meaning of an “accident” for the purposes of this Act. In the case of such a disease being contracted, the employer will be liable to pay compensation to the affected worker.

The occupational diseases for which compensation is payable are specified in a list attached to the Act—specifically, Part A of Schedule III.

Some examples of occupational diseases are as follows:

  • Skin diseases caused by physical, chemical or biological agents
  • Bronchopulmonary disease caused by flax, hemp and sisal dust (Byssinosis)
  • Occupational asthma caused by recognized sensitizing agents inherent to the work process

10.4.2 Compensation

The compensation to be paid by the employer for injuries caused depends on the extent of the disablement suffered by the worker; more severe disablements naturally receive higher compensation. The guiding principle in the payment of compensation is: the higher the age of the injured worker, the lower the compensation. Compensation, and its payment, thereof, has been categorized as under:

  1. Death
  2. Disablement
    1. Permanent total disablement
    2. Permanent partial disablement
    3. Temporary disablement:
      1. Temporary total disablement
      2. Temporary partial disablement

THE BASIS OF CALCULATION.   Wages are the basis for the amount of compensation paid. Two workers earning different salaries, therefore, will get different amounts of compensation even though the injury they suffered might be identical. Compensation under this Act is calculated on the basis of the monthly wage received by the worker. According to this Act, it is the amount of wages that would be payable for a month's service, i.e., irrespective of whether the worker is paid on a daily, weekly or piece-rate basis.

Wages: The term “wage” is defined as the privilege or benefit that is measurable in terms of either money, other than any travel allowance, or provident fund or any other special benefit claimable by the worker, during the course of his employment.

DEPENDANT.   A “dependant” is defined under the Act in Section 2(d). This definition is of vital value as it determines who will be eligible to receive the compensation, in case the worker dies in the course of his employment.

QUANTUM OF COMPENSATION.   The Act prescribes the manner in which “compensation” is to be computed and paid in the event of death or disablement resulting from accidents arising out of and in the course of employment.

Death: In case of death of an employee, the compensation due to the dependants is an amount equal to 50 per cent of the monthly salary of the deceased worker multiplied by the relevant factor or an amount of INR 80,000, whichever is more. The minimum compensation in the case of death in no circumstances can be less than INR 80,000.

The relevant factor is mentioned in the Schedule IV of the Act. The factor depends on the age of the deceased person, i.e., the number of years the person could have worked for, if he did not die on the job. Box 10.3 illustrates how the compensation is calculated in case of the death of an employee.

PERMANENT TOTAL DISABLEMENT.   Where there is total permanent disablement resulting from the injury suffered, the worker is entitled to be paid 60 per cent of his monthly salary, multiplied by the relevant factor, or an amount of INR 90,000, whichever is more. The minimum compensation in the case of total permanent disablement cannot be less than INR 90,000. Box 10.4 illustrates the computation of the compensation payable to an employee in case of permanent total disability.

Permanent Partial Disablement: In the case of partial disablement of the worker, the amount he is entitled to is the percentage of that for total permanent disablement, the percentage being given in the schedule of the Act. Schedule I, Part II, to the Act contains a list of injuries said to result in permanent partial disablement and the corresponding loss in earning capacity. Table 10.3 highlights the loss of earning capacity for various types of injuries.

BOX 10.3   COMPENSATION IN CASE OF DEATH

Thirty-five-year-old Budhan Majhi, a fitter in a State-owned steel plant, met with an accident and died while at work (i.e., in the course of employment). At the time of his death, he drew a monthly wage of INR8,000. As per Schedule IV of the Act, the relevant factor applicable to his case would be 197.06. Thus, the amount of compensation payable to his dependants will be arrived at in the following way:

  1. 50 per cent of the current salary = INR 4,000
  2. Total compensation payable = 50 per cent of current salary × relevant factor
                                            = 2000* × 197.06
                                            = INR 3,04,120

*Where the monthly wage of a worker is more than INR 4,000, it is taken to be only INR 4,000 for calculating compensation in the case of either death or permanent disablement. In this case, therefore, even though the basic pay was INR 8,000 per month, for the purpose of computing compensation, it has been reckoned as INR 4,000 (maximum permissible under the Act) and 50 per cent of INR 4,000 is INR 2,000.

BOX 10.4   COMPENSATION IN CASE OF PERMANENT TOTAL DISABILITY

Laldhari Mahato, a rigger of 35 years of age, meets with an accident and suffers permanent total disablement while at work (i.e., in the course of employment). At the time, he drew a monthly wage of INR 3,500. As per Schedule IV of the Act, the relevant factor applicable to his case would be 197.06. The amount of compensation payable will be arrived at as follows:

  1. 60 per cent of the current salary = INR 2,100
  2. Total compensation payable = 2,100 × 197.06
                                            = 4,13,826

The compensation is calculated on the lines given in Box 10.2 for permanent total disablement, substituting the percentage of disability suffered and the appropriate “relevant factor” obtained from Schedule IV, as per the age of the concerned worker. For example, had the worker needed “amputation through the shoulder joint”, loss in his earning capacity would have been to the extent of 90 per cent. The compensation in this case would have to be computed as under:

Compensation for partial permanent disability = 90 per cent of (compensation for total permanent disability) = 90 per cent of (60 per cent × salary × relevant factor) = 90 per cent of INR 413,826.

Temporary Disablement: In case of temporary disablement, payments equal to 25 per cent of the workers' wages shall be made at fortnightly intervals. In case the disablement lasts for more than 28 days, the employer should make the payment on the 16th day from the day of the disablement.

If the period of disablement lasts for less than 28 days, the payment shall be made after the expiry of 3 days. This wait for 3 days is to ascertain how long the temporary disablement will last—less than/equal to 28 days or more.

In case the employer makes any payment to the worker before the payment of this half-monthly or lump sum amount, it shall be deducted from this. This provision envisages a situation where an application is made when the worker is still undergoing treatment and recovering.

In the case of temporary disablement, where half-monthly wages is to be paid, there is provision for review of such amount, by the commissioner. Either party, supported by an attested certificate of a medical examiner, can apply for the review to the commissioner.

The review might lead to the increase, decrease or the end of the half-monthly wages, depending on the condition of the worker. In case the temporary disablement leads to a permanent disablement, then the review has the power to call for the lump sum compensation to be paid to the worker. The lump sum the worker is entitled to excludes any amount that s/he has already received in half-monthly payments.

 

Table 10.3 The loss of earning capacity in case of permanent partial disablement.

Description of Injury Per cent Loss of Earning Capacity
Amputation through the shoulder joint
90
Loss of all toes of one foot through a metatarsophalangeal joint
20
Loss of one eye, without complications, the other being normal
40

 

NOTICE OF ACCIDENT TO THE EMPLOYER.   In the case of an accident or an accident leading to death, a notice must be sent to the employer or any other person who is employed to supervise work in the same establishment as soon as is practicable after the occurrence of the accident.

The notice from the aggrieved party can be served to the employers either by sending the notice by registered post to the residence or the office of the employer, or by entering such notice into the notice book, maintained at the premises of the office.

THE COMMISSIONER'S POWER IN CASE OF AN ACCIDENT RESULTING IN DEATH.   Anyone can report to the labour commissioner in case of a worker being killed in an accident. If the employer feels that he is responsible to do so, he must deposit the compensation with the commissioner within 30 days after the notice is served. If he does not feel so, he must inform the commissioner of the grounds under which he claims such exemption. On claiming such exemption, the commissioner may inform the dependants of the deceased worker, leaving it open to them, whether they would want to claim compensation or not.

In case the commissioner is aware of a fatal accident, he has the power to send a notice to the employer (i.e., without receiving any application), requiring him to submit a statement within a month's time.

10.5 The Payment of Gratuity Act, 1972

It is a beneficient piece of social-security legislation that aims at providing a scheme for providing gratuity to employees engaged in factories, mines, oil fields, plantations, ports, railways, shops and other establishments. The gratuity was to be paid in the event of superannuation, retirement, resignation, death or total disablement due to accident or disease.

10.5.1 Scope, Coverage and Definitions

The main purpose of the Payment of Gratuity Act is to provide a sum of payment to an employee as a token of gratitude for having served the organization. This payment is intended to help the employee provide for his/her needs after severance of his/her relationship with the employer.

An employee is eligible for receiving gratuity payment only after s/he has completed five years of continuous service. S/he is said to be in continuous service, when s/he has provided uninterrupted service during that period, till his/her:

  • Superannuation, or
  • Retirement, or
    resignation, or
  • Death or disablement due to accident or disease.

This condition of five years is not necessary if the termination of the employment of an employee is due to death or disablement. However, interruption on account of sickness, accident, leave, lay-off, strike, lockout, cessation of work not due to any fault of the employee will not be considered as a break in service (Section 4).

Employee: Any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, and whether or not such person is employed in a managerial or administrative capacity; but does not include any such person who holds a post under the central government or a state government, and is governed by any other Act or by any rules providing for payment of gratuity.

Retirement: Termination of the service of an employee otherwise than on superannuation

Superannuation: In relation to an employee, it means the attainment by the employee of such age as is fixed in the contract or conditions of service on the attainment of which the employee shall vacate the employment

In case of death or disablement, there is no minimum eligibility period. The amount of gratuity payable shall be at the rate of 15 days' wages based on the rate of wages last drawn, for every completed year of service. The maximum amount of gratuity payable is INR 3,50,000.

Wages: Under this Act, it means all emoluments that are earned by an employee (in cash) while on duty or on leave in accordance with the terms and conditions of his employment. It includes dearness allowance but does not include any bonus, commission or house rent.

10.5.2 The Calculation of Gratuity

For every completed year of service, or part thereof, in excess of six months, the employer shall pay gratuity to an employee at the rate of 15 days' wages based on the rate of wages last drawn by the employee concerned. Further, a month will be taken to comprise 26 days, i.e., 30 days in a month adjusted for 4 weekly offs.

In the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account.

The amount of gratuity payable to an employee shall not exceed INR 3,50,000.

For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.

Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer.

An example of gratuity calculation under the Act is given in Box 10.5.

10.5.3 Gratuity Not Payable

The gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.

The gratuity payable to an employee may be wholly or partially forfeited if:

  1. The services of the employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
  2. The services of the employee have been terminated for any act, which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.
BOX 10.5   THE CALCULATION OF GRATUITY

Dattatreya Bakshi joined the National Bank as a teller on 22 August 1975. On attaining the age of superannuation on 31 December 2008, he was released from the services of the bank. On the date of his superannuation, his basic pay, as an accountant, was INR 11,500 and his dearness allowance was INR 3,700. His gratuity was calculated as follows:

 

Monthly wage = INR 11,500 + INR 3,700 = INR 15,200

Completed years of service = 33

Gratuity = 15 days of wage for every completed year of service

Gratuity payable = INR 15,200 × 15/26 × 33 = INR 2,89,385

Note:

  1. The factor 15/26 means 15 days' wage in a month comprising 26 working days (i.e. 30 days less 4 weekly off days).
  2. Maximum gratuity payable as per the Act is INR 3,50,000. However, if the employer so desires, the maximum limit can be raised by him.

10.5.4 Obligations of the Employer

  1. The employer is usually required to submit a notice of opening of an establishment to the controlling authority of the area in Form A containing names and addresses of the establishment, employer, number of persons employed, nature of business, etc.
  2. The employer shall display conspicuously a notice at or near the main entrance of the establishment in bold letters in English and in a language understood by the majority of employees.
  3. It is the duty of the employer to determine the amount of gratuity as soon as it becomes payable. Failure to do so shall render him liable to pay the interest at the prevailing rate from the time taken.
  4. The employer should obtain insurance in the prescribed manner for his liability for the payment of gratuity under the Act or establish approved gratuity fund in the prescribed manner.

10.5.5 The Process for Receiving Payment

  1. A person who is eligible for payment of gratuity under this Act or any person authorized, in writing, to act on his behalf shall send a written application to the employer, for the payment of gratuity.
  2. As soon as gratuity becomes payable, the employer shall, whether an application has been made or not, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority specifying the amount of gratuity so determined.
  3. The employer shall arrange to pay the amount of gratuity within 30 days from the date it becomes payable to the person to whom the gratuity is payable. If the amount of gratuity payable under Sub-section (3) is not paid by the employer within the period specified in Sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at a rate not exceeding the rate notified by the central government from time to time for repayment of long-term deposits. No such interest shall be payable if the delay in the payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground.

10.6 Employees' Provident Funds and Miscellaneous Provisions Act, 1952

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 was enacted to provide a kind of social security to the industrial workers. It purports to be a social measure, inducing employees to save a portion from their present earning for future.

10.6.1 Objectives

The Employees' Provident Funds and Miscellaneous Provisions Act mainly provides retirement or old-age benefits, such as provident fund, superannuation, pension, invalidation pension, family pension and deposit linked insurance.

Provision for terminal benefit of restricted nature was made in the Industrial Disputes Act, 1947, in the form of payment of retrenchment compensation. But this benefit is not available to a worker on retirement, on reaching the age of superannuation or voluntary retirement.

The Employees' Provident Funds and Miscellaneous Provisions Act is intended to provide wider terminal benefits to the industrial workers. For example, the Act provides for payment of terminal benefit on reaching the age of superannuation, voluntary retirement and retirement due to incapacity to work. In industrially advanced nations, provisions have been made for old age and survivor's pension. Due to prevailing conditions in India at the time of enactment, institution of a pension scheme along the above lines was thought to be not feasible. The Workmen's Compensation and ESI Acts did not cover normal superannuation. Any kind of gratuity scheme that depended solely on the employer would generate too meagre an amount for any long-term relief. Under the circumstances, the EPF& MP Act (1952) was thought to be most appropriate as it would institute compulsory and contributory fund in which both the employer and the employee would contribute. The fund was thought to also promote a habit of savings amongst employees.

10.6.2 Scope and Coverage

The Act extends to the whole of India, except the state of Jammu and Kashmir.

It applies to every establishment of the following nature:

  • A factory engaged in any industry specified in Schedule I (of this Act) and in which 20 or more persons are employed
  • Any other establishment employing 20 or more persons or class of such establishments which the central government may, by notification in the official gazette, specify in this behalf

Employees employed through a contractor in such establishments are also covered.

The central government may, through notification in the gazette, bring any establishment, or a class of establishments, that employ 20 or more persons under the Act.

Once the Act applies to any establishment, it continues to be applicable even if the number of employees falls below 20 subsequently. There is no provision in the Act that deals with the cessation of its application.

Section 16 of the Act exempts certain establishments from the application of this Act.

These are:

  • An establishment registered under the Co-Operative Societies Act, 1912 employing less than 50 workers and without the aid of power
  • Any establishment belonging to or under the control of the central government or a state government or establishments set up under a state or central Act and whose employees are entitled to the benefits of contributory provident fund or old-age pension in accordance with a rule framed by the respective government or the Act creating the establishment
  • Any newly set up establishment, from the date of set up to three years therefrom.

Section 17 of the Act empowers the appropriate government to exempt certain establishments from the provisions of this Act provided, in its opinion, the provisions of the rules of a similar scheme within the organization (rates of contribution, etc.) are not less favourable than those provided for in the Act.

10.6.3 Definitions

A few important definitions in the Act will be useful to our understanding of the main provisions:

Establishment: A factory engaged in any industry specified in Schedule 1 (of the Act) and in which 20 or more persons are employed. Any other establishment employing 20 or more persons that the central government may, by notification, specify in this behalf. Any establishment employing even less than 20 persons can be covered voluntarily under Section 1(4) of the Act.

Basic Wages: All emoluments that are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him but does not include :

  1. The cash value of any food concession
  2. Any dearness allowance (that is to say all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his/her employment or of work done in such employment
  3. Any presents made by the employer

Contribution: A contribution payable in respect of a member under a scheme or the contribution payable in respect of an employee to whom the insurance scheme applies

Employee: Any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer and includes any person

  1. employed by or through a contractor in or in connection with the work of the establishment;
  2. engaged as an apprentice (but not as an apprentice as defined under the Apprentices Act, 1961 or under the standing orders of the establishment)

Superannuation: In relation to an employee who is a member of the Pension Scheme, it means the attainment by the said employee of the age of 58 years.

10.6.4 Provisions

Section 5 of the Act empowers the central government to create an Employee Provident Fund Scheme for the establishment of the fund. The Act provides for three schemes, namely:

  • EPF (Employee Provident Fund Scheme, 1952)
  • EPS & F (Employee Pension Scheme and Fund, 1995)
  • EDLI (Employees Deposit Linked Insurance Scheme and Fund, 1976)

Sections 6, 6A and 6C make provisions for the rates of contributions to the Provident Fund, the Pension Fund and the Employee Deposit Linked Insurance (EDLI). Various sub-sections of Section 5 provide for the administrative wherewithal for the administration and institutional framework for the schemes.

THE PAYMENT OF CONTRIBUTION.   The Act is applicable to employees of establishments covered by the Act whose wage is INR 6,500 per month or below. However, employees with wage more than this ceiling may also join the scheme if the employees and the employer agree and with the approval of the government (PF Commissioner or an officer so authorized in this regard).

  • The employer shall pay the contribution payable to the EPF, EDLI and Employees' Pension Fund in respect of the member of the Employees' Pension Fund employed by him directly by or through a contractor.
  • It shall be the responsibility of the principal employer to pay the contributions payable to the EPF, EDLI and Employees' Pension Fund by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor.
  • Over the years, there have been many amendments to the Act and currently, contributions under various schemes stand as under the following heads:
  • Provident Fund:

    For most of the establishments, the rate of contribution has been raised to 12 per cent of wages, i.e.,

    Employee contribution = 12 per cent

    Let us suppose the wage of an employee is INR 6,200. His contribution to PF, therefore, would be 12 per cent of INR 6,200, i.e., INR 744. The employer's contribution, too, would be INR 744. However, if an employee with wage of INR 8,000 has voluntarily joined the scheme, the contribution from both will be INR 960 each.

    An employee can voluntarily contribute more than 12 per cent to the fund, but the employer's contribution shall remain limited to 12 per cent of wage.
  • Pension Fund:

    Employee contribution = Nil

    Employer's contribution = 8.33 per cent out of the 12 per cent contribution of employer made to the provident fund (calculated with a maximum wage ceiling of INR 6,500) shall be transferred to this fund. The balance 3.67 per cent remains with the provident fund.

    For example, in the above example, the employer's total contribution to PF was INR 744. Therefore, 8.33 per cent of INR 6,200, i.e., INR 517 gets diverted to the pension fund, whereas the balance 3.67 per cent (12 – 8.33), i.e., INR 227 remains with the provident fund.

    In addition, the government contributes up to 1.16 per cent of wage (up to a maximum wage limit of INR 6,500) to the pension fund.
  • Employee Deposit Linked Insurance Fund:

    There is no contribution from the employee in this fund. The employer must contribute 0.5 per cent on the wage (subject to a maximum wage ceiling of INR 6,500) to the fund and another 0.01 per cent as administrative expenses for running the scheme.

BENEFITS UNDER THE SCHEMES.   These are schemes under social security and, hence, the benefits under the scheme focus on providing sustenance during old age or an eventuality when the earning capacity diminishes or ceases.

Provident Fund Scheme: An account of each contributing member is maintained by the PF Organization. Interest is calculated on the basis of the rate declared every year by the central government in consultation with the Board of Trustees. The fund with accruing interest becomes payable at the time of superannuation or death.

Pension Fund Scheme: Provides for members to avail of pension on superannuation or retirement and on disablement.

EDLI: EDLI provides life-insurance benefits to employees who are members of the Provident Fund Scheme.

PENAL PROVISIONS.   For violating certain provisions of this Act, an employer is liable to be arrested without warrants.

Defaults by the employer in paying contributions or inspection/administrative charges attract imprisonment up to three years and fines up to INR. 10,000.

For any retrospective application, all dues have to be paid by the employer with damages up to 100 per cent of arrears.

SUMMARY

Employees' State Insurance Act:

  • Employees' State Insurance Corporation (ESIC) was constituted under the Employees' State Insurance Act, 1948, and Employees' State Insurance (Central) Rules, 1950.
  • The Act is applicable to all factories including those under the government other than seasonal factories.
  • The Act was intended to provide certain benefits to employees in case of sickness, maternity and “employment injury” and to make provisions for certain other matters in relevant thereto.
  • The ESI schemes through its hospitals and clinics have provided curative healthcare to workers all over India and have recently entered the area of occupational health.
  • The ESI scheme is administered by the ESIC, an autonomous body that consists of Minister for Labour, Ministry of Health, five representatives of the central government, one representative each from the states and one representative from all the union territories, five representatives of employees and five of employers, two of medical profession and three Members of Parliament, and the Director General of Corporation.
  • The ESI Corporation's main function is to frame policies.
  • The benefits under the ESI Act include:
    • Sickness Benefit: At the rate of 7/12th of the daily average wage, benefit is given to the employee for a maximum period of 91 days in one year. In diseases such as tuberculosis, leprosy, fracture and malignancy, the sickness benefits are extended to one year at half the rate of sickness benefits.
    • Maternity Benefit: The benefit is given at the rate of full wages for a period of 84 days in case of pregnancy and 6 weeks in case of miscarriage or MTP.
    • Disablement Benefit: In cash, 72 per cent of the wages is given to the temporary disabled person during the period of disablement. In case of permanent disablement, the payment is made at the same rate for the whole of his life in the form of pension.
    • Dependent Benefit: Widow or legitimate or adopted child (up to the age of 18 years or till the daughter gets married) of the diseased person gets the cash payment may be in the form of pension.
    • Funeral Benefit: An amount of INR 2,500 is paid to the eldest surviving member for the funeral purpose.
    • Medical Benefit: All members of the worker gets the medical cover including the outdoor treatment, domiciliary treatment facilities by the panel system, specialist services, ambulance services, and indoor services.

The Maternity Benefit Act:

  • This Act is a central legislation, which provides maternity benefits and is applicable to factories covered under the Factories Act, 1948.
  • It also applies to shops and establishments in which 10 or more workers are employed or were employed on any day of the preceding 12 months.
  • The provisions of this Act do not apply to any factory or establishment to which the provisions of Employee State Insurance Act, 1948 apply.
  • The main provisions of the Act are as follows:
    • No employer shall knowingly employ a woman in any establishment during the six weeks immediately following the day of her delivery or her miscarriage. Also, no woman shall work in any establishment during the six weeks immediately following the day of her delivery or her miscarriage.
    • Every woman shall be entitled to, and her employer shall be liable for, the payment of maternity benefit at the rate of the average daily wage for the period of her actual absence immediately preceding and including the day of her delivery and for the six weeks immediately following that day. The “average daily wage” means the average of the woman's wages payable to her for the days on which she has worked during the period of three calendar months immediately preceding the date from which she absents herself on account of maternity, or one rupee a day, whichever is higher.
    • No woman shall be entitled to maternity benefit unless she has actually worked in an establishment of the employer from whom she claims maternity benefit, for a period of not less than 160 days in the 12 months immediately preceding the date of her expected delivery.
    • The maximum period for which any woman shall be entitled to maternity benefit shall be 12 weeks, that is to say, not exceeding 6 weeks up to and including the day of her delivery and 6 weeks immediately following that day.
    • No deduction from the normal and usual daily wages of a woman entitled to maternity benefit shall be made by reason only of (i) the nature of work assigned to her by virtue of the provisions of the Act; or (ii) breaks for nursing the child allowed to her under the provisions of the Act.
    • If a woman works in any establishment, after she has been permitted by her employer to make herself absent for any period, during such authorized absence, she shall forfeit her claim to the maternity benefit for such period.

The Workmen's Compensation Act:

  • The Workmen's Compensation Act is an act for payment of compensation for injury by accident or occupational disease arising out of and in course of employment.
  • It extends to the whole of India.
  • Compensation is something that constitutes an equivalent or recompense; specifically payment to an unemployed or injured person or his dependents.
  • Section 3 of the Act makes the employer liable to pay compensation for injury caused to a workman by accident arising out of and in the course of his employment.
  • The object of the Act is to ensure financial assistance and to relieve the workman and his family members of the hardship they may suffer on account of a personal injury that may be caused to a workman in an accident arising out of and in the course of his employment.
  • Any payment or allowance that the workman may have received from the employer towards his medical treatment shall not be deemed to be payment or allowance received by him by way of compensation.
  • In case of death, the minimum amount of compensation fixed is INR 80,000 and INR 90,000 in case of permanent total disablement.
  • The existing wage ceiling for computation of maximum amount of compensation is INR 4,000.
  • Under the Act, the state governments are empowered to appoint commissioners for workmen's compensation for (i) the settlement of disputed claims, (ii) the disposal of cases of injuries involving death, and (iii) the revision of periodical payments.

The Payment of Gratuity Act:

  • The Act provides for the payment of gratuity to workers employed in every factory, shop and establishment or educational institution employing 10 or more persons on any day of the proceeding 12 months.
  • All the employees irrespective of status or salary are entitled to the payment of gratuity on the completion of five years of service.
  • In case of death or disablement, there is no minimum eligibility period.
  • Gratuity is payable at the rate of 15 days' wages for every year of completed service or part thereof in excess of 6 months.
  • The maximum amount of gratuity payable is INR 3.5 lakhs.
  • Any person to whom the gratuity amount is payable shall make a written application to the employer. The employer is required to determine the amount of gratuity payable and give notice in writing to the person to whom the same is payable and to the controlling authority, thereby specifying the amount of gratuity payable.
  • The employer is under obligation to pay the gratuity amount within 30 days from the date it becomes payable. Simple interest at a specified rate is payable on the expiry of the said period. If there is a dispute as regards the amount of gratuity payable or with regards the person to whom it is payable, the employer shall deposit the said amount payable with the controlling authority.
  • If the gratuity is not paid within the prescribed time, the controlling authority shall, after due inquiry, determine the amount payable and direct the employer to deposit the said amount.
  • If an employer agrees to provide more benefits than the benefits flowing from the Act, he can always have a private scheme.
  • Gratuity can be forfeited for any employee whose services have been terminated for any act, wilful omission or negligence causing damage or destruction to the property belonging to the employer.
  • It can also be forfeited for any act that constitutes an offence involving moral turpitude.
  • Where services have not been terminated on any of the above grounds, the employer cannot withhold gratuity due to the employee.

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952:

  • A piece of social welfare legislation
  • A beneficent measure, enacted for the purpose of institution of provident fund for employees in factories and other establishments.
  • It is an effective old-age and survivorship benefit.
  • The provisions are intended for a better future of the industrial worker on his retirement and also for his dependants in the event of his death in the course of employment.

KEY TERMS

  • confinement
  • continuous service
  • contribution
  • delivery
  • disablement
  • employment injury
  • gratuity
  • insurable employment
  • insured person
  • maternity benefit
  • occupational disease
  • permanent partial disablement
  • permanent total disablement
  • retirement
  • sickness
  • superannuation
  • temporary disablement
  • wages
  • workmen's compensation

REVIEW QUESTIONS

  1. Which establishments are covered under the ESI Act? Indicate whether the following would be covered: petrol pump, cinema theatre, automobile workshop, casual workers employed for housekeeping in an establishment.
  2. Who are required to be insured under the ESI Act? Does the Act apply to an apprentice?
  3. What components of wages are covered for ESI contribution? Does conveyance allowance form part of wages within the ambit of Section 2(22) of the Act?
  4. Explain the benefits provided under the ESI Act.
  5. Is an insured person who ceases to be in an insurable employment on account of permanent disablement eligible to receive any benefits under the Act?
  6. Does a conviction of an insured person under the ESI Act disentitle him to any benefits admissible under the Act?
  7. Is a retired insured person eligible to receive any benefits under the ESI Act?
  8. Can a person, who was not an insured person at the time of his retirement but who remained an insured person at some stage of his employment, claim medical benefits?
  9. Is it permissible for any person to draw a benefit of the same kind under the ESI Act and also under any other Act?
  10. What are the objectives of the Maternity Benefit Act, 1961?
  11. What establishments are covered under the Maternity Benefit Act?
  12. Is there any justification for denying the benefits of the Maternity Benefit Act to women workers on the ground that they are not regular employees but they are on the muster roll?
  13. What are the restrictions placed by the Maternity Benefit Act on the employment of women?
  14. To whom is maternity benefit payable in case of death of a woman?
  15. What are the restrictions placed by the Maternity Benefit Act on the termination of employment of a woman?
  16. What is the time for payment of maternity benefit?
  17. What is the period for which a woman is entitled to maternity benefit and what is the rate of the benefit?
  18. Is a woman, who is entitled to maternity benefit, also entitled to any medical bonus?
  19. Can a woman claim the maternity benefit from her employer if she works elsewhere during the period for which she has been permitted to make herself absent under the provisions of the Act?
  20. Is it permissible under the Act to exempt any establishment for the provisions of the Maternity Benefit Act?
  21. Is a woman entitled to any leave with wages for illness in addition to the period of absence allowed to her under the provisions of the Maternity Benefit Act?
  22. Is a woman entitled to any leave with wages for miscarriage?
  23. Define the following terms used in the Workmen's Compensation Act, 1923:
    1. Partial disablement
    2. Total disablement
    3. Workman
    4. Dependent
  24. Define the term “out of and in the course of employment” with examples. If a person has an accident while travelling to work, would it be covered under this definition?
  25. How is the amount of compensation payable to an injured workman calculated under the Workmen's Compensation Act, 1923?
  26. State the rules regarding the notice of accident for making a claim under the Act.
  27. Under what circumstances is an employer not liable to pay compensation under the Workmen's Compensation Act?
  28. When is lump sum compensation payable under the Workmen's Compensation Act?
  29. Define the following terms as used in the Payment of Gratuity Act, 1972:
    1. Continuous service
    2. Completed year of service
    3. Employee
    4. Employer
  30. When does gratuity become payable and what is the basis of the calculation of gratuity?
  31. What are the rules regarding nomination by an employee under the Payment of Gratuity Act?
  32. What are the rights and obligations of the employers under the Payment of Gratuity Act?
  33. Which establishments are covered by the PF&MP Act?
  34. Would the PF&MP Act continue to apply to an establishment that has closed its manufacturing activities and does not employ a single employee?
  35. Is the PF&MP Act applicable to a factory that is closed down but is employing a few employees to look after the assets of the establishment?
  36. Is the PF &MP Act applicable to charitable institutions?
  37. Compute the contributions to be made by the employer and the employee (whose wage is INR 7,500) towards provident fund, pension fund and EDLI? Is this employee eligible to be covered under the Act?

QUESTIONS FOR CRITICAL THINKING

  1. It is not the intent of the ESI Act but its implementation in terms of medical facilities and treatment available to its members that would fulfil the constitutional provisions of socio-economic justice. Discuss.
  2. Do you think the restriction placed on discharge or dismissal of a woman during pregnancy on account of absence is appropriate? Should it prevail irrespective of whether the absence was authorized or unauthorized?
  3. In IT and ITES sector, attrition is the highest averaging around 12–13 per cent. Why do you think the social-security cover under the gratuity scheme does not help employers retain talent even for the five-year period that makes an employee eligible for the benefit?
  4. Most of the social-security legislations have ceased to be relevant in the new economy. These legislations mostly covered employees in the organized sector, who don't need them. Critically examine the above statement with reference to the coverage and provisions of the major pieces of social-security legislations in India.
  5. There is a need for rationalization of various social-security legislations so as to avoid contradictions and duplication. Examine the above with regard to the ESI Act, the Workmen's Compensation Act and the Maternity Benefit Act. Suggest an outline for a coherent legislation covering the provisions of these three Acts.

DEBATE

  1. The Workmen's Compensation Act is biased against the employer as it covers accidents beyond the control of the management.
  2. In terms of employee relations management, the provision of gratuity is a good retention strategy.

CASE ANALYSIS

Mr Sawant's Liability

Mr Sawant has employed a driver whose wages are reimbursed by the company. Mr Sawant has an Act-only policy covering his private car. While driving the vehicle after dropping Mr Sawant at his office, the vehicle collides with a truck and the driver dies on the spot. Being an old car, Mr Sawant had nothing much to lose and that is why he had not taken a comprehensive policy. However, the family of the driver lost their income source.

Is Mr Sawant liable to pay compensation to the dependants of the driver? Specifically state the relevant provisions of the Act under which he is liable.

If the post-mortem reported an unacceptable level of alcohol in the driver, will Mr Sawant be liable to pay compensation? Why or why not?

The Provident Fund Scheme at Metallica Structurals

Metallica Structurals Private Limited is a company in the construction business. The annual turnover is INR 25 billion and it has 500 employees on its rolls, most of them being engineers and technicians. Due to a competitive market, the firm does its best to retain top talent and, therefore, most of the employees draw fixed salary of more than INR 10,000 per month. The Managing Director, Mr Shashikant, one day, while going through the morning correspondence, saw a letter addressed to him by the Metallica Diploma Engineers' Association. Amongst other things, the letter mentioned a “demand” from its members to become a member of the Provident Fund Scheme. Mr Shashikant remembered having told by a consultant that Metallica was not obliged to make any contributions under provident fund.

Going through the provisions of the relevant Act, can you suggest a line of argument that Mr Shashikant may take while discussing the issue with the Diploma Engineers?