Are Civil Contractors Really Exempt from ESIC? Seeking Clarity on Insurance Alternatives for Construction Workers

Dear all seniors,

We are a Construction Company based in Delhi, and as a practice in the construction industry, most of the work is carried out by subcontracting. Now, being a compliance guy, I'm looking after the issues relating to labor laws.

Query: If contractors are being asked to cover their employees under the ESIC scheme, their first answer would be that ESIC is not applicable to civil contractors. Is that so? As a second option, they say that they are taking different insurance policies like CAR (Contractors All Risk Policy) and a policy under the Workmen's Compensation Act. Is it sufficient to cover all the risks of employment?

Kindly put in your valuable inputs.

Rahul Sethi

Dear Rahul,

ESIC Scheme protects all "employees" engaged on a monthly remuneration not exceeding Rs. 6500/- in a factory/establishment to which the Act applies. Persons employed for wages on any work connected with the administration of the factory or establishment or any part, department, or branch thereof or purchase of raw materials, or distribution, or sale of the product of a factory or establishment are also covered. Mines, Railway Running Sheds, Naval, Military and Air Force Workshops, and specified seasonal factories are excluded. The scheme also provides full medical cover to the dependants of insured persons. In the event of the death of an insured person due to employment injury, dependants become eligible for cash benefits.

Rahul, your second question is if the CAR policy is sufficient or not? The answer is no because this policy only covers accident and death cases. It does not cover sick benefits for the employee. ESIC covers many benefits, which is why the contractors are arguing for ESIC.

Regards,
Dipali

Dear Dipali,

Thank you for the reply.

Now, contractors have started arguing on this matter. None of them is ready to enroll themselves in ESIC. Their latest argument is that they are also covered under the Building & Construction Act 1996, and people are benefiting from it.

Anybody from the same industry or consultancy, please confirm a simple question: Are building contractors in different construction industries paying ESIC? If yes, is it irrespective of the number of employees? If no, are they required to provide any kind of exemption certificate?

Regards,
Rahul

The answer to the question raised can be submitted appropriately by somebody from the construction industry. However, in the case of the construction of the new factory, ESIC will not be applicable until the factory is covered under the scope of work, i.e., the manufacturing process and requisite minimum numbers. Until ESIC is applicable, even though the site falls under the coverage limit of ESIC.

Regards, ACCHR

Dear Rahul,

ESIC is not applicable in construction companies. You can take out an insurance policy, and these workers will be covered under the Workmen's Compensation Act.

Thanks,
J. S. Malik

Hi Rahul!

This is Haritha, working in Prasiddhi Group of Companies (Bangalore) as an HR. Ours is a property development, infrastructure, layouts business. We also go for subcontracting. We have faced a similar situation in our company. Then our auditor (specialized in labor law) suggested going for ARC (Accident Relief Care). It is better to go for insurance under the Labor Act and register your company as a principal employer. The subcontractor will do the same. They will file a return of Form V. If my reply is confusing, consult any civil lawyer or auditor who is good at labor laws. All the best.

Regards,
Haritha

ESI coverage is applicable when the number of employees is more than 10 or 20, depending on whether the factory/establishment is using power or not. Construction workers are generally not covered under the ESI Act.

The BOCCA Act is different. The 1% CESS deducted from contractors' bills is submitted to the labor department. This amount is to be utilized for the welfare of the workers, but its effectiveness in practice is still lacking.

Subcontractors are automatically registered under the BOCCA Act when they apply for a Labor License.

Ideally, a workmen's compensation policy is the best solution at a construction site. Additionally, providing accident policy coverage, which is cost-effective, would be beneficial. In the unfortunate event of a worker's death, their family can be appropriately compensated.

The CAR or Construction All Risk policy is expensive but comprehensive, and ideally, the principal employer should have a CAR policy in place.

Implementing safety measures at the site is crucial, although it can be challenging to execute in practice.

Dear Mr. Rahul,

ESI will not be applicable to construction sites where the greenfield project is ongoing. However, if the construction is happening in the existing factory (which is covered under ESI or in the notified area) or for the factory expansion work, the contractor should pay ESI.

The CAR policy and WC policy are general coverage policies. As per the Contract Labour Act, WC policy is mandatory, and the CAR policy provides insurance coverage.

If you require the ESI notification regarding the applicability to construction sites, I will send it to you.

Regards,
SVS

Dear Friends,

To all the members who claim that the ESI Act is not applicable to construction companies, I kindly request you to provide relevant case laws or sections that support your comments. This is an important subject that can enhance the knowledge of all involved.

Thank you, Rahul, for starting this discussion.

Thanks and regards,
Datta.

Dear all,

I appreciate the comments of all the people who answered the query. I fully agree with Mr. Datta that whatever we quote on the site or answer a thread, it will always be helpful and supportive to provide a proof like a description or reference of a case. More suggestions are welcome.

Regards, Rahul

Mr. Ruhal,

I am Tirlok Dhir working with Emaar MGF Chandigarh. I am forwarding you the notification from ESIC, which shows that ESIC is not applicable to the construction industry.

Regards,
Tirlok Dhir
09779141430

Dear Rahul,

Please refer to Circular 4 of 1996 of ESIC. All your points are answered in detail.

Insurance policies are entirely different. By taking out policies, you are not absolved from statutory responsibilities.

Ram K. Navaratna
HR Resonance
Visit: hrresonance.googlepages.com

Dear Mr. Rahul and Mr. Tirlok,

I am Rajesh Goel, Managing Partner of a Law Firm in Chandigarh. I would like to quote the relevant case law pertaining to this matter, which states that individuals engaged outside the factory on contract jobs are not considered "employees" (ESIC v/s Shalimar Tar Products, 1976, 1 LLJ 330).

Mr. Ram has mentioned Circular No. 4 of 1996. Please share the same if it is available.

Thank you.

Rajesh Goel

Dear All,

Is there any relevance between the start of production and ESI applicability? If we employ 30 employees today, but the commencement of production starts after 2 months, will ESI be applicable for these 2 months? During these 2 months, trials were ongoing.

Goodbye

Dear Rahul,

I am Dwipna associated with Eden City Group of Companies in the capacity of Head-HR & Administration.

ESIC is not compulsory in the case of construction workers. We are supposed to assist them in getting registered under the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act 1996 (BOCCA).

1% cess is to be recovered from the contractor's bill towards this benefit and submitted to the labor department, which helps cover this unorganized sector for a nominal amount of Rs. 20/- per month.

Please contact your labor department in your city for further clarifications.

Thanks and regards,
Dwipna

Dear All,

Hereby, I am enclosing the ESIC notification on this subject.

Thanks,
SVS

Dear all,

I work for a company that has three contractors who each employ 30 people on our construction site. I am wondering if the Bocca Act applies to my site. Could you please provide me with more details about this act?

Sincerely,
T. Rukmini

Clause 3 of Instruction 4/99 states that workers at the site are to be considered as "employees" under section 2(9). If the number of such workers increases to 20 (and in most cases, it is likely to), then all charging provisions of ESI will be applicable to the PRINCIPAL EMPLOYER (CONTRACTING PARTY) as the words used are "directly in a covered factory by the principal employer or through an immediate employer". The Circular/Instruction thus exempts the Contractor from ESI liabilities but simultaneously binds the Principal Employer. This needs to be clarified by the ESI Department as they have the practice of levying ESI on the entire amount of Construction (ignoring the material component) with hefty interest, subsequently during assessment or inspection.

Hi,

A decade ago, there was a clear notification from the ESIC stating that employees who work on-site need not be covered under ESI, as their working area will be fluctuating and they cannot receive treatment anywhere. The notification was issued 10 years ago, but I am not sure whether the ESIC has revoked it. However, as per the B&S Act 1996, it does not address the ESI part, and the benefits they can claim are minimal.

In my view, it is preferable to cover contract labor employees under a Group Insurance Policy to address unexpected accidents and provide compensation.

Dear all,

We are engaged in the construction of buildings, and we have 10 employees drawing salaries of less than 15000/-. We have also engaged contractors to do construction work.

1. Please clarify whether the ESI Act is applicable to the construction industry.
2. Being the principal employer, do we have to get ourselves registered under the ESI Act, and do the contractors have to as well?

Gudddu

Hi all, I am a Finance man from a reputed construction company. I have gone through all the answers and postings in this forum on the issue of ESI applicability to construction workers.

My question is: Is ESI applicable for construction workers involved in new construction within a compound where there is already a running unit established?

Please let me know.

Mr. Kodandaramu
Email: accounts@pramur.com

Dear all seniors,

My name is Ramesh, and I recently completed my MHRM at Gythri Vidya Parisdh in Vizag. I am seeking some information regarding the procedures for obtaining a P.F. code in a newly established organization. Could you please advise on the steps we need to follow?

Kindly reply to me at your earliest convenience. I am eagerly awaiting your response.

Thank you.

Hi, this is Padma Rao, working as an HR in a construction company in Bangalore.

Construction companies are excluded from the ESIC scheme since the risk factor is very high compared to other types of industries. As I am working for ESIC, engaging in the construction of ESIC model hospitals and medical colleges all over India, we are also excluded from this scheme.

Coming to the second question, where we are not covered in this scheme, we have to take an insurance policy as a group for all contract laborers who will be working under the Workmen's Compensation Act, 1923.

Regards,

Padma Rao K.
Senior Executive HR
Kanakadhara Ventures Pvt Ltd
Bangalore-10

Dear Padma Rao,

Hi, this is Padma Rao, working as an HR in a construction company in Bangalore.

Construction companies are excluded from the ESIC scheme since the risk factor is very high compared to other types of industries. I am working for ESIC, engaging in the construction of ESIC model hospitals and medical colleges all over India; therefore, we are also excluded from this scheme.

Regarding the second question about not being covered in this scheme, we have to take out an insurance policy as a group for all contract laborers who will be working under the Workmen Compensation Act, 1923.

Though yours is a construction agency, as per ESI provisions, your individual office is covered if you have 20 administrative and other clerical staff, including supervisors/engineers whose nature of the job is permanent within your establishment. Only the persons working on the site will not come under the purview of the ESI Act. If you have 20 or more of your permanent workers in your office and they earn less than the wage ceiling, it's better to apply for your office.

Regards,

Padma Rao K.

Senior Executive HR

Kanakadhara Ventures Pvt Ltd

Bangalore-10

Dear All,

The civil construction industry does not fall under ESI coverage. The Principal Contractor and Sub-contractors' workers are all covered by the Principal employer's coverage, and he has to comply with the provisions of ESI. Even if the contributions are paid, no benefits would be available as any accidents occurring in relation to civil work are not considered under any manufacturing activity. Therefore, cash benefits or compensatory benefits could not be extended in such cases. This issue could also be checked with the local ESI Regional Office, where the compliance officer would guide you.

Thank you.

PS: The present ESI coverage limit is Rs. 15,000/-.

Dear All,

I came across various old posts on ESI Applicability to construction Employees today itself. I thought of sharing the information I have with me on this subject.

I am attaching herewith a copy of letter dated 14.06.1999 by Shri. S.P.S. Khetal, Addl. Commissioner ( Revenue ), ESI Corporation, New Delhi addressed to ESI Regional Offices / Sub – Regional Offices, which is self explanatory on ESI coverage of Construction Industry.



Please be also noted that the judgment of the Supreme Court in C.E.S.C. Ltd. Vs. Subhash Chandra Bose & others (Civil Appeal Nos. 3197-98 of 1988) delivered on 15.11.1991 has discussed on the same issue in which two Supreme Court Judges had differed on the applicability of ESIS to employees of contractor and the third Judge, Chief Justice Ranganath Mistra, had asked parliament to resolve the conflict by an amendment to the Law. The above letter dated 14.06.1999 by Addl. Commissioner (Revenue) is subsequent to the Supreme Court Judgment.

Recently I heard there is a case law of Delhi Metro in which the ESI law is made applicable to Delhi Metro on the ground that the construction activity is done with the help of machinery. Recently I also heard that in case of Ready Mix Plant locate in Construction Site, the ESI Act is made applicable to the site. However, I could not confirm the above with details.

The senior members / senior consultants and law practitioners are requested to comment on this subject.

Thanks with regards.

Keshav Korgaonkar

Cell: +91 99675 16383 / 98201 16383

ESIC Coverage for On-Site Employees

A decade ago, there was a clear notification from the ESIC stating that employees who work on-site need not be covered under ESI as their working area will be fluctuating, and they cannot receive treatment anywhere. The notification was issued 10 years ago, but I am not sure whether the ESIC has revoked it. As per the B&S Act 1996, it does not deal with the ESI part, and the benefits they can claim will be minimal.

In my view, it is better to cover contract labor employees under a Group Insurance Policy to address unexpected accident cases and provide compensation.

I am Anbu Loganathan, working as an HR Manager in a Construction Company. The notification issued 10 years ago is still valid. I recently received a letter confirming this from the ESI Regional Commissioner. If you need a copy of the letter, please provide your email address.

Regards,
Anbu Loganathan
Manager HR
[Phone Number Removed For Privacy Reasons]

Dear Anbu, it is suggested that if you have any letter or document that may be helpful to our colleagues, please share it through this forum.

Thanks with regards,
Keshav Korgaonkar
[Phone Number Removed For Privacy Reasons] / [Phone Number Removed For Privacy Reasons]

Please be informed that the ESI Act is not applicable to the construction industry (only sites) as the labor is not stationary. Refer to page 4 of the following link: http://esic.nic.in/CIRCULARS/standar...0111230911.pdf.

Thank you.

I am herewith attaching the recent circular issued by ESIC, New Delhi, which states that due to recent computerization and the concept of Anywhere and Anytime, ESIC is not imposing any bar for the coverage of construction workers.

In view of the above circumstances, it is my personal opinion that we can also cover the construction workers. However, it is important to consider how well you maintain the records relevant to their employment and wages for the requirements of ESI Authorities' inspections.

Extending ESIC Coverage to Construction Workers

I would like to emphasize that if we view the given circular positively as an extension of the scheme to a part of the unorganized sector, construction companies would be better off including the site workers in their attendance and wage registers. However, it raises the question of how many companies are willing to adopt such good practices, as it introduces the new issue of extending EPF coverage to these employees and doubling their contribution burden under EPF.

Therefore, if you are genuinely interested in the welfare of construction workers, please approach the concerned Regional offices of ESIC and extend the scheme to such workers in your organization.

All the best.

Understanding the Applicability of the ESI Act

Firstly, the existing wage limit for coverage under the ESI Act is Rs. 15,000/- per month, which has been in effect since 01/05/2010.

Applicability of the ESI Act

As a matter of fact, the ESI Act, 1948, is applicable to all industries if they fall within the jurisdiction of the ESIC limit, regardless of whether it is a construction company or a manufacturing company. You would appreciate that under Section 2(12) of the Act, it is also applicable to non-seasonal factories employing 10 or more persons.

Under Section 1(5) of the Act, the ESI Scheme has been extended to shops, hotels, restaurants, cinemas including preview theatres, road motor transport undertakings, and newspaper establishments employing 20 or more persons.

Furthermore, under Section 1(5) of the Act, the Scheme has been extended to private medical and educational institutions employing 20 or more persons in certain States/UTs.

ESI Act and Construction Industries

The ESI Act is also applicable to construction industries. ESI is mandatory and applies to all ESI applicable employees (wages less than Rs. 15,000 per month), whether they are direct or indirect employees. Contractors cannot escape from their responsibility by claiming that they have covered their employees under a Group Personal Accident Policy (GPAP is cost-effective, hence contractors prefer this policy). Contractors can opt for GPAP only where ESI is not applicable or in industries/establishments that are outside the ESIC limit.

Let me also caution you that in the event of any accident/mishap happening to a worker of a petty contractor, they may abscond or neglect the treatment of their injured employees. In such circumstances, the entire liability for their treatment will fall upon the principal employer, and all treatment expenses will have to be borne by the principal employer. Additionally, during inspections by ESI authorities even after many years, significant recoveries may be imposed, and you will be responsible for bearing those recoveries along with penalties as the principal employer (considering that those contractors may not be associated with the establishment during the inspection after several years, the chance of recovering such amounts may be slim).

Hence, it is vital that contractors ensure all construction workers fill out Form No. 1 (Declaration Form). The HR Department/Security Office should verify that the forms are properly completed before allowing the entry of such workers. These completed forms should be submitted to ESIC within 10 days of the workers' joining. This is a crucial task, and HR Managers must play a stringent role in enforcing compliance with the basic requirements of the ESI Act, 1948.

Regards,
Rakesh Pd Srivastav

Thank you for the information shared through this thread. Since I am also associated with the construction industry, the link provided me with a lot of information related to my field.

Thank you.

ESI Applicability in the Construction Industry

ESI is applicable in the Construction Industry. You can check it out with the ESI Department. I have already done so.

[QUOTE=neelam nand;1956789] Dear All, Thank you for the information shared through this thread. Since I am also associated with the construction industry, the provided link has given me a lot of valuable information in my field. I appreciate the knowledge sharing, but it is not clear whether Construction Industries are covered under the ESIC Act by law or not. Could anyone provide a constructive response with relevant judgments, notifications, or if there are any challenges to including this industry? I am eagerly awaiting a valuable reply.

Regards.

It is really confusing that after enclosing the official circular, some of our friends are not willing to accept the fact that ESIC is applicable to the construction industry. Please do accept.

Thanks & Regards,

Sumit Kumar Saxena

I am in the construction industry, and we have covered all the staff working in the office and on sites. However, for laborers (contract employees), we have taken out a Workers' Compensation Policy. Could you please provide information on the latest developments regarding the coverage of construction workers under the provisions of the ESI Act? This information would be very useful to me. If there are any latest circulars or notifications on this matter, could you kindly share them?

With Regards,
R. Pavithra

If a non-ESIC unit is getting some construction done at its premises with 6-7 people, will it be enough if they take a policy for these workers under the Workmen's Compensation Act? Or do they have to take excise registration? They currently have no other employees on payroll.

Hi, I am Pankaj,

We are a construction company, and an ESI audit is underway. The officer informed us that any payment made for building, vehicle, office equipment, furniture repair, and maintenance, which involves any labor component, requires us to pay ESI on the labor portion of the work contract. They are also considering the labor portion for ESI on the work-in-progress (WIP) where we have awarded the construction contract.

Please advise.

Yes, it is applicable. I am attaching the reply. Please also verify from the ESIC website with the specific notification number.

The earlier note of 1999 is modified as per this notification.