As you are aware that the ESI Amendment Act 2010 has been notified and it has come in to effect w.e.f. 01-06-2010. The ESI Amendment Act 2010 has brought new changes which are necessary to be understood by all HRM & other Labour Law practitioners.
Following are the important amendments and its implications:-
1. Sec. 2 clause (6A)(a)(i) & (ii) -The age of the dependents has been increased from 18 years to 25 years-though in the proposed bill, the age suggested was 21 years.
2. Sec. 2 Clause(6A)(11)-"Family"- A qualification has been attached to the "dependent parents" of the Insured Person to avail the medical benefits etc under the Act, which was not in the Act earlier.
Sub Clause (v) of Clause 11 of Section 2 has been substituted with words " dependent parents, whose income from all sources does not exceed such income as may be prescribed by the Central Government".
3. Sec. 2 Clause(6A)(11)-"Family" - New members has been introduced to the words "Family" - Sub Clause (vi) of Clause 11 of Section 2 has been inserted, which says " in case the insured person is unmarried and his or her parents are not alive, a minor brother or sister wholly dependant upon the earnings of the insured person" shall also form part of family of the Insured Person.
4. Traniees appointed under the Standing Orders- ESI Contribution liable to be paid - The definition of the "employee" has been amended. Now the trainees are brought under the ambit of the Act and are liable to pay ESI contribution. Clause 9 of Section 2 has been AMENDED.
5. FACTORY -DEFINITION-Clause 12 of Section 2 has been amended - The old definition and New definition of Factory needs to be compared, thus I am reproducing the both for ready reference:-
Old Definition:- Prior to ESI Amendment Act 2010
Sec 2 (12) “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 (35 of 1952) or a railway running shed];
Sec 2 (12) "factory" means any premises including the precincts thereof whereon ten or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on 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;’.
On comparing the both the following implications of the amendment comes out:-
• Now the units where manufacturing activities are performed by 10 or more PERSONS has been brought under the ambit of the Act, irrespective of use of POWER and irrespective of the fact that 10 or more coverable employees are engaged or not.
• The definition of the "Factory" has been amended to bring the small units within the ambit of the Act. Earlier the ESI Act was applicable to units employing 10 or more persons manufacturing with aid of "POWER"- Now the word POWER has been ommitted. Thus, every unit manufacturing and employing 10 or more persons has been brough under the ambit of the ESI Act.
• Secondly, one hidden amendment has been made in the Act-The uncovered employees would also be counted for the purpose of applicability of the ESI Act. Earlier the unit employing 10 or more workers and doing manufacturing process, would still be out of the purview of the Act, if there are Persons drawing salary above the prescribe limit. Let me explain with an example-
Suppose in a unit there were 12 employees and using Power to manufacture. Out of the said 12 employees 3 employees were drawing salary above the prescribed limit of Rs. 10000/-(or 15000/-). The ESI Act would not be applicable on the said unit, since the strength of the coverable employees is less than 10.
But now, the ESI Corpn. has very smartly omitted the words " for wages" in the new definition of the "Factory", bringing all the units employing 10 or more Persons and engaged in manufacturing process within its ambit.
The ESI Corporation has brought back the old definition of "factory" as it stood prior to Amendment Act 44 of 1966. In the old definition (prior to 1966) the "Factory" means any premises including the precincts thereof wherein 20 or more persons are WORKING or were WORKING 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, but does not include a mine subject to the operation of the INDIAN Mines Act, 1923 (iv OF 1923) or a railway running shed".
After the amendment by Act 44 of 1966 as aforementioned the words "or were working" in the definition of 'factory' were substituted by the words "or employed or were employed for wages".
It was necessary to know the old definition of the Factory to understand the exact implication of the latest amendment in the definition of "Factory".
6. TEST INSPECTIONS & RE-INSPECTIONS:- The system of Test inspection or Re-inspection has been introduced in the Act. This system was though prevalent in practice but did not had any statutory force behind it. Now by inserting Sub-section(4) in Section 45, the ESI Corp. has legitimised its acts of test inspection.
7. LIMITATION PERIOD:- The unbridled powers of the visiting inspectors demanding the contribution for the very old periods also, has been put to hold by the Parliament (on the recommendations of the Apex Court). The New Proviso has been inserted in Section 45A, which provides as under
"Provided further that no such order shall be passed by the Corporation in respect of the period beyond five years from the date on which the contribution shall become payable.".
8. APPELLATE AUTHORITY:- New Section 45AA has been introduced in the Act, providing for an appeal to the appellate authority against the orders passed u/s 45-A.
"45AA. If an employer is not satisfied with the order referred to in section 45A, he may prefer an appeal to an appellate authority as may be provided by regulation, within sixty days of the date of such order after depositing twenty-five per cent. of the contribution so ordered or the contribution as per his own calculation, whichever is higher, with the Corporation:
Provided that if the employer finally succeeds in the appeal, the Corporation shall refund such deposit to the employer together with such interest as may be specified in the regulation."
9. ACCIDENTS OCCURING WHILE COMMUTING TO PLACE OF WORK AND VICE-VERSA - COVERED UNDER THE ACT- New Section 51E has been inserted
"51 E. An accident occurring to an employee while commuting from his residence to the place of employment for duty or from the place of employment to his residence after performing duty, shall be deemed to have arisen out of and in the course of employment if nexus between the circumstances, time and place in which the accident occurred and the employment is established.".
Apart from the above said amendments some more amendments has been made in the ESI Amendment Act 2010. For text the notification may be referred.
Hope you all will find the above information useful.
There is no changes in the definition of establishment u/s 1(5) of the ESI Act. The establishment employing 20 or more COVERABLE EMPLOYEES, will be covered under the ESI Act, unlike the coverage of Factory. The ESI Act applies to a factory u/s 1(4) employing 10 or more EMPLOYEES (whether coverable or not) where manufacturing activities are being carried on.
However, the ESI Corpn is thinking to bring our a fresh notification under Section 1(5) to change the definition of establishments to bring them on par with the amended definition of factory by incorporating "10 or more persons employed or were employed on any day of the preceding 12 months".
Applicability of ESI Act on Hotels/Restaurant-U/s 1(5) or 1(4):-
The ESI Corp. has notified the nature of establishments, coverable under the ESI Act u/s 1(5) of the Act in Feb 1988 and 22-11-2002. In the said list Hotels, Restaurants, shops etc are provided. Thus, it implies that ESI Act applies on Hotels/Restaurants when there strength exceeds 20 on any day of the preceding 12 months. But, now the Hon'ble Supreme Court in the case reported as 2009 III CLR 316 held that Retaurants employing 10 or more employees and cook food with the help of LPG cylinder is also coverable under section 1(4) of the Act, since it uses POWER.
However, now with the amendment Act of 2010, in the definition of "Factory", word "Power" has been ommitted. The omission of word "Power" does not make any difference for coverage of Hotels/Restaurants cooking foods with 10 or more employees, since they are carrying on the "Manufacturing process" as defined in Factories Act.
Thus, hotels/restaurants, which were earlier covered under section 1(5) on employing 20 or more COVERABLE EMPLOYEES, has now become coverable under Section 1(4) on employing 10 or more employees.
Dear Mr. Puneeth Guptha
Thanks for providing details on ESI amendments. Further, please clarify whether there is any provision in ESI act for voluntary registration when the number of employees are less than the minimum statutory requirement of 20 persons.
The clarification is needed for both manufacturing and non manufacturing units including commercial establishments.
Pleae reply immediately.
From India, Bangalore
Dear Mr. Puneet Gupta,
Your posting on ESI Amendments and its implications and further clarifications is really excellent and help the members in understanding the implications. You have done a wonderful job. All the appreciation for this outstanding posting. Thanks a lot.
K.V.Ramana Murty, Dy.Director (Retd.) ESIC, Hyderabad.
From India, Hyderabad
As per recent amendment in ESI Act the ceiling is Rs.15,000/-.
If employer provides any Medical Policies / Medical Allowances for the employees(who are getting <15000 net),will they covered under ESI? Is there any section in ESI ACT.
Kindly help me on this?
From India, Visakhapatnam
Dear Mr. Shrivathsa
There is no provisions of "VOLUNTARY COVERAGE" in the ESI Act for the coverage of units employing number of employees less than the minimum statutory requirement of 10/20 persons.
From India, Ludhiana
Being an principal employer what are the documents we have to file / keep a track since we have outsourced two of facilities, wherein number of employees are more then 10 and also we have been allotted with a ESI Code.
Can you kindly suggest me on this.
From India, Hyderabad
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