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Employer Liability under Employee State Insurance Scheme

Prabhat Nigam

| Updated: Jun 27, 2022 | Category: ESI Registration

Employee State Insurance Scheme

During the course of employment, there come many instances where the employee needs instant and extra financial support and thus wishes to be insured against any of such losses and damages. In order to provide insurance in terms of health care and cash benefit payments, the legislature introduced the Employment state insurance scheme. This article discusses employer’s liability under the Employee State Insurance Scheme.      

Who is an employer under the Employee State Insurance Scheme?

The term “employer” has not been defined explicitly under the Employee State Insurance Act. However, the ESI Act[1] has divided the employer into two categories:

  1. Principal Employer
  2. Immediate Employer

Principal Employer

The term “principal employer” has been defined as:

  • The owner or occupier of a factory and includes the managing agent and legal representative of such employer.
  • Head of the Department.
  • The person who is responsible for the control and supervision of the establishment.    

Immediate Employer

The term “Immediate Employer” has been defined as:

  • The person who is responsible for the execution on the premises of an establishment or a factory; or
  • A person who has undertaken the execution under the supervision of the principal employer or his agent; and
  • A person by whom services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to principal employer.

What are the liabilities and obligations of an employer under the Employee State Insurance Scheme?

Following are the liabilities and obligations of an employer under the Employee State Insurance Scheme:

  1. It is the responsibility of employer to register the establishment or factory online under the ESIC Act within a period of 15 days when the Act becomes applicable to the establishment or factory. The registration of the employer’s organisation is done by filing the applicable form in the Regional Office. Such an employer also needs to obtain the Employer’s Code for usage in the documents and forms as mentioned in the ESI Regulations.
  2. An employer of a factory or an establishment, to whom this Act applies and to whom this Act applies, and to whom Employer’s Code has been allotted, is required to furnish to appropriate Regional Office or Sub-Regional Officer of the Divisional Officer by 31st January every year containing the annual information of the factories or establishments.
  3. It is incumbent upon the employer of the factory or establishment to issue identity certificates or pending receipts of identity cards. Alternatively, a ‘Certificate of Employment’ can also be issued to enable them to avail cash and associate medical benefits.
  4. The employer needs to contribute his share under the ESI Contribution at the rate of 3.25% (from the 4.75%) of the wages paid/ payable and the employee also needs to make a contribution of 0.75% (from the earlier rate of 1.75%) of the wages in respect of employee in every wage period with effect from 01.07.2019.
  5. Every employer needs to maintain an accident book which shall be kept readily accessible, wherein appropriate particulars of any accident causing personal injury to an insured person shall be entered. Additionally, the duty of the employer is to preserve that book on completion of 5 years from the date of last entry.
  6. The Accident Report is supposed to be submitted to the concerned Local Insurance Medical Officer of the ESI Dispensary about the serious accidents within 24 hours of the receipt of the notice and the responsibility to provide first aid and medical care and transport also rests on the employer.
  7. The employer is bound to grant leave if the employee presents a sickness certificate from an authorised ESI doctor.
  8. It is responsibility of employer to maintain the records and registers for the purposes of enquiries and inspections. Such registers and records include the attendance registers, cash/bank book, wage registers, employee register, copies of Challans, Accident book, Inspection book, account book, returns of contributions and returns of Declaration Forms.
  9. Within a period of 42 days from date of termination of contribution period, every employer has to send returns of the contributions to the appropriate office.
  10.  Within a period of 21 days from date of permanent closure of the establishment of factory, the employer needs to send a return of contributions to the appropriate office.

What are the benefits enjoyed by the employers under ESI Act?

Following are the benefits that employers enjoy under the ESI Act:

  1. The employers on making contributions under the ESI Act free themselves from all kinds of liabilities related to the employees such as cash allowances, medical facilities etc.
  2. The employers making contributions under ESI Act are exempted from the provisions of the two major labour legislations in India viz. The Maternity Benefit Act, 1961 and the Workmen Compensation Act, 1923. 
  3. The employer is able to claim deductions in the Income Tax against the amount contributed under the Act which lowers the overall income tax of the employer.

Conclusion

From the above discussion, it can be observed that registration and contributions made under the Employee State Insurance Scheme are very important from the viewpoint of both the employer and the employees. The employees get social security and insurance under all circumstances during the course of their employment, both financially and medically. On the other hand, the employer gets a reduced burden of compliances and is further able to claim tax deductions, thereby reducing the overall tax levy on it.   

Read our Article: Understanding the ESIC Scheme and its Benefits

Prabhat Nigam

Prabhat has done his BA LLB (Hons) and has been writing research papers since his law school days. His interest in content writing made him pursue a career in legal research and content writing. His core areas of interest are indirect taxes, finance and real estate.

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