Employees’ State Insurance Act, 1948: Comprehensive Study Material

This study material provides an in-depth overview of the Employees’ State Insurance Act, 1948 (ESI Act), designed for students, professionals, and researchers. It includes detailed explanations (long answers) on key aspects of the Act, along with a dedicated section on key definitions as outlined in Section 2. The content is structured for easy understanding, drawing from the official Act and reliable explanatory sources. The Act is a pioneering social security legislation in India, aimed at protecting workers from financial hardships due to health-related issues.

Introduction and Objectives

The Employees’ State Insurance Act, 1948, was enacted on April 19, 1948, as India’s first comprehensive social security scheme for workers. It establishes a self-financed health insurance program administered by the Employees’ State Insurance Corporation (ESIC), a statutory body under the Ministry of Labour and Employment. The primary objectives are to provide financial protection and medical support to employees in case of sickness, maternity, employment injury, disablement, and death. It promotes social and economic justice by ensuring workers, particularly in low-wage sectors, receive benefits without facing destitution during medical crises.

The Act’s goals include preventing financial distress from medical emergencies, offering compulsory insurance for industrial workers, and extending benefits to their families. It emphasizes rehabilitation, re-employment for disabled workers, and overall welfare improvement. By mandating contributions from employers and employees, it creates a fund for disbursing benefits, marking a shift toward organized social security in post-independence India. Over time, the Act has been amended to expand coverage, adjust wage limits, and refine benefits, reflecting evolving labor needs.

Applicability and Coverage

The ESI Act applies across India, initially targeting factories (excluding seasonal ones) employing 10 or more persons where manufacturing processes occur with power, or 20 or more without power. It has been extended to various establishments like shops, hotels, restaurants, cinemas, road transport agencies, newspapers, and educational institutions through government notifications. Coverage is not limited to permanent employees; it includes casual, temporary, and contract workers employed directly or through contractors, as long as their monthly wages do not exceed Rs. 21,000 (Rs. 25,000 for persons with disabilities). Workers earning below Rs. 137 per day are exempt from personal contributions, with employers covering the full amount.

Once an establishment falls under the Act, it remains covered even if employee numbers drop below the threshold or power usage ceases. Exemptions are possible for government-controlled entities offering superior benefits, or by the appropriate government (Central or State) after consultation with ESIC. The Act bars dual benefits under other laws like the Workmen’s Compensation Act, 1923, to avoid overlaps. As of 2025, it covers approximately 1.55 crore workers and benefits over 6 crore individuals, including families, through around 790 centers nationwide.

Key Definitions (As Mentioned in Section 2 of the Act)

Section 2 of the ESI Act provides precise definitions for terms used throughout the legislation. These are essential for interpreting the Act’s provisions accurately. Below is a complete list in exact wording:

1. Appropriate government: Means, in respect of establishments under the control of the Central Government or a railway administration or a major port or a mine or oilfield, the Central Government, and in all other cases, the State Government.
2. Confinement: Means labour resulting in the issue of a living child or labour after twenty-six weeks of pregnancy resulting in the issue of a child whether alive or dead.
3. Contribution: Means 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.
4. Corporation: Means the Employees’ State Insurance Corporation set up under this Act.
5. Dependant: Means any of the following relatives of a deceased insured person, namely,— (i) a widow, a minor legitimate or adopted son, an unmarried legitimate or adopted daughter; (ia) a widowed mother; (ii) if wholly dependent on the earnings of the insured person at the time of his death, a legitimate or adopted son or daughter who has attained the age of eighteen years and is infirm; (iii) if wholly or in part dependent on the earnings of the insured person at the time of his death,— (a) a parent other than a widowed mother, (b) a minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or adopted or illegitimate if married and a minor or if widowed and a minor, (c) a minor brother or an unmarried sister or a widowed sister if a minor, (d) a widowed daughter-in-law, (e) a minor child of a pre-deceased son, (f) a minor child of a pre-deceased daughter where no parent of the child is alive, or (g) a paternal grand-parent if no parent of the insured person is alive.
6. Duly appointed: Means appointed in accordance with the provisions of this Act or with the rules or regulations made thereunder.
7. Employment injury: Means 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.
8. Employee: Means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and— (i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment whether such work is done by the employee in the factory or establishment or elsewhere; or (ii) who is employed by or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or (iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service; and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the standing orders of the establishment; but does not include— (a) any member of the Indian naval, military or air forces; or (b) any person so employed whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government: PROVIDED that an employee whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period.
9. Exempted employee: Means an employee who is not liable under this Act to pay the employee’s contribution.
10. Family: Means all or any of the following relatives of an insured person, namely,— (i) a spouse; (ii) a minor legitimate or adopted child dependent upon the insured person; (iii) 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 twenty-one years, (b) an unmarried daughter; (iv) 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; (v) dependent parents.
11. Factory: Means any premises including the precincts thereof— (a) whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on, or (b) whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 or a railway running shed.
12. Immediate employer: In relation to employees employed by or through him, means a person who has undertaken the execution, on the premises of a factory, or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer and includes a contractor.
13. Insurable employment: Means an employment in a factory or establishment to which this Act applies.
14. Insured person: Means a person who is or was an employee in respect of whom contributions are or were payable under this Act and who is, by reason thereof, entitled to any of the benefits provided by this Act.
15. Managing agent: Means any person appointed or acting as the representative of another person for the purpose of carrying on such other person’s trade or business, but does not include an individual manager subordinate to an employer.
16. Manufacturing process: Shall have the meaning assigned to it in the Factories Act, 1948.
17. Mis-carriage: Means expulsion of the contents of a pregnant uterus at any period prior to or during the twenty-sixth week of pregnancy but does not include any mis-carriage, the causing of which is punishable under the Indian Penal Code.
18. Occupier of the factory shall have the meaning assigned to it in the Factories Act, 1948.
19. Permanent partial disablement: Means such disablement of a permanent nature, as reduces the earning capacity of an employee in every employment which he was capable of undertaking at the time of the accident resulting in the disablement: PROVIDED that every injury specified in Part II of the Second Schedule shall be deemed to result in permanent partial disablement.
20. Permanent total disablement: Means such disablement of a permanent nature as incapacitates an employee for all work which he was capable of performing at the time of the accident resulting in such disablement: PROVIDED that permanent total disablement shall be deemed to result from every injury specified in Part I of the Second Schedule or from any combination of injuries specified in Part II thereof where the aggregate percentage of the loss of earning capacity, as specified in the said Part II against those injuries, amounts to one hundred per cent or more.
21. Power: Shall have the meaning assigned to it in the Factories Act, 1948.
22. Prescribed: Means prescribed by rules under this Act.
23. Principal employer: Means— (i) in a factory, the owner or occupier of the factory, and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948; the person so named; (ii) in any establishment under the control of any department of any government in India, the authority appointed by such government in this behalf or where no authority is so appointed, the head of the department; (iii) in any other establishment, any person responsible for the supervision and control of the establishment.
24. Regulation: Means a regulation by the Corporation.
25. Schedule: Means a Schedule to this Act.
26. 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 groundnuts, 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.
27. Sickness: Means a condition which requires medical treatment and attendance and necessitates abstention from work on medical grounds.
28. Temporary disablement: Means 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 which he was doing prior to or at the time of the injury.
29. Wages: Means 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 authorised leave, lock-out, strike which is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months, but does not include— (a) any contribution paid by the employer to any pension fund or provident fund, or under this Act; (b) any travelling allowance or the value of any travelling concession; (c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or (d) any gratuity payable on discharge.
30. Wage period: In relation to an employee means the period in respect of which wages are ordinarily payable to him whether in terms of the contract of employment, express or implied or otherwise.
31. All other words and expressions used but not defined in this Act and defined in the Industrial Disputes Act, 1947: Shall have the meanings respectively assigned to them in that Act.

Administration and Authorities

The administration of the ESI Act is handled by a multi-tiered structure to ensure efficient implementation. At the apex is the Employees’ State Insurance Corporation (ESIC), a body corporate established under Section 3, comprising representatives from the Central Government, state governments, employers, employees, medical professionals, and Parliament. The ESIC is headed by the Director General (chief executive) and Financial Commissioner, both appointed by the Central Government. It has powers to acquire property, enter contracts, and sue or be sued.

Supporting bodies include:

• Standing Committee: A subcommittee of ESIC that administers day-to-day affairs, with delegated powers.
• Medical Benefit Council: Advises on medical benefits, certification for sickness/disablement, and investigates complaints against medical practitioners.
• Regional Boards and Local Committees: Handle regional administration, including medical care delivery.
• Inspectors (Social Security Officers): Appointed under Section 45 to inspect premises, records, and ensure compliance. They can enter establishments, examine documents, and question persons.

The “appropriate government” (Central for certain establishments, State for others) plays a role in extensions, exemptions, and notifications. State governments generally administer medical benefits, except in areas like Delhi where ESIC does so directly. This framework ensures decentralized yet coordinated management, with ESIC managing the ESI Fund for contributions and benefits.

Registration and Compliance Requirements

Registration under the ESI Act is mandatory for applicable establishments. Employers must register their factory or establishment with ESIC within 15 days of the Act becoming applicable, using Form 01, and obtain an employer code number. Employees are automatically insured upon employment if eligible, and employers issue identity cards or pehchan cards for accessing benefits.

Compliance involves:

• Maintaining registers and records of employees, wages, accidents, and contributions.
• Submitting half-yearly returns (Form 5) and other reports to ESIC.
• Furnishing details to inspectors during audits.
• Ensuring timely payment of contributions and recovery from contractors or immediate employers.

Non-compliance triggers inspections, and ESIC can determine contributions if records are inadequate. Employers in the unorganized sector may face special contributions under Chapter VA. The process emphasizes transparency to facilitate smooth benefit delivery.

Contributions

Contributions form the backbone of the ESI scheme, funding the ESI Fund. They are bipartite: employer (3.25% of wages) and employee (0.75% of wages), payable monthly based on the wage period. The principal employer pays both shares initially and deducts the employee’s portion from wages. No deductions are allowed for employer contributions, and employees below the daily wage threshold (Rs. 137) contribute nothing.

Rates are fixed by the Central Government, with state governments contributing 12.5% toward medical expenses. Payments are due by the 15th of the following month, with 12% simple interest (or higher per regulations) for delays. Recovery mechanisms include treating unpaid amounts as arrears of land revenue, issuing recovery certificates, attaching property, or even arresting defaulters. Employers can recover from immediate employers or contractors as a debt. This system ensures sustained funding for benefits while holding employers accountable.

Benefits Under the Act

The ESI Act provides six core benefits under Section 46, aimed at comprehensive protection. These are non-assignable and protected from attachment by courts.

Sickness Benefit

This is a periodical cash payment for certified sickness requiring medical treatment and work abstention. Eligibility requires at least 78 days of contributions in the relevant contribution period (typically 6 months prior). The benefit is about 70% of average daily wages, payable for up to 91 days in two consecutive benefit periods. For 34 specified long-term diseases (e.g., tuberculosis, cancer), extended sickness benefit offers up to 2 years at an enhanced rate of 80% of wages, plus full medical care. Recipients must follow medical advice and avoid activities delaying recovery. This benefit safeguards income during illness, reducing financial strain.

Maternity Benefit

Provided to insured women for confinement, miscarriage, pregnancy-related sickness, or premature birth. Eligibility demands 70 days of contributions in the preceding two periods. The benefit is 100% of average daily wages, payable for 26 weeks (12 weeks pre- and post-delivery, extendable by 1 month for illness), 6 weeks for miscarriage/termination, or 12 weeks for adoption. It includes medical care without contributory conditions in some cases. This provision supports women’s health and financial stability during motherhood, aligning with gender equity goals.

Disablement Benefit

For employment injuries (accidents or occupational diseases) arising in the course of employment. No minimum contribution period is required; benefits start from day one. Temporary disablement offers 90% of wages if incapacity exceeds 3 days. Permanent total disablement provides a lifelong pension at 90% of wages, while partial disablement is proportionate based on loss of earning capacity (as per Schedule II). Medical boards assess disablement, with appeals to tribunals. This benefit compensates for lost earning potential, including rehabilitation allowances for vocational training.

Dependants’ Benefit

Payable to dependants if an insured person dies from employment injury. It’s a monthly pension: 90% of wages distributed as 3/5th to the widow (lifelong or until remarriage) and 2/5th to children until age 25 (or longer if infirm). If no spouse or children, it goes to parents or other dependants. No contributory condition applies. This ensures family support post-loss, preventing poverty.

Medical Benefit

Unlimited free medical treatment for insured persons and families, including outpatient care, specialist consultations, hospitalization, drugs, and diagnostics. Delivered through ESIC hospitals, dispensaries, or empanelled facilities. Family coverage can be extended by ESIC. It’s in-kind, with no cash equivalent, and continues post-retirement or disablement for low-contribution cases. This is the cornerstone benefit, emphasizing preventive and curative healthcare.

Funeral Expenses

A lump-sum payment of Rs. 15,000 (as updated) to the eldest surviving family member or the person incurring costs, claimable within 3 months of death. It covers burial/cremation expenses, providing immediate relief.

Additional perks include vocational rehabilitation for disabled workers and old-age medical care (Rs. 250/month) for retirees.

Penalties and Offences

The Act imposes strict penalties for non-compliance to enforce adherence. Offences include failure to pay contributions, false statements, or obstructing inspectors.

• Failure to Pay Contributions: Imprisonment up to 3 years (minimum 1 year if employee share not paid) and fine up to Rs. 10,000; for other defaults, up to 1 year and Rs. 5,000. Repeat offences attract up to 5 years and Rs. 25,000.
• Delayed Payments: 12% annual interest, plus damages up to the arrears amount.
• Other Violations: Fines for false returns (up to Rs. 2,000) or excessive sickness due to negligence (recoverable costs).

Prosecutions require ESIC sanction and are tried by first-class magistrates. Unpaid amounts are recovered as land revenue arrears via certificates, property attachment, or arrest. Employers cannot dismiss workers receiving benefits, except after prolonged absence.

Dispute Resolution and Legal Remedies

Disputes regarding contributions, benefits, employee status, or recoveries are adjudicated by Employees’ Insurance Courts (EIC), established by state governments with qualified judges. These courts have civil court powers for evidence, summons, and enforcement. Appeals lie to the High Court on substantial questions of law within 60 days.

Medical disputes (e.g., disablement assessment) go to Medical Boards, with appeals to Medical Appeal Tribunals and further to EIC. The Act bars civil court jurisdiction, ensuring specialized resolution. Case laws like Western India Plywood Ltd. v. Shri. P. Ashokan emphasize no dual claims under multiple acts, protecting employers from double liability.

Recent Amendments and Updates

Key amendments include the 1989 cap on contribution rates, 2010 wage ceiling hike to Rs. 15,000 (further to Rs. 21,000 in 2017), and expansions to unorganized sectors.

As of 2025, no major new amendments are noted, but the scheme continues to evolve with digital registration and enhanced medical infrastructure.

Always check ESIC portals for latest notifications.