Navigating Legal Compliance: What Happens if a Company Skips ESI, Gratuity, and Leave Benefits?

Can anybody please give me any idea that if a company is registered under the Shops and Establishment Act but does not provide ESI, Gratuity, and minimum days of leaves, then what can happen? Is it okay if PF is provided only to those employees whose basic is less than 6500?

If a company has different branch units in different states, is it required for every branch unit to get registered? If they are not, then what is the future of that unit?

If a company's strength - including all branches - is more than 20, then the company should provide ESI and PF to employees. It is acceptable to provide PF to those employees whose basic is less than 6500. The company should provide leave as per the particular state rules where the branch is located. The PF code can be the same for all branches, but the ESI code needs to be obtained separately.

This is the legal position. If a company does not comply, they will have to face the consequences.

Thank you very much for your reply. Our employee strength is nearly 100, and it is basically a one-man company. So, can you please tell me what will be the role of an HR when the management doesn't feel it necessary to provide a minimum number of leaves and ESI? What are the consequences of not obeying the legal compliances?

You can only make a suggestion to your employer. If he does not listen, it is not your fault. However, he might have to face serious problems eventually. Especially in the case of ESI, the whole amount will be recovered from the employer with interest and penalty.

Malik has said it. If you are an HR person, you have to convince the employer of the consequences of not complying with Labour Acts. You can convince him that if your establishment is covered by ESI, the ESI Corporation will look after the workman's compensation in case of an accident and even death while on the job. You have to highlight that a woman employee covered by ESI will get maternity benefits from ESIC, and the employer need not provide it. The employer's liability is limited to a meager amount calculated at 4.75% of salary. However, if he has not gone for ESI, in case of accidents, he will have to bear the burden of paying compensation as per the Workmen's Compensation Act.

Regards, Madhu.T.K

The penal consequences contemplated under the ESI Act, 1948 for non-compliance are summarized below:

PENAL PROVISIONS

i. Sec 84 provides for punishment of imprisonment of up to 6 months or with a fine not exceeding Rs. 2000/- for making false statements to avail ESI benefits and forfeiture of cash benefits.

ii. Sec 85 (a) An employer who fails to pay the contribution due (Sec 40) is punishable with imprisonment for up to 3 years but shall not be less than one year where the employees' share is not paid after recovery and shall also be liable to pay a fine of Rs. 10,000/-.

iii. In any case, it shall not be less than 6 months and shall also be liable to pay a fine of Rs. 5000/-

iv. Sec 85 (b) - (g) such as recovery of the employer's contribution from the employee (Sec 72), reduces the wages/benefits of the employee, dismisses/discharges/punishes I.P who is in receipt of ESI Benefit (Sec 73), non-submission of returns (Sec 26), obstructs Inspector, or contravention of any other provision of the Act shall be punishable with imprisonment for a term which may extend to one year or with a fine which may extend to Rs. 4000/- or with both.

Sec 85 A provides for enhanced punishment if convicted for the same offense again; he shall be punishable with imprisonment for a term which may extend to two years and with a fine of Rs. 5000/-. However, failure to pay the contribution due after conviction, the employer shall be punishable with imprisonment for a term which may extend to five years but shall not be less than 2 years and shall also be liable for a fine of Rs. 25000/-.

P.S. This is apart from the recovery of ESI contribution due together with interest and damages.

Regards,
Patrick Ryan

I thank all of you for your valued inputs.

I would also like to know whether any employer running the business for 8 years, registered under the Shops and Establishment Act, employing nearly 100 employees, and having a turnover of around 20 Crores is liable to pay a minimum of 8.33% of the basic salary as a bonus in a year to all employees. If not provided, what are the legal consequences?

In the existing system, the privilege leave (PL) is encashed only during separation. Is the employer liable to encash PL if the employee requests to do so?

Your company owner is walking on thin ice. Let him enjoy until the going is good.

He is running an organization employing 100 persons with a turnover of 20 crores for the last eight years. However, there is no PF, no ESI, no bonus, and presumably no gratuity?

In the case of a bonus, there is an infancy clause. But considering your company has completed eight years, where is the question of not giving at least 8.33%?

It appears that no labor laws are being followed in your organization. How is it possible that your S & E Inspector has not pointed out anything so far? Are you managing him with a 'lifafa'?

As an HR person, it is your duty to make your boss understand that following the laws of the land will help him run his organization efficiently.

A simple complaint to a labor officer could open the floodgates for your company.

Applying for PF and ESI now and obtaining registration without scrutiny of your past years' books will be challenging. However, there is an amnesty scheme for ESI currently ongoing. Seize this opportunity and apply. Consider applying for PF registration as well. Although it might involve paying some hush money to the inspecting officers, you should not delay. They will inquire about when your employee count first exceeded twenty. By creatively adjusting this number to satisfy the inspectors (with the aid of 'lifafa'), you can obtain the necessary Code numbers.

Keep in mind that PF and ESI authorities wield significant power and could potentially disrupt your business.

Being acquainted with them is troublesome, but being ignorant of them is worse.