Is My Company Now Required to Register for ESIC with the New Salary Limit? Seeking Guidance on Next Steps

Dear Seniors, I work for an organization where everyone's basic salary + DA was not less than ten thousand, and thus it did not fall under the ESIC Act as the previous ceiling was Rs. 6500. Now, with the limit raised to Rs. 15000 from Rs. 6500, there are some employees who fall into this bracket and hence become eligible for ESI benefits.

Out of 70 employees, approximately 16 employees have a basic salary + DA less than Rs. 15000.

Question on ESIC Act Applicability

Now, my question is, will my organization come under this act? If yes, what is the procedure to enroll or register under the ESIC Act?

Thank you for your time, and I look forward to your valuable advice.

Regards,
J P Das

Dear All,

ESI Applicability in Construction Projects

A construction company is building a factory and employing more than 20 laborers for this project. The company/principal employer has paid the required cess under the Building and Construction Workers Welfare Cess Act.

Please share your insights based on your real experiences (not assumptions or presumptions) on the following:

1. Are the laborers subject to ESI?
2. If so, is the construction company responsible for ESI contributions (if covered under ESI)?
3. Is the principal employer responsible for ESI contributions if the construction company is not covered under ESI?
4. Please support your responses with any recent circulars, amendments, or notifications from ESI.

Regards,
K. Ramachandra
Bangalore

I am attaching herewith a letter of clarification from the ESI authority, which will be very useful to you. You can follow the same.

Regards,
Kiran Kale

Dear J P Das,

Based on your information, it appears that your unit is not covered under the ESI Act. Even with 70 employees in the unit, if they are receiving more than the ceiling limit of ESI when it was Rs. 6500 or Rs. 10,000, your unit is not covered.

Now, if 16 of your employees are earning less than Rs. 15,000 (assuming this is the gross salary and not just Basic or D.A.), in this scenario, your unit remains uncovered and does not need to be registered under the ESI Act. My explanation is contingent on the details provided by you and may change if the circumstances are different.

Regards,
KIRAN KALE

Dear Mr. Kiran Kale, Thank you for your input. I have received a copy of the letter from the ESI Commissioner addressed to the Regional Directors and all ESIC branch offices, outlining the following points. However, upon reviewing the content, two points appear to create ambiguity and contradict each other.

• Such workers engaged by construction agencies and working on the project site should not be considered for coverage by an establishment dealing with construction activities.

• However, such construction workers should be considered for coverage under Section 2(9) as 'employees' who are directly engaged in a covered factory by the principal employer or through an immediate employer.

The first point states that workers engaged by construction agencies on the project site should not be considered for coverage, while the second point implies that these construction workers should be covered under ESI, as they are considered 'employees' when engaged by the principal employer or an immediate employer in a covered factory.

This presents a contradiction. Would you kindly clarify whether companies without an ESI code should not cover employees, and those with a code must include workers under ESI, or provide further insight into the intended meaning?

Regards, K. Ramachandra Bangalore

Dear Ramachandra, The ESI Act of 1948 is not applicable for employees in the construction company; they are covered under the Workmen's Compensation Act. However, employees working in the corporate/regional offices of the construction company who draw a salary (basic + DA) of 15,000 or below are covered under the ESI Act. Please note that employees covered under the ESI Act will not be covered by the Workmen's Compensation Act.

Thank you.

Dear K. Ramachandra, Just think that yours is a construction company having many employees on site work, as well as in the office, but the number of employees in the office is around 8. Your unit is not covered as per the provision. Now, think you have employed 20 or more persons in the office, which is registered under the shops & commercial establishment act. Obviously, your unit is within the ambit of the ESI Act even though it is construction.

Secondly, suppose your unit is not covered, and you accept a work order of a factory covered under the ESI Act. Your employee working on that premises is positively covered, and so the liability to remit contribution to ESI goes to the principal employer, and naturally, the principal employer obtains both employee and employer contributions from your bill. But when you accept to construct the building of a new factory where production is yet to start and no applicability of ESI has commenced, then you are free from all the liabilities under the act. Hope you are satisfied.

Regards, KIRAN KALE.

Dear Mr. Kale, Thank you for your inputs. You have tried your best to clarify the point. I could infer from your point that as the factory is not covered under the ESI Act and also as the factory being constructed is a new factory where the ESI Act is not applicable due to the definition of a Factory under the ESI Act (as manufacturing activity has not begun), and as the construction company also has no ESI code, the ESI Act is not applicable to the construction company in this case. Therefore, I safely conclude that ESI will not be applicable to these persons.

I thank you again for your inputs.

Regards,
K. Ramachandra
Bangalore

Dear Bhanu Kalinga, I thank you for your inputs. Though I have worked extensively on ESI issues and am well aware of its applicability, somehow this construction worker's situation prior to the commencement of the factory was bothering me.

Just for your information, the ESI-eligible salary includes all components (except washing allowance) and not just Basic + DA.

I agree with you that those who are covered under the WC Act are not covered under the ESI Act; however, those whose salary is Rs. 15,000 will automatically have to come under the ESI Act (provided such companies have the eligible number of persons).

Thank you once again.

Regards,
K. Ramachandra

Dear Mr. Bhanu Kalinga, Not to get offended, please! It was only a correction from my side. Your input has definitely added clarification to the ESI applicability for workers connected with construction and helped to conclude the understanding on it. I appreciate your participation and value your experience.

Regards,
K. Ramachandra

Dear all,

Clarifications Regarding the Coverage of Construction Workers

1. Construction agencies are in the unorganized sector. Due to the peculiarity of the construction industry in terms of project area, mobility, and migration of workers, and the extension of the ESI scheme to far-flung areas being not feasible, it was decided not to extend coverage to construction workers under ESI. (Notification dated 14-06-1999)

2. Notwithstanding the above, if the number of employees working in the offices of the construction agencies is 20 or more, they will be considered employees under section 2 (9) of the ESI Act and hence will be covered under ESI, entitling them to contribution and benefits thereof. (Notification dated 14-06-1999)

3. However, workers under construction agencies deployed through the Principal employer in an ESI-covered factory will be considered employees under section 2 (9) of the ESI Act and hence will be covered under ESI, entitling them to contribution and benefits thereof. (Notification dated 14-06-1999)

4. Where an additional building is constructed either directly or through a contractor within the premises of the factory/establishment already covered under ESI, such workers under the construction contractor will be covered. Regarding the liability of payment of contributions, the onus will be on the principal employer, but he can recover the employer contribution or both employer and employee contributions in case of compulsion from the immediate employer. (Notification dated 31-03-2000)

5. Where another building for the factory or establishment, including residential accommodation, is constructed outside the ESI-covered factory/establishment, directly or through a contractor but away from the already covered factory/establishment, the workers involved in such construction work are not covered under ESI until the commencement of the work of the factory/establishment, even if the work in the present premises is ancillary or incidental to the already covered factory/establishment. (Notification dated 31-03-2000)

Regards,
A. Irudayam

Advocate - High Court of Madras

[Phone Number Removed For Privacy Reasons]

Hi, my question is also based on ESI. Suppose we hire any agency to carry out civil or mechanical work inside our premises, and the work consists of labor plus material costs. As per the law, as the principal employer, we are responsible for the ESI coverage of contractor employees, either through their code or, in case they are not covered, then we have to abide by it. Now, what percentage of ESI has to be deducted in such cases? Suppose the contract value is 50K or 150K, what will be the ESI applicability in these scenarios? I hope my query is clear.

I agree with your suggestion and am satisfied. However, I am still confused about one thing: we are very clear that the ESIC Act is not applicable to those workers engaged in building and other construction work. My query is, if an establishment or factory covered under the ESIC places a work order with a company to construct or build any property or building, would it be applicable for the contractor and the principal employer to pay contributions under the ESIC Act?

Regards,
Hemant KK