Employee Compensation
Act, 1923
LECTURE 15.
Introduction
• The “Employees Compensation Act, 1923” is an Act to
provide payment in the form of compensation by the
employers to the employees for any injuries they have
suffered during an accident.
• Earlier this Act was known as the Workmen
Compensation Act, 1923.
Applicability
• The Workmen’s Compensation Act, 1923 is applicable to companies or
establishments operating in specific sectors and having more than 10
employees.
• The act provides financial compensation to employees in case they meet
with an unfortunate accident while performing their duties.
• The coverage receivable under this act depends on the insurance
company that is affiliated with the employer. The type and extent of
financial coverage, as well as its applicable terms and conditions, are
determined by the insurer.
• Please note that the applicability of the Workmen’s Compensation Act
may vary depending on the state and other factors.
Who will be receiving the compensation on behalf of the
deceased?
• A widow or a minor who is a legitimate son or unmarried daughter or a widowed
mother is entitled to compensation;
• If the family of the deceased is wholly dependent on the earnings of the employee at
the time of his death or a son or daughter who has attained the age of eighteen years;
• A widower;
• A parent other than a widowed mother;
• A minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or
illegitimate or adopted if married and a minor or if widowed and a minor;
• A minor brother or an unmarried sister or a widowed sister if a minor;
• A widowed daughter-in-law;
• A minor child of a predeceased son;
• A minor child of a predeceased daughter where no parent of the child is alive, or;
• A paternal grandparent if no parent of the employee is alive.
Doctrine of added peril
• When an employee performs something which is not
required in his duty, and which involves extra danger,
the employer cannot be held liable to pay compensation
for the injuries caused.
• In the case of Devidayal Ralyaram v/s Secretary of
State. It was ruled that the doctrine of added peril was
used as defense and the employer was not liable for the
compensation.
• According to Section 3 of the Workmen’s Compensation Act, an employer
is liable to pay damages to its workers under the following conditions:
• If a worker has an occupational disease mentioned under Part A, B, C of
Schedule III. The disease has to be a result of an injury by accident during
work hours.
• An injury sustained by an employee during work that leads to total or
partial disability
• Death of an employee due to a work-related hazard
Employer’s liability in case of occupational diseases
• There are certain occupations which expose employees
to particular diseases that are inherent• Infra-red radiations;
• Skin diseases due to chemical or leather processing
units;
• Hearing impairment caused by noise;
• Lung cancer caused by asbestos dust and Diseases due
to effect of extreme climatic conditions.
• Partial disablement is a situation where the disablement reduces the
earning capacity of an employee in any employment in which he was
engaged at the time of the accident resulting in the disablement, or
where the disablement is of a permanent nature and reduces his earning
capacity in every employment which he was capable of undertaking at
that time.
• Partial disablement can be further classified into two categories:
• Temporary partial disablement: It is a situation in which earning capacity
of an employee decreases due to temporary disablement to perform his
duty in the course of employment.
• Permanent partial disablement: It occurs when an employee’s capacity
to work compromises or decreases as compared to the work done by
him before the injury but for a lifetime.
Compensation amount
• Where death results from the injury-Sec 4(1)(a) –
• 50% of monthly wages or an amount of 1, 20,000 which ever is more.
50 x Monthly wages x Relevant factor*
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• And Rs.5000/- extra for funeral expenses u/s 4(4) by amendment of 2009
• Where permanent total disablement results from the injury• The employer is liable to pay 60% of the injured employee’s monthly wages multiplied by “the relevant factor”
or ₹1,40,000, whichever is more.
• 60 x Monthly wages x Relevant factor
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• Where permanent partial disablement results from injury• In the case of permanent partial disablement, the compensation provided is equal to disability as sixty percent or
rupees ninety thousand.
• Temporary Disability: 25% of the employee’s monthly wages.
• *The relevant factor is calculated based on the age of the employee at the time of injury and is specified in a
schedule appended to the Act
When the employer is not liable to
pay compensation1.If the injury does not end in the entire or partial disablement of the
employee for a period exceeding three days.
2.If the injury, not leading in death or permanent total disablement, is
caused by an accident which is directly attributable to:
• The employee having at the time of the accident is under the influence
of drink or drugs;
• The willful disobedience of the employee to an order if the rule is
expressly given or expressly framed, for the purpose of securing the
safety of employees; or
• The willful removal or disregard by the employee of any safety guard
or other device which has been provided for the purpose of securing
the safety of employees.
Extent of cover offered
• The extent of coverage eventually depends on the insurance partner employer choose.
Some may provide basic coverage whereas others may go above and beyond.
• In general, the following are some of the common aspects that are covered by most
workmen’s compensation insurance policies in India.
• Any injury, bodily harm or otherwise, brought upon by a mishap during employment
• Disease, injury, or condition aggravated by work conditions
Temporary disablement or death
Partial or complete disablement that is permanent in nature
Any or all legal expenses and costs incurred
What is not covered?
• There are specific situations and cases where a workmen’s
compensation insurance will not cover your organization and employees.
• Any or all liabilities assumed under an agreement
• Injury or accident caused by consumption of drugs or alcohol
• Injuries caused as a result of insurrections, war, or invasion
• Contractor employees are not covered unless they’re declared or insured
• The first 3 days of disablement when the disablement lasts less than 28
days
• Any type of injury that does not cause partial disablement for more than
3 days
• Any injury or disablement caused as a result of the employee flouting
safety norms and regulations
Payment of
Wages Act,
1936
Approach taken by the Payment of Wages Act, 1936
• This legislation follows a specific approach to governing the payment of
wages to workers by their employers. It is a 2-step approach. It involves
–
• The first one is to specify a date on which the wages are paid, and
• The second one is to see if the pay deduction that was stated by the
employer is reasonable or not.
Wages
• Wages have been defined under Section 2(iv) of the Payment
of Wages Act, 1936. “Wages” refers to all remuneration
(whether paid in the category of wage entitlements or
otherwise) represented in cash or qualified to be presented in
finances that would be due for payment to a worker in respect
of his occupation or work performed in such employment.
Exceptions
Any remuneration to which the employee has a right under any system established by any law in effect
at the time, with the following exceptions:
• Any benefit (whether through a profit-sharing agreement or elsewhere) that is not paid under a prize,
settlement, or court ruling and is not part of the payment due under the conditions of employment;
• Any housing accommodations, access to electricity and water, basic healthcare, or other perks, as
well as any services not included in the calculation of wages under a general or specific decree of the
State Government;
• Any employer contributions to pensions or provident funds, as well as any interest that has accrued;
• Any travel reimbursement or travel concessions value;
• Whatever amount is paid to the employee to cover specific costs that his work requires of him; or
• Any gratuity due upon dismissal from work under conditions other than those mentioned in subclause
(d).
• In Section 3 of the Payment of Wages Act, it is stated who is accountable for paying wages to the workers. Each
and every worker that an employer engages or employs for labour purposes is entitled to receive payment of all
wages due to them.
• In other circumstances, if the employer identifies a person or, on the rare chance, realises that there is a person
qualified for the job or is authorised for the same task, at that point, such a person is responsible for the
payment of wages.
• These points must be noted concerning the obligation of the employer to pay wages –
• Regardless of what is said in sub-section (1), the company is competent to pay any wages that are required
under the Act.
• Also, if the contractual employee or any person to whom the employer designates to make the payment in
favour of the workers forgets to do so, then the employer is the one to be held responsible.
• Each employer shall be held responsible for paying all necessary wages and benefits to the individuals they
employ.
• The manager of that production facility will be responsible for paying the wages of the employees he employs as
a result of the industrial setting.
Fixing specific period for payment of wages
• Each person responsible for the payment of wages under Section 3 will establish the time frames for which
those earnings are due. No pay term shall be longer than one month. The Payment of Wages Act, 1936
clearly indicates that wages can be paid to workers in the following way –
• Payment on a day-to-day basis.
• Payment on a week-by-week basis.
• Payment to be paid fortnightly.
• Payment on a monthly basis.
• Also, the Act clearly mentions that under no circumstances shall the payment of wages to the representatives
by the manager go beyond the intervals of 1 month, i.e., 30 days.
• Moreover, considering the then-prevalent situation where the workers were paid wages –
• Annually,
• Bi-annually, or
• Quarterly
• The Act mentioned that wages could not be paid following this system as it leads to increased indebtedness of
the workers.
Day on which wages shall be paid
• According to Section 5(1) –
• (1) Every person employed upon or in:
1.Any railway, factory or industrial or other establishments upon or in
which the total number of employed persons is less than one thousand,
must receive his wages before the expiry of the seventh day from the
last day of the wage period for which the wages are payable.
2.Any other railway, factory or industrial or other establishments, must
receive his wages before the expiry of the tenth day from the last day
of the wage period for which the wages are payable.”
• These points must be noted with regard to the payment of wages. The
points are as follows –
• When a worker’s engagement with an employer is terminated, the
employer is then responsible for ensuring that the terminated worker
receives their pay by the end of the second working day following the
date of termination.
• The company or the individual accountable for the payment of wages
must ensure that the wages are paid on a working day.
• The competent authorities may ask the person responsible for making
wage payments to recruit or appoint persons, but only to a certain
extent and according to the restrictions set out in the order.
Payment of wages in current cash, either coins or notes
• The employer or person in charge of paying wages must pay the wages
to the workers in the currently prevalent currency, either coins, cash
notes, or a combination of both.
• Furthermore, the employer is also not allowed to make a kind
payment. Moreover, after receiving written authorisation from the
employee, the employer may pay the employee’s earnings via cheque
or bank transfer into his bank.
• The employer of each employee working in such commercial or other
facilities shall pay the employee’s wages only by issuing a cheque or by
depositing the money to his bank account, as specified by the
competent government by notification in the Official Gazette.
Payroll deduction permitted under the act
• Manufacturing or production firms should deduct money in accordance with this Act as
simply as possible at the time that employees are paid their wages. The employer would no
longer be permitted to deduct what he deems fit. Deductions relating to all payments made
by an employee to his employer must be stated beforehand.
• The following are not included in the definition of a deduction:
• Restriction of the employee’s raise
• Cancellation of the employee’s promotion
• Stopping the incentive for poor productivity by using the worker
• Demotion of the employee by the employer
• Termination of the employee
• The aforementioned actions taken by the organisation must have a good and appropriate
justification before initiation.
Fines
• Employers should impose a fine on employees only with prior approval from the state government or other
authorised institutions. Before imposing a fine on the employee, the employer must go by the rules listed
below.
• In the workplace, a notice listing all fines imposed on employees should be posted. This notice should also
list any actions that the representative should not take.
• The worker shouldn’t be forced to pay a fine before explaining his actions and providing justification for
them.
• The total amount of the fines shouldn’t be more than 3% of his salary.
• Any person under the age of fifteen should not be required to pay a fine.
• In order to punish the worker for his acts or omissions, a fine should be imposed only once on his wages.
• The mechanism for shareholdings or reimbursements from the representatives should not be used to collect
penalties.
• Within 60 days of the date the penalty was imposed, it must be deducted or recovered.
• On the day that the worker or employee commits the act of exclusion, a fine should be imposed.
• All fines collected from workers should be added to the general reserve and used to assist the workers.
Authorities under the Payment of Wages Act of 1936
• Authority for the purposes of this Act may be chosen by the state
government. Any authority will be regarded as a public servant for the
purposes of Section 14 of the Indian Penal Code, which was passed in
1860.
• Inspector
• A monitor may be chosen by the state government to oversee the
implementation of this legislation. Each inspector will be treated as a
member of the general public or a public worker for the purposes of
Section 14 of the Indian Penal Code, 1860.
Rights of the inspector
• The Inspector under this law has the following authority:
• Inspectors have the authority to conduct investigations and evaluate whether
employers are appropriately adhering to the rules mentioned in this Act or
not.
• For the purposes of carrying out the purposes of this Act, the Inspector may,
with the assistance, if any, he deems necessary, may enter, investigate, and
examine any property of any railway, production system, industrial, or other
establishments.
• An inspector is capable of overseeing the payment of wages. It includes the
payments to those working on any foundation, whether it be a factory,
machinery, other establishments, or a railway. It includes taking possession of
or making copies of any registers, records, or sections thereof that he deems
important in relation to a violation of the Act.
Appeal
• Section 17 of this Act mentions the right to appeal. The parties who
are dissatisfied may file an appeal with the district court under the
following circumstances:
• In the unlikely event that the above organisations reject the applicant’s
request.
• In the unlikely event that the total exceeds INR 25, the employer will
retain it for the single unpaid employee. If several unpaid workers are
present, they will each receive INR 50.
Basis
Payment of Wages Act of 1936
Minimum Wages Act of 1948
Objective of the Act
The objective behind the introduction of this Act was to ensure
The objective behind the introduction of this Act was to prevent
that every worker receives at least a minimum amount of money
delays in the payment of wages that led to a debt trap for the
as wages and to avoid the exploitation of the informal sector
informal sector workers.
workers.
Application and scope of the Act
Payment of Wages Act of 1936 applies uniformly to the whole
territory of India, including the State of Jammu and Kashmir.
Definition of Wages
Payment of Wages Act of 1936 defines “wages” under Section 2 Minimum Wages Act of 1948 defines “wages” under Section 2
(VI) of the Act.
(h) of the Act.
Purpose of the Act
The Act is designed to set up the minimum wage determining
The Act aims to control how certain types of people who work in mechanism in industries where there is no plan in place for the
the industry are paid their wages. Its goal is to guarantee the
absolute management of wages. This mechanism is built by
regular payment of wages free from any unlawful deductions.
collective bargaining agreements or other means. It prevents the
exploitation of workers.
Inclusion of housing allowance
The housing allowance is not a part of wages under the Payment Wages include a housing rent allowance under the Minimum
of Wages Act of 1936.
Wages Act of 1948.
Additional remuneration
Regardless of whether it is referred to as a monetary incentive or
The additional payments due under the conditions of
by another name, any additional compensation due under the
employment to the employee are not considered wages.
conditions of employment is not considered as “wages.”
Scope of wages
“Wages” encompasses compensation for extra hours, holidays,
and leave time.
Compensation by the court
Any compensation that is due under a court’s orders, judgments, It excludes any compensation due in accordance with a court’s
or settlements is considered wages.
decision, settlement, or decree.
Other monetary amounts payable regarding employment
Wages also comprise any amount that is payable by the
employer to the employee related to his or her termination of
work under any law, etc.
Scheme-related monetary benefit
Any amount that the employee is eligible to receive under a
scheme created in accordance with law is included in wages.
Minimum Wages Act of 1948 is applicable to the whole of India.
However, its scope varies depending on states and regions.
Compensation for extra hours, holidays, and leave time is
excluded.
Wages under the Minimum Wages Act of 1948 does not
comprise any amount that is payable by the employer to the
employee related to his or her termination of work under any
law, etc.
Any amount that the employee is eligible to receive under a
scheme created in accordance with a law is not included in the