Employees' State Insurance Scheme (ESI Scheme) is a social security scheme
implemented through Employees' State Insurance Act, 1948 and it is designed to
accomplish the task of protecting 'employees' and their dependents, covered
under it, against contingencies or incidences of sickness, maternity, death,
disablement or injury caused due to employment.
"The ESI Scheme applies to factories and other establishment's wherein 10 or
more persons are employed. However, in some States threshold limit for coverage
of establishments is still 20. Employees of factories and establishments,
drawing wages upto Rs.15,000/- a month, are entitled to social security cover
under the ESI Act. ESI corporation has also decided to enhance wage ceiling
limit for coverage of employees under the ESI Act from Rs.15,000/- to
The ESI Scheme is based on the principle of 'amalgamating of resources and
risks', wherein that section of the employees' population, which is exposed to
risks of the same nature, comes together to mitigate the physical and financial
suffering arising out of such risks.
The Code on Social Security, 2020 ("the Code") repealed 9 legislations which
includes Employees' State Insurance Act, 1948. Currently, the ESI Act does not
operate across India at national level and is being implemented district-wise
through notification. However, ESI scheme under the Code has been made
applicable to the whole country, subject to the specified minimum threshold of
10 employees in an establishment.
Further, a provision has been introduced in the 1st Schedule to enable the
Central Government to notify applicability of ESI Act on those categories of
establishment, which engage in hazardous or risky activities. In these
categories of establishment, ESI will be applicable even if only one worker is
There are provisions for voluntary inclusion under the ESI Scheme have also been
introduced. An employer of a plantation establishment may opt for ESI under the
Code by giving willingness to the ESI Corporation. Further, Section 1(7) enables
voluntary membership under ESI even if the number of employees in an
establishment is less than the minimum requirement of 10. In case an employer
and a majority of the employees agree to be covered by ESI, then on an
application made by the either employer or employees, the Director General of
ESIC may allow the applicability of ESI to such establishment.
These measures, of voluntary membership, reduced threshold of 10 employees and
applicability to establishments carrying out hazardous and life-threatening
activities, will help in broadening the applicability of ESI under the Code at
all India level. Presently, 3.5 crore families are covered under the ESI Scheme.
It is likely that the coverage will increase to 10 crore families under the new
Code. The ESI Scheme is incorporated under Chapter IV of the Code and it has
undergone some changes. This will discuss the general provisions and analyse
some of these major changes.
Wide Definition of 'Employee'
The objective of the code is to cover the maximum number of employees and
workers from various establishments. It provides a wide definition of
'employee', which includes employees in managerial, supervisory, and
administrative capacities as well as contract labour. However, the Code
distinguishes employees based on wage ceiling and/or their nature of employment
for determining their eligibility to various social security benefits.
Therefore, even though the Code seeks to provide social security to a large
number of employees, but all benefits may not be available to every employee.
Registration of Establishments under the Code
Section 2(29) of the Code defines the term 'establishments' in a wider
connotation which includes; factories, motor transport undertakings, and
newspaper establishments, where an industry, trade, business, manufacture, or
occupation is carried on. Except, in case the establishment is already under any
other Central labour law, registration is necessary to be obtain for all such
establishments covered by the Code.
Grandparent as Dependant
Now, the definition of 'dependant' under Section 24(c)(viii) of the Code
includes the grandparent of the employee in case they are dependent on the
earnings of the employee at the time of their death and if no parent of the
employee is alive. The ESI Act did not provide for this. This is a welcome
addition towards recognizing and providing for the welfare of senior citizens.
Social Security Contribution towards Inter-state Migrant Workers
Under Section 2(24) of the Code, the scope of 'inter-state migrant workers'
has been widened to include those workers who move from one State to other and
within the other for employment. A wage ceiling limit of Rupees 18,000/- per
month has been prescribed for such workers to qualify as inter-state migrant
workers. Further, inter-state migrant workers have also been included in the
definition of 'contract labour'. Thus, employers may need to provide social
security to inter-state migrant workers at par with their other employees.
Increase in Social Security Contributions
The definition of 'wages' under the Code as per section 2(88) elaborately
lists the various included and excluded components which consists of wages.
Further, it provides that if the aggregate of the excluded components exceeds
50% (or such other percentage as notified by the Central Government) of an
employee's total pay, the amount that exceeds the 50% (or such percentage as
prescribed) will be deemed to be 'wages'. Finally, such amount calculated would
need to be considered as 'wages' for purposes of calculating social security
Statutory Recognition to Gig Workers and Platform Workers
The Code is the first in kind legislation to formally recognize the gig workers
and extend social security coverage to them. It gives statutory recognition to
paid work arrangements outside the traditional employer-employee relationships
by introducing the concept of 'gig workers' or 'platform workers' under Section
2(35) and Section 2(60) respectively which includes individuals using
online platforms of medium to access organizations/individuals to solve problems
or to provide services in exchange for payment.
These platforms include digital
intermediaries connecting consumer and service provider. They have been
classified under various categories such as cab services, food and grocery
delivery services, logistic services, digital market for sale of goods and
services, travel, hospitality and etc.
Social Security Coverage for Gig Workers
The Code provides for the registration of gig workers, a specific social
security fund for them, and the formulation of social security schemes related
to life and disability cover, health and maternity benefits, old age protection,
education, housing, provident fund, etc through Section 2(78) tailored to
their needs. It also provides coverage of gig workers and their families under
the ESI scheme. By implementing these measures, the Code seeks to provide social
security coverage to a significant number of workers who form part of the gig
economy which is blooming.
Aggregators need to make Social Security Contributions for Gig Workers
According to Section 114(4) of the Code mandates an aggregator falling
within the specified categories to contribute towards the social security fund
for gig workers. "Such contributions will be at a rate of 1-2% of the
aggregator's annual turnover (excluding of any tax, cess paid or payable to the
Central Government), as notified by the Central Government, but not exceeding 5%
of the annual amount paid or payable by him to his gig workers.
The Code also
provides for the regulation of aggregators who engage gig workers. Therefore,
gig and platform workers engaged aggregators as "independent contractors" enjoys
the benefits of social security under the Code."
ESIC Authorized to Pay Benefit to Employees and Recover from Employer in Certain
Under Section 68 of the ESI Act, if a principal employer fails or neglects
to pay contributions to employees and thereby disentitles them to certain
benefits, or an appropriate scale of benefits, the ESI Corporation may pay the
aggrieved employees the benefits they are rightly entitled to and recover such
amount from the employer.
Under Section 42 of the Code expands the scope of this provision to include
the employer's failure or neglect to insure:
- An employee at the time of his appointment, which deprives him of entitled
- Employee on/after the date of accident resulting in personal injury,
which disentitles him to receive dependent benefit or disablement benefit.
In such cases, ESIC is empowered to provide the entitled benefits to the
concerned employees and recover from the employer the capitalised value of such
benefits which includes any contribution/interest/damages that the employer is
liable to pay for non-payment or delayed payment of requisite contributions.
Limitation Period for Initiating Proceedings under EPF and ESI
Under the EPF Act and ESI Act, no limitation period is prescribed for recovery
of past dues from employers towards employees. Further, no formal direction or
guidance has been provided by the EPF/ESI authorities with regard to the period
of assessment for non-compliance during previous years. This creates financial
hardship for employers against whom the respective authorities initiate recovery
proceedings for any retrospective inactions, as per their discretion. However,
the Code provides a period of limitation upto five years for initiating such
proceedings and thereby safeguards the employer's interest such that employers
will be able to estimate the potential maximum liability for past non-compliance
under Section 125(1) of the Code.
Digitization of Procedures related to ESI scheme
The Draft Code on Social Security (Central) Rules, 2020 provides for
digitization of procedures through a centralized web-based portal, the Shram
Suvidha Portal, is likely to simplify compliance processes for employees as well
as employers such as registration of establishments and employees, updating of
information, cancellation of registration. Further, digitization also helps in
maintaining a database of information related to operations of ESI scheme that
is easily accessible for availing of benefits.
Strengthening Of Enforcement Mechanism Of ESI Under Code On Social Security
Though the Code was comprehensive but there is one of the main concerns during
drafting of the Code was the implementation of the ESI Scheme. The Code and
Draft Rules introduce several provisions to strengthen enforcement.
The Code provides for centralized inspection through the web portal.
Additionally, under Section 122(6)(c) of the Code, the
Inspector-cum-Facilitator has the power of search and seizure in respect of any
offence been committed by the employer. Earlier, there was no provision in the
ESI Act for search and seizure, but now this search and seizure can be exercised
to ensure compliance related to ESI under the Code.
The Code aims to provide wider social security coverage to a large number of
workers and employees by including gig workers, platform workers and
grandparents as dependents. Further, by bringing the ESI scheme under
centralised system which is applicable across India. Also, it seeks to provide
meaningful social security cover for beneficiaries and to make hassle free
procedure for both employers and employees. Further, by prescribing a limitation
period and proper dispute resolution mechanism the Code seeks to ensure the
corruption-free enforcement of the scheme.
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Scheme, (Last visited 19th Nov, 2022)
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Government of India), About us, (Last visited 19th Nov, 2022) https://www.esic.nic.in/about-us
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- Simpliance, ESI-Background, (Last visited 19th Nov, 2022)
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