Understanding ESIC Act: Does Employee Count Mean On-Roll or Present Daily?

Hello, Under the applicability of the ESIC Act, it is stated in the act that it is applicable when 10 (for factories) / 20 (for other establishments) or more employees are employed in the preceding 12 months on any day. My query is whether the word "employed" means employed on rolls or employed and present on one single day. For example, one may have 25 employees employed from the 1st to the 30th, but it may so happen that not one day in the month all 20 employees were present. In such a case, whether the ESIC Act applicability will be checked based on the fact that:

1) 25 people were on the muster roll of the employer and hence ESIC is applicable, OR
2) no single day had 20 employees present altogether and hence the applicability doesn't arise.

Experts may shed some light on this subject. Thanks in advance for your response.

Clarification on ESI Applicability

Now it is not 20 but 10 in all cases. Therefore, if on any day, the number of employees engaged either directly or through a contractor is 10, then the ESI will be applicable since that date.

Regards,
Madhu.T.K

ESIC Applicability Clarification

ESIC Applicability means that if, on any day of any month in the preceding twelve months, there are 10 or more employees, the ESIC Act will be applicable. This includes employees who earn above Rs. 15,000/-. Even if the number of employees earning above this threshold is reached, the ESIC Act will still apply.

Regards

Please suggest regarding my query. In my organization, we have more than 30 employees, and everyone's salary exceeds the ESIC limit. I would like to know if we need to register under ESIC even though we are not required to deduct any contributions.

Regards,
Vikram

Yes, as per the ESI Amendment Act of 2010, Section 2(12), ESI will be applicable in your organization.

Regards,
J. Basak

I would like to clarify your vision of Sec 2(12) ESI Amendment Act. Be informed that in the case of Vikram or where all employees receiving wages/salary exceed ₹15,000, there is no need to get ESI registration because they are all exempted employees. However, when a single person joins who is earning less than ₹15,000 per month, then in the same month, there is a need to register under the ESI Act, and the Act will be applicable from the day the eligible person joins, i.e., earning wages up to ₹15,000.

Amendment to the Definition of Factory

The definition of Factory under Section 2(12) has been amended to expand the coverage of smaller factories. The amended Act covers all factories that employ 10 or more persons, regardless of whether the manufacturing process is carried out with or without the aid of power.

Factory Definition Amendment

The definition of "Factory" under Clause 12 of Section 2 has been amended. The old and new definitions need to be compared, so I am reproducing 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.

New Definition:

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 both, the following implications of the amendment emerge:
- Now, units where manufacturing activities are performed by 10 or more persons have been brought under the ambit of the Act, irrespective of the use of power and irrespective of whether 10 or more coverable employees are engaged.
- The definition of "Factory" has been amended to bring small units within the ambit of the Act. Earlier, the ESI Act was applicable to units employing 10 or more persons manufacturing with the aid of "POWER." Now, the word "POWER" has been omitted. Thus, every unit manufacturing and employing 10 or more persons has been brought under the ambit of the ESI Act.
- Secondly, a 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, a unit employing 10 or more workers and doing a manufacturing process would still be out of the purview of the Act if there were persons drawing a salary above the prescribed limit. But now, the ESI Corporation has very smartly omitted the words "for wages" in the new definition of "Factory," bringing all units employing 10 or more persons and engaged in the manufacturing process within its ambit.

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." As per the new definition, it has been clearly mentioned that if ten or more persons are employed or were employed on any day of the preceding twelve months (irrespective of wages), ESI will be applicable.

Regards,
J.Basak

Ok, you may agree with your definition, but please reply to me about the following:

1. Suppose a company is employing 30 employees/workers for wages, and all of them are receiving Rs. 20,000/- (Twenty Thousand per month). As per your understanding of the new amendment, the factory will be covered under the ESI Act. So...

2. What happens from the next month when the wages are paid out, and every employee is exempted?
(a) Will the company deduct the ESI contribution from the salary of employees receiving Rs. 20,000/- per month?
(b) If not, what is the benefit of ESI coverage if no contribution is paid to ESIC every month?

Understanding Employee Coverage Under ESI

The number of employees (ten) for coverage purposes includes those who earn more than Rs 15,000. Coverage for the establishment and coverage for employees are two different factors. An establishment, whether a factory or commercial establishment, employing at least 10 employees either directly or through a contractor, whether they earn less than or more than Rs 15,000 as salary, will be under the cover of ESI. Within that establishment, only those earning Rs 15,000 or less are covered as employees.

Once an establishment is covered, it will continue to be covered until its winding up. This means that if all employees start earning more than Rs 15,000 or the coverable limit fixed by the ESIC (which can be increased at any time – ESIC is going to increase it!), the establishment will remain covered. Returns (NIL return) will have to be submitted as required even if the establishment is not making any contribution. If an increase in salary occurs during a contribution period, contributions should be paid until the end of that contribution period.

Since all casual employees are covered by the Act, it is practically difficult to say that all are not covered, and there should be someone who is earning a salary within the limit fixed by the ESIC, I believe.

Regards,
Madhu.T.K

Dear Mr. IR-MANAGER, one correction, it is not my definition; I just quoted from the ESI Act. I think you got the answer from the post of Mr. Madhu T.K. You just have to submit a nil return if all the employees' salaries are above the ceiling limit.

Regards, J. Basak

For your query, your industry is covered under the ESI Act. However, employees who are drawing more than Rs. 15,000/- are exempted from the coverage. You do not need to deduct any amount from the employees towards the ESI. If these employees are not covered under the ESI and the management has not paid its share of contribution, the employees will not receive any benefits. The management should cover these employees either under the Workmen's Compensation Act or any other medical benefits scheme such as Mediclaim, etc.

I hope this clarifies your doubt.

Regards,
G.K. Manjunath
Sr. Manager-HR