Need Clarification On ESI Coverage - CiteHR
Madhu.T.K
Industrial Relations And Labour Laws
Harsh Kumar Mehta
Consultant In Labour Laws/hr
Pramodthakar
Taxation And Hr
Malikjs
Gm (hr)
+1 Other

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Hi, We are a Software firm covered under PF since 2009 however we registered for ESI only in 2014. Before that we have not been deducting any ESI from our employees. Recently we received a Notice from ESI department asking us to deposit ESI from the 2009 onwards.
Are we liable to pay for the period from 2009-2014 though we have not deducted ESI from our employees. Please clarify for our knowledge.
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Dear you are required to pay from 2009 onward if it was applicable to you from 2009,whether you have deducted or not is not the question.
Dear you need to clarify all the terms before you asking this questions :
1. Maximum number of on employees in any day from 2009?
2. What is the minimum and maximum gross salary of employees.
3. Strength of employees presently?
4. Why you did not follow ESIC before in your company?
5. What is the reason now ESIC has sent you this notice?
6. What is the location of your company. Is you's company comes under ESIC or WC?
Once we get answer of mentioned question, then we can advise !!
A company covered under EPF would naturally come under ESI Act also because it should be at least 20 employees in 2009 when the EPF was made applicable to the establishment. Though there can be voluntary coverage for PF, the probability theory takes me to say that in 2009, the number of employees should be more than 20.

There is no relevance to maximum and minimum wages of 2009, because it is the number of employees and not the amount of wages that will decide whether an establishment is covered or not.

The present strength of employee will not make any difference for coverage of an establishment with retrospective date.

It shall be due to ignorance or a feeling that ESI is a waste or the employees would have thought that going to ESI hospital would put them down, that the company thought of not going for ESI.

In an inspection made by the Social Security Officer, the ESI Corporation would have found out that the company had the required number of employees for coverage in 2009 and assessed accordingly.

The location must be an ESI implemented area and that is why the notice has come.

There is no such place where you can say that this is a Workmen Compensation area. All establishments are under the coverage of Workmen/ Employees Compensation Act. Only thing is that in respect of employees who are covered by ESI, the liability as per Workmen Compensation will be borne by the ESI Corporation and not by the employer.

Now coming to the post given by Tristar software, I would say that the answer given by Mallikji is final and you should pay the contribution on the 'omitted wages' from 2009.

Regards,

Madhu.T.K
Don't be panic. First of all check the documents submitted at the time of EPF coverage.
Normally when the establishment covered under EPF also covered under ESI Act. But also there are many factors involved. So on the basis of information from EPFO, the ESIC have issued a notice.
EPF applies to the establishment where 20 or more employees [ Direct + indirect/through contractor etc..] Normally Software companies salaries [Basic+DA] are more than the prescribed applicable limit under the EPF Act. presently it is Rs.15000/- p.m., previously 6,500/- till Aug.2014.
Under the circumstances very few or even one employee can be covarable under EPF act. Even though Establishment required to take the registration under EPF act and make the compliance for coverable employee/member it may be few or one or even zero.
As per ESI act, it applies wherever a] 10 or more employees [ Direct + indirect] works where power is used for main business activities b] in other case 20 or more employees [Direct+indirect] , subject to 10 coverable members required.
Now in your case, it is required to verify the fact and accordingly act on the notice.
I HAVE PURPOSELY GIVEN TO THIS REPLY IN GENERAL WAY FOR YOUR UNDERSTANDING.
IT IS OBSERVED THAT, AT THE TIME OF OBTAINING EPF REGISTRATION, YOU HAVE NOT RECEIVED
PROPER CONSULTATION.
YOU SHOULD TAKE THE CONSULTATION FROM YOUR EPF/ESI CONSULTANT.
Pramod Thakar
Pune 9822435423
Dear Mr. Madhu,
How ESIC department is doing the work? hence you cannot say notice has been received due to esic is applicable. on other hand wages is always matter to coverage for ESIC and PF as well.
Do not make wrong prediction from my question.
We are elaborating the knowledge here not for blame game.
1. Sir. with reference to remarks of Sh.Pramodthakar ji as above i.e."As per ESI act, it applies wherever a] 10 or more employees [ Direct + indirect] works where power is used for main business activities b] in other case 20 or more employees [Direct+indirect] , subject to 10 coverable members required.", I may submit that there are following wrong informations given by Sh. Pramod Thakar ji:-

(a) coverage under ESI Act, 1948 is based on "persons" and not "employees" Please see section 2(12)) of said Act.

(b) w.e.f. June, 2010 there is no requirement that there must be "10 coverable employees". Even if there is only one coverable employee out of 10 even then the factory will be coverable under said Act.

(c) I understand that the State Govt of Orissa ( where the initiator of this thread is located) has already issued notification in the year 2011 reducing the threshold of coverage of shops and other certain establishments to employing 10 or more persons. The requirement of 20 or more employees may be correct in the areas of Maharashtra State ( to which I am presently not sure).

2. I hope, Mr. Pramod ji will excuse me for pointing out above mistakes. In case, I have written anything wrong, I will welcome any suggestions so that I can update myself in right direction.

3. I will suggest to the initiator of this thread to kindly intimate full facts in this thread viz. (a) since when code number under ESI Act was issued by ESIC (b) what are the observations of SSO after conducting his verification, (3) whether any adhoc assessment has been done by the said department under section 45A of said Act etc.etc. Coverage proceedings under ESI Act are always independent to any other department including EPFO, though some documents of common interest can be relied upon by the authorities while deciding coverage etc. of any unit.

4. The employer in cases of retrospective coverage is not entitled to deduct contribution from employees for back period. Therefore, if coverage under said Act is established, the employer is required to pay both employees and employers' share of contributions from his own source ( Section 40).
Thanks for your responses. As suggested I am giving below the facts which are known to me immediately, rest I will have to check the records.
In 2009 when we enrolled in EPF we had a strength of around 30 employees. Yes that time we made a huge mistake by not listing in ESI as our consultant did not gave us proper advise.
in 2014 we got first inspection from the ESI inspector and we enrolled immediately and have been paying ESI dues regularly, however now we have got a notice from them asking us to deposit around 20 lac due as ESI payable from 2009 onwards which although is arbitrary and can be challanged I need to know is there same way out to minimise the payout.
1. Sir, the important issue is on which date you received Code Number from ESIC (Form C-11) and in the said code number from which date your unit was covered under said Act. If the said date was provisional, the question is whether now the Social Security Office (ESI Inspector) has finalized the date of such provisional coverage after verification of records. If so, from which date? Whether amount of Rs.20 lakh has been assessed on adhoc basis or is on actual basis ?. If on adhoc basis, you can request the said department to assess the contribution on actual basis(if otherwise favourable to your unit) after verifying your records. Everything depend on facts of your case and your decision since we are not in a position to offer any more comments on issues of facts.

2. Sir, whatsoever, the facts may be, if coverage is definite, you have no alternative except to deposit the amounts of contribution. This was clearly mentioned by my seniors/experts S/Sh. J.S.Malik ji & Madhu T.K. ji in their remarks as above. This amount of contribution as mentioned above, I think, may not include the amounts of damages and upto date interest, and I think, the said department will make separate claims under these items.

3. Sir, in my opinion, if you have any legal plea against such coverage, then you can also challenge the same in the Employees' Insurance Court of the area where your unit is located and you can file the case by engaging an advocate. Perhaps the Advocate can also take plea that the amounts of contributions pertain to a period of more than 5 years, for which some limitation has been laid down in Proviso to section 45A of said Act. This also depend on facts of your case and earlier decisions of Hon'ble courts, if any. With best wishes.
Dear Sandeep Sharma,

I believe that from the post of Tristar Software you should have understood why I have said that there could be an assessment and it would be on the basis of such inspection that the assessment would have been made by the ESI Corporation's Social Security Officer.

For your knowledge I would like to reiterate that for coverage of an establishment, only the number of employees matters and their wages have no relevance. That means, if you have 10/ 20 employees, as the case may be, you are a covered establishment. Now, if you have no employee who is getting 15000 or less per month, then nobody will be covered, but the establishment will be covered and every month you have to file NIL returns. This is the case of most of the companies now a days. Similar is the case with PF also. For coverage of PF, only the number of employees should be counted and there can be a situation that no body is a member of PF because everybody is getting more than 15000 per month.

I don't think that I have made any wrong prediction but I would say that my observation was correct. Sandeep should know that I have been in this field for the last 30 long years and I have started my career in those days when everything was made clear after meeting the Officers personally and referring to the Bare Acts not like browsing through internet. That should be the reason why I could say that there should have happened an inspection by ESIC officer without asking for further details like that you had asked.

If you feel that my posts were like blame game, I am sorry I don't want to get involved into controversies. I believe that what all time I can spend to educate HRs (not Consultants who are much educated than I and who find this forum to show case or market their talents) should be spent positively and not in debating.

Madhu.T.K
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