In one of our fashion store outlets in UP, a contract employee drawing less than 18K per month has met with an accident on the job. This establishment is governed under the Shop & Establishment Act.

The accident and subsequent injury that occurred happened while the employee was performing routine store work. The employee was on contract with a contractor whom we have discovered had not enrolled the said contract employee under the provisions of the ESI Act.

From a statutory point of view, please guide me:

1) If such a contract employee is covered under the Employee Compensation Act.
2) Should the company have to pay for the contract employee under the provisions of the Employee Compensation Act, considering his wage as Rs 8K? Also, will the company have to pay any loss of pay to the employee in addition to compensation?
3) If the contractor is not fulfilling his obligations under the ESI Act, is there any penalty towards the principal employer?
4) Does the Employee Compensation Act also apply to an employee if he/she decides to work on the day of his/her weekly off?

From India, Mumbai
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Principal employer will be liable for payment of compensation when an employee engaged by the contractor dies in an accident arising out of her employment.
State of Milharashtra v. Milhadeo Krushna Waghmode, 1994 LLR 950: 1994 (69) FLR 571: 1994-II CLR 238: 1994-II LLN 829 (Born HC).
Principal employer and the contractor will be liable for payment of compensation to a workman injured in an accident.
Mohammad Rafiq Mohiuddin v. S. Narasimha, (2002) IV LLJ (Supp) NOC 1306: 2002 LLR 718 (AP He).
In a recent judgment, the Madras High Court reiterated that compensation payable for the death of employees must be based on the wages payable under the Minimum Wages Act, 1948, unless the employee’s actual wages exceed the minimum wage.

From India, Madras
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  • CA
    CiteHR.AI
    (Fact Check Failed/Partial)-The user's reply is mostly correct but lacks specific details related to the original post. Please refer to the Employee Compensation Act for detailed provisions on wage limits and compensation. Kindly ensure responses are directly linked to the original query for clarity.
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  • KK!HR
    1656

    I am unable to find any provision in the EC Act or Shop & Establishment Act showing the applicability of the EC Act on shops. The understanding used to be that the EC Act applies to blue-collar workers (Schedule 2).
    From India, Mumbai
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    SM
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  • CA
    CiteHR.AI
    (Fact Check Failed/Partial)-The user reply is incorrect. The Employee Compensation Act does apply to all workers, including those in shops. It is not limited to blue-collar workers only. The law mandates compensation for workplace accidents, irrespective of the nature of work.
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  • Dear Ms. Anuradha,

    I invite your kind attention to Section 39 of the Uttar Pradesh Shops and Establishments Act, 1962 which reads as follows:

    "Sec. 39. Application of the Workmen's Compensation Act, 1923 and Rules:
    The provisions of the Workmen's Compensation Act, 1923 and of the Rules made thereunder shall mutatis mutandis apply to every employee of a shop or commercial establishment."

    Your post clearly indicates that the affected person was a contract laborer in your establishment engaged through a contractor who failed to enroll him under the ESIC for obvious reasons, whether with or without your knowledge. Admittedly, the injuries sustained by the employee were certainly due to an employment accident on your premises. Therefore, the factual and legal position is as follows:

    (1) Since the contract laborer was not a member of the ESIC at the time of the employment accident, the contractor is liable to pay compensation to him under the E.C Act, 1923 for the consequential loss of earning capacity caused by the disability.
    (2) If the contractor fails, as the Principal Employer, you must first pay the compensation and other expenses stipulated under the EC Act, 1923 and can later recover it from the contractor. Please refer to the provisions of Sec. 12 of the E.C Act, 1923.
    (3) When the fact remains that he was allowed to work in the establishment during the accident, in my opinion, questions such as whether the particular day was his weekly off or if he volunteered to work are simply irrelevant.

    From India, Salem
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    KK
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  • CA
    CiteHR.AI
    (Fact Checked)-The user's reply is mostly accurate. However, the application of the Employee Compensation Act (E.C Act) in the case of the contract employee not enrolled under ESIC by the contractor is correct. The liability initially falls on the contractor, but if they fail to pay, the principal employer may be liable to pay compensation and recover it from the contractor later as per Section 12 of the E.C Act, 1923. (1 Acknowledge point)
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  • Respected Sir,

    Thanks as always.

    Just some clarifications:

    1) As per pt. 1 of your answer, the consequential loss of earnings will be calculated taking the salary of 8k per month with the scope of disability!

    2) During the period of loss of pay, will the principal employer or the company also have to pay EPF contribution at 12% of 8k or the standard norm or not have to pay?

    3) Also, I have been told that there is unrest between the contract employees against the contractor for not implementing ESI, and they are threatening to go to a Respective Labour competent authority. What is the role or penalty on the company in such a situation?

    Thanks once again.

    Regards,
    Anurad

    From India, Mumbai
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  • CA
    CiteHR.AI
    (Fact Check Failed/Partial)-The user's reply contains inaccuracies regarding EPF contribution and the role of the company in the situation of unrest between contract employees and the contractor. 1) Consequential loss of earnings under the Employee Compensation Act considers the actual wages, not a fixed amount. 2) The company is required to pay EPF contribution at the standard 12% rate of the actual wages, not a fixed amount. 3) The penalty or liability on the company due to the contractor's failure to implement ESI regulations is based on the specific circumstances and legal provisions.
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  • Principal employer is held responsible towards non compliance if any.Contractor are required to be audited regularly for fulfilment of all the statutory liabilities.
    From India, Vadodara
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  • CA
    CiteHR.AI
    (Fact Check Failed/Partial)-The user's reply is partially correct. The principal employer is indeed responsible for non-compliance, and contractors should be audited for statutory obligations. However, additional details and clarifications are needed. Regarding the specific questions raised in the original post: 1) A contract employee is covered under the Employees' Compensation Act for workplace accidents. 2) The company is liable to pay compensation under the Act, irrespective of the contractor's ESI compliance. 3) The principal employer may face penalties for the contractor's non-compliance with ESI. 4) The Employee Compensation Act applies even if an employee works on their weekly off. For further insights, refer to the Employees' Compensation Act, 1923, and relevant Supreme Court judgments.
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  • That has already been explained by respected Umakanthan ji my query is different plz let me know that...
    From India, Mumbai
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  • CA
    CiteHR.AI
    (Fact Check Failed/Partial)-The user reply does not provide any specific information to review or address. Kindly provide more details or specific questions for assistance.
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  • Dear Madam,

    My answers to the follow-up queries are as follows:

    (1) Yes, if the salary/wages of the employee on the date of the accident are on the higher side, it should be notionally restricted to Rs. 8000-00 per month only for the purpose of calculating E.C. under the Act. If the actual salary is less than the statutory minimum wages, only the minimum rate of wages should be taken into account, as already mentioned by Mr. Babu Alexander.

    (2) "The period of loss of pay" as mentioned can be of two types: one is the period of treatment, and the other is the period of non-employment resulting from the disability created by the injuries sustained in the employment accident. The employer is obligated to pay wages for the entire period of treatment until recovery from the injuries, in addition to covering the expenses of the treatment. This should reflect the actual wages payable had the employee not met with the accident. Therefore, all the statutory employer's contributions should remain as usual.

    (3) First, it is advisable to review the definitions of "Immediate Employer" under section 2(13) and "Principal Employer" under section 2(17). Subsequently, refer to section 40 which addresses the primary responsibility of the Principal Employer for the payment of contributions to ESIC and their recovery from the Immediate Employer as per section 41 of the ESI Act, 1948. As the Principal Employer, you are responsible for ensuring the enrollment of the Contract Labour before allowing them to work. Failure to pay contributions may lead to recovery proceedings and potential actions against the concerned Principal Employer or Immediate Employer. It is recommended to be proactive and resolve any issues amicably.

    Thank you.

    From India, Salem
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  • CA
    CiteHR.AI
    (Fact Check Failed/Partial)-The user's reply is partially correct but contains some inaccuracies regarding the calculation of compensation under the Employee Compensation Act and the responsibilities of the principal employer under the ESI Act. 1. The calculation of compensation under the Employee Compensation Act should not be notionally restricted to Rs. 8,000 per month. The actual salary at the time of the accident should be considered for calculating compensation. 2. The user is correct that the employer is responsible for paying wages for the entire period of treatment until recovery from the injuries. The employer should also cover the expenses of treatment and pay the actual wages that would have been payable if the accident had not occurred. 3. The user's explanation of the responsibilities of the principal employer under the ESI Act is accurate. The principal employer is indeed responsible for ensuring the enrollment of contract labor before allowing them to work, and non-compliance can lead to recovery proceedings and other consequences. Overall, the user's reply contains some accurate information but also some inaccuracies that need clarification. amendment: true
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  • SGMC
    63

    Hi,

    Your queries are answered as follows:

    1. If such a contract employee is applicable under the Employee Compensation Act:
    Should the company have to pay for the contract employee under provisions of the Employee Compensation Act considering his wage as Rs 8K? Also, will the company have to pay any loss of pay to the employee in addition to compensation?

    Answer: In your case, it is an admitted fact that the contract employee is not covered under the ESI Act. Hence, you are liable to pay the compensation as per the provisions of the Employees Compensation Act for the loss of earning capacity arising out of the accident. You will also be liable to pay any loss of pay to the employee in addition to compensation, if the loss of pay is caused due to the accident, i.e., the period of treatment till recovery from the injury and the medical expenses.

    2. If the contractor is not fulfilling his obligations under the ESI Act, is there any penalty towards the principal employer?
    Yes. It is a well-settled principle of law that the Principal Employer has to ensure that the contractor complies with the provisions of the applicable labor laws. In case of non-compliance by the contractor, the Principal Employer will be held responsible, and penalties can be initiated against the Principal Employer.

    3. Does the Employee Compensation Act also be applicable to an employee if he/she decides to work on the day of his/her weekly off?
    Yes, it applies.

    Regards,
    P.S. Lakshmanan
    S. G. Management Services
    (PAN INDIA Consultant - Labour Law Compliance, P.F., ESI, P Tax, Benefit Management & POSH COMPLIANCE)
    Kolkata

    From India, Kolkata
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  • CA
    CiteHR.AI
    (Fact Checked)-The response provided is accurate and aligns with labor laws. (1 Acknowledge point)
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  • Thanks to all the expert’s for their valuable insights
    From India, Mumbai
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  • CA
    CiteHR.AI
    (Fact Check Failed/Partial)-The user's reply does not address the queries and questions raised in the original post, which were related to statutory provisions and obligations in the context of a contract employee's accident at work.
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