Class notes- Social Security in India

Lecture- 3
The Employee’s State Insurance Act,
1948
The Employees’ State Insurance Act, 1948 is a social security legislation that provides for
medical care and cash benefit in the contingencies of sickness, maternity, disablement and death
due to employment injury to workers.

Constitutionality of the Act

The ESI Act serves as a constitutional instrument because of its practice of providing insurance and
medical insurance. While the ESI Act is mostly executed through the ESI Corporation, the Central
Government takes control of most of the proceedings.

This control by the Central Government largely contributes to the constitutionality of the
Act, because Insurance, be it public or private, is listed in the Seventh Schedule of the Indian
Constitution as a Union List subject i.e. it can only be legislated by the Central Government.

Applicability
The ESI Act primarily applies to premises where 10 or more persons are employed and therefore
applies to both organised and unorganised sectors.

• Under Section 2(12) the Act is applicable to non-seasonal factories employing 10 or more
persons.
• Under Section 1(5) of the Act, the Scheme has been extended to shops, hotels, restaurants,
cinemas including preview theatres, road-motor transport undertakings and newspaper
establishments employing 10* or more persons.
• Further under section 1(5) of the Act, the Scheme has been extended to Private Medical and
Educational institutions employing 10* or more persons in certain States/UTs.

*Note: However the threshold for Coverage of establishments is still 20 Employees in Maharashtra
and Chandigarh

Seasonal factory
Seasonal factory means a factory which is exclusively engaged in one or more of the following
manufacturing processes, namely, cotton ginning, cotton or jute pressing, decortication of ground-
nuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any
manufacturing process which is incidental to or connected with any of the aforesaid processes and
includes a factory which is engaged for a period not exceeding seven months in a year —

(a) in any process of blending, packing or repacking of tea or coffee ; or

(b) in such other manufacturing process as the Central Government may, by notification in the
Official Gazette, specify ;
Eligibility
Employees whose monthly wages are Rs 21,000 or below are covered under the ESI Act. The wage
limit for coverage under the Act had been increased from Rs 15,000 per month to Rs 21,000 in
December 2016.

Finance
ESI Scheme, like most of the Social Security Schemes the world over, is a self financing health
insurance scheme. Contributions are raised from covered employees and their employers as a fixed
percentage of wages. The State Governments, as per provisions of the Act, contribute 1/8th of the
expenditure of medical benefit within a per capita ceiling of Rs. 1500/- per Insured Person per
annum. Any additional expenditure incurred by the State Governments, over and above the ceiling
and not falling within the shareable pool, is borne by the State Governments concerned.

Contribution
E.S.I. Scheme being contributory in nature, all the employees in the factories or establishments to
which the Act applies shall be insured in a manner provided by the Act. The contribution payable to
the Corporation in respect of an employee shall comprise of employer's contribution and employee's
contribution at a specified rate. The rates are revised from time to time.

The rate of contribution has been reduced from 6.5 per cent to 4 per cent of the wages. The
employers’ contribution is being reduced from 4.75 per cent to 3.25 per cent and employees’
contribution being reduced from 1.75 per cent to 0.75 per cent effective from 01.07.2019.

ESIC Contribution (revised on 01/07/2019)

Particulars Present Rate Earlier Rate

Employer Share 3.25% 4.75%

Employee Share 0.75% 1.75%

Total 4.00% 6.50%

In 1978, the Insurance Medical Services (IMS) was established under the Ministry of Labour,
Employment, Training & Factories Department by separating ESI branch from Medical & Health
Department.
Principal employer to pay contribution in the first instance
The primary employer has to collectively pay the contribution, both his own and that of his
employees, regardless of whether they are directly employed under him or are working through an
immediate employer.

• If a directly employed employee fails to pay his contributions, then the employer can
recover that contribution only by deducting the wages of said employee.
• The employer bears all the transfer costs of the payment to the Corporation.

Collection of Contribution
• An employer is liable to pay his contribution in respect of every employee and deduct
employees contribution from wages bill and shall pay these contributions at the above
specified rates to the Corporation within 15 days of the last day of the Calendar month in
which the contributions fall due. The Corporation has authorized designated branches of the
State Bank of India and some other banks to receive the payments on its behalf.

Employers to furnish returns and maintain registers in certain cases

According to the provisions given as per the ESI Act, the principal and immediate employers are to
submit all the investment profits, as well as any and all details relating to their employees in any
factory under their jurisdiction. In case of failure to submit a return, that the corporation had
reasonable cause to believe, should have been submitted, the corporation can require the
employers to present all the details.

Social Security Officers and their functions

ESIC has the power to appoint persons as Social Security Officers. Their functions are mostly to serve
a role in inspecting the function of the corporation.

• If required, he can acquire any information from any employer as he sees fit.
• He can enter any corporation at any time and can get all the accounts, books and other
employment documents presented to him without any due notice. This can include
information like wages, expenses, etc.
• He can inspect and look into any matter regarding the employers and employees as and
when required under the jurisdiction of the court.
• He can make copies or take extracts from any register or account back as per his discretion.

Area Covered
Under Section 1(3), the ESI Scheme is now notified in 566 Districts in 34 States and Union Territories,
which include 381 fully notified districts and 185 partially notified districts where scheme is notified
in Districts Headquarters Area & in Centers. The scheme is yet to be implemented in Arunachal
Pradesh and Lakshadweep.
Benefits
Section 46 of the ESI Act grants benefits to employees as social security in case of injury, which can
be availed during the course of employment. There are 6 types of benefits that can be availed:

1. Medical benefit.
2. Sickness benefit.
3. Maternity benefit.
4. Dependants’ benefits.
5. Disablement benefits.
6. Other benefits.

1. Medical Benefit
Full medical care is provided to an Insured person and his family members from the day he
enters insurable employment. There is no ceiling on expenditure on the treatment of an Insured
Person or his family member. Medical care is also provided to retired and permanently disabled
insured persons and their spouses on payment of a token annual premium of Rs.120/- .

2. Sickness Benefit (SB)

Sickness Benefit in the form of cash compensation at the rate of 70 per cent of wages is payable
to insured workers during the periods of certified sickness for a maximum of 91 days in a year. In
order to qualify for sickness benefit the insured worker is required to contribute for 78 days in a
contribution period of 6 months.

Extended Sickness Benefit (ESB): SB extendable upto two years in the case of 34 malignant and
long-term diseases at an enhanced rate of 80 per cent of wages.

Enhanced Sickness Benefit : Enhanced Sickness Benefit equal to full wage is payable to insured
persons undergoing sterilization for 7 days/14 days for male and female workers respectively.

3. Maternity Benefit (MB)

Maternity Benefit for confinement/pregnancy is payable for Twenty Six (26) weeks, which is
extendable by further one month on medical advice at the rate of full wage subject to contribution
for 70 days in the preceding Two Contribution Periods.
 4. Disablement Benefit
Temporary disablement benefit (TDB) : From day one of entering insurable employment &
irrespective of having paid any contribution in case of employment injury. Temporary Disablement
Benefit at the rate of 90% of wage is payable so long as disability continues.

Permanent disablement benefit (PDB): The benefit is paid at the rate of 90% of wage in the form
of monthly payment depending upon the extent of loss of earning capacity as certified by a Medical
Board

5. Dependants Benefit (DB)

DB paid at the rate of 90% of wage in the form of monthly payment to the dependants of a
deceased Insured person in cases where death occurs due to employment injury or occupational
hazards.

Earlier in February 2019, the income limit for availing the medical benefit for the dependent
parents of an Insured Person covered under ESI Scheme has been enhanced from the existing
Rs.5000 per month from all sources to Rs.9000 per month.

6. Other Benefits
Funeral Expenses : An amount of Rs.15,000/- is payable to the dependents or to the person who
performs last rites from day one of entering insurable employment.

Confinement Expenses : An Insured Women or an I.P. in respect of his wife in case confinement
occurs at a place where necessary medical facilities under ESI Scheme are not available.

In addition, the scheme also provides some other need based benefits to insured workers.

• Vocational Rehabilitation: To permanently disabled Insured Person for undergoing VR

Training at VRS.
• Physical Rehabilitation: In case of physical disablement due to employment injury.
• Old Age Medical Care: For Insured Person retiring on attaining the age of superannuation or
under VRS/ERS and person having to leave service due to permanent disability insured
person & spouse on payment of Rs. 120/- per annum.

Rajiv Gandhi Shramik Kalyan Yojana

This scheme of Unemployment allowance was introduced w.e.f. 01-04-2005. An Insured Person who
become unemployed after being insured three or more years, due to closure of
factory/establishment, retrenchment or permanent invalidity are entitled to :-

• Unemployment Allowance equal to 50% of wage for a maximum period of upto Two Years.
• Medical care for self and family from ESI Hospitals/Dispensaries during the period IP receives
unemployment allowance.
• Vocational Training provided for upgrading skills - Expenditure on fee/travelling allowance
borne by ESIC.
• Incentive to employers in the Private Sector for providing regular employment to the
persons with disability :
• Minimum wage limit for Physically Disabled Persons for availing ESIC Benefits is Rs 25,000/-.
• Employerss' contribution is paid by the Central Government for 3 years.
Atal Beemit Vyakti Kalyan Yojana
Atal Beemit Vyakti Kalyan Yojana is a welfare measure being implemented by the Employee’s State
Insurance (ESI) Corporation.

• It offers cash compensation to insured persons when they are rendered unemployed.
• The Scheme was introduced in 2018.
• The scheme provides relief to the extent of 25% of the average per day earning during the
previous four contribution periods (total earning during the four contribution period/730) to
be paid up to maximum 90 days of unemployment once in lifetime of the Insured Person.
• The claim for relief under the Atal Beemit Kalyaan Yojana will be payable after the three
months of his/her clear unemployment.

Eligibility
• Employees covered under Section 2(9) of the Employee’s State Insurance (ESI) Act 1948.
• The Insured Person should have been in insurable employment for a minimum period of two
years.
• The Insured Person should have contributed not less than 78 days during each of the
preceding four contribution periods.
• The contribution in respect of him should have been paid or payable by the employer.
• The contingency of the unemployment should not have been as a result of any punishment
for misconduct or superannuation or voluntary retirement.

Finance Minister Nirmala Sitharaman in her press conference today, while announcing the second
tranche of relief measures, talked about the steps being taken towards the Employees’ State
Insurance (ESI) for the welfare of workers. These are, however, outside the economic package as
these are still under discussion in Parliament. Currently, ESI is only for those organizations which
employe more than 10 people with them. The FM said that the task are on to make available the
ESI scheme on voluntary basis for those firms employing even less than ten people.

Also, the government is considering to make ESI scheme mandatory for employees working
in hazardous industries which will come into effect after the government issues the notification.

Establishment of Employees’ State Insurance Corporation

The ESI Act exercises its function through the Employees’ State Insurance Corporation,
established via Section 3, a body created to maintain social security. It was established on 24
February, 1952. The corporation is supposed to grant relief to the employees in case of medical
emergencies.

Constitution of Corporation
The composition of the ESIC is defined in Section 4, and it is as follows:

• The Director-General.
• Chairman, appointed by the Central Government.
• Vice-Chairman appointed by the Central Government.
• Not more than 5 persons nominated by the Central Government.
 • 1 person to represent each state.
• 1 person representing the Union Territories.
• 10 persons representing employers.
• 10 persons representing employees.
• 2 persons representing the medical profession.
• 3 members of parliament (2: Lok Sabha and 1: Rajya Sabha).

Term of office of members of the Corporation

Via Section 5, the following members are appointed for up to a 4 year period:

• Director-General.
• Chairman.
• Vice-Chairman.
• The 5 people nominated by Central Government.
• The members representing each state.
• The members representing each Union Territory.

Terms of office of members of Standing Committee

The following members are appointed for a two year period:

• The Chairman.
• The 3 members representing the states.

Medical Benefit Council

The Medical Benefit Council is an advisory body on matters related to the administration of medical
benefits under the ESI scheme. It consists of:

• The Director-General of ESIC as Chairman.

• The Director-General of Health Services as co-Chairman.
• The Medical Commissioner of ESIC.
• One member for each state appointed by State Government.
• Three members representing employers.
• Three members representing employees.
• Three members including one woman representing the medical profession.

Tenure of the members of the Medical Benefit council

The following members of the Medical Benefit Council are appointed for a period of 4 years, these
are:

• The Director-General of ESIC as Chairman.

• The Director-General of Health Services as co-Chairman.
• The Medical Commissioner of ESIC.
• One member for each state appointed by State Government.

Principal Officers
The Principal Officers referred to under this Section are the Director-General and/or Financial
Commissioner, to act as the CEO for ESIC.

They serve as whole-time officers and are not permitted to undertake any work outside of office
jurisdiction without the sanction of the Central Government.
The time period for the appointment of any principal officer may not exceed 5 years.

The operation of their fees, disqualification, and cessation of seats operate in the same manner as
that of their subordinates.

Staff
ESIC has the jurisdiction to employ staff of officers as may be necessary for the optimum running of
the corporation, however, according to the prerequisites in Section 17, the sanction for creating any
staff position has to be acquired from the Central Government. Their salary shall be prescribed by
the Central government within a particular range, which cannot be exceeded.

The scale of pay will be determined on the basis of their educational qualifications, method of
recruitment, duties, and responsibilities, etc.

Employees’ State Insurance Fund

The Employees’ State Insurance Fund is the primary monetary source for the ESIC to perform its
functions. All contributions paid under this Act and all other money received on behalf of the
Corporation shall be paid into this fund to be held and administered by the Corporation.

These could be in the form of grants, donations or gifts by the government.

Expenses of the fund

The ESI Fund is responsible for maintaining the expenses of ESIC, which are as follows:

• Payment of benefits and provision of medical treatment and attendance to insured persons
and their families, if required.
• Payment of fees and allowances to members of the Corporation, the Standing Committee
and the Medical Benefit Council, the Regional Boards, Local Committees and Regional and
Local Medical Benefit Councils.
• Payment of salaries, leave and joining time allowances, travelling and compensatory
allowances, gratuities and compassionate allowances, pensions, etc.
• Establishment and maintenance of hospitals, dispensaries, and other institutions and the
provision of medical and other ancillary services for the benefit of insured persons and their
families, if required.
• Payment of contributions to any State Government, local authority or any private body or
individual, towards the cost of medical treatment and attendance provided to insured
persons and their families, if required.

Administrative expenses
Administrative expenses are termed so, those expenses which cover the costs of administration of
ESIC, prescribed by the Central Government.

Budget etc. to be placed before Parliament

The annual report, the audited accounts of the Corporation along with the report of the Comptroller
and Auditor-General of India, and the comments of the Corporation on such report under section 34
and the budget, as finally adopted by the Corporation, shall be placed before the Parliament.