ESI under Code on Social Security: An Overview of Changes

ESI – Background 

Employees’ State Insurance Scheme [‘ESI Scheme’] is a comprehensive social security scheme devised to protect employees and their dependents, covered under it, against contingencies, such as sickness, maternity, and death or disability due to employment injuries.

The ESI Scheme is based on the principle of ‘pooling of risks and resources’, wherein that section of the population, which is exposed to risks of the same nature, comes together to mitigate the physical and financial distress arising out of such risks.

With the amalgamation of 9 social security legislations under the Code on Social Security, 2020, the ESI Scheme [under Chapter IV of the Code] has undergone some changes. This post will discuss and analyse some of these changes.

Changes in the Applicability and Coverage of ESI Scheme under the Code on Social Security

The Employees’ State Insurance Act, 1948 [‘ESI Act’] is applicable to non-seasonal power using factories employing 10 or more persons and non-power using factories and establishments employing 20 or more persons. All employees who earn less than ₹ 21,000/month are covered. ESI under Code on Social Security reduces this threshold by making Chapter IV applicable to every establishment where 10 or more persons are employed. The wage ceiling is to be notified by the Central Government.

Presently, the ESI Act does not operate at a pan-India level and is being implemented district-wise through notification. However, ESI under the new Code has been made applicable to the entire country, subject to the specified threshold of 10 employees in an establishment.

Further, a provision has been introduced in the First Schedule to enable the Central Government to notify applicability of ESIC Act on those classes of establishment, which engage in hazardous or life-threatening activities. In these classes of establishment, ESI will be applicable even if only one worker is employed.

Provisions for voluntary inclusion under the ESI Scheme have also been introduced. An employer of a plantation may opt for ESI under the Code on Social Security by giving willingness to the ESI Corporation. Further, a non-obstante clause [Section 1(7)] enables voluntary membership under ESI even if the number of employees in an establishment is less than the specified threshold of 10. In case an employer and a majority of the employees of an establishment agree to be covered by ESI, then on an application made by the employer or otherwise, the Director General of ESIC may allow the applicability of ESI to such establishment.

These measures, of voluntary membership, reduced threshold of 10 employees and applicability to establishments carrying out hazardous activities, will help in widening the applicability of ESI under the Code on Social Security at a pan-India level across establishments. At present, 3.5 crore families are covered under the ESI Scheme. It is expected that the coverage will increase to 10 crore families under the new Code.

Digitization of Procedures related to ESI

Digitization of procedures through a centralized web-based portal, the Shram Suvidha Portal, is expected to simplify compliance processes for employers. Digitization will also help in maintaining a database of information that is easily accessible for disbursement of benefits.

The Draft Code on Social Security (Central) Rules, 2020 provides for registration of establishments and employees, updation of information, cancellation of registration through the Shram Suvidha Portal. This digitization of processes is expected to increase coverage and ease compliance under the ESI Scheme.

The employer is also required to register a person, who is not already registered on the portal, before taking them into employment. Employers shall also be responsible for the correctness of the particulars of the employee registered on the portal by them. While these provisions may increase compliance procedures for employers, they are also necessary to ensure that digitization does not disadvantage technologically disinclined employees.

Strengthening of Enforcement of ESI under Code on Social Security

One of the main concerns during drafting of the Code on Social Security was the enforcement of the ESI Scheme. The Code and Draft Rules introduce multiple provisions to strengthen enforcement.

The Code has a provision for centralized inspection through the web portal. While the Central Government has not notified any Rules in this regard, it may do so in the future.

Additionally, under Section 122(6)(c) of the Social Security Code, the Inspector-cum-Facilitator has the power of search and seizure in respect of any offence that the Inspector believes to have been committed by the employer. Earlier, there was no such provision for search and seizure under the ESI Act, but now this search and seizure can be exercised to ensure compliance related to ESI under the Code.

Grandparent as Dependant

The Code has added grandparents under the definition of ‘dependant’ [Section 24(c)(viii)] if the grandparent is wholly or in part dependent on the earnings of the employee at the time of their death and if no parent of the employee is alive. The ESI Act did not provide for this. This is a welcome addition towards recognizing and providing for the welfare of senior citizens.

It is to be noted that the rates of contribution and quantum of benefits are the same for ESI under the Code on Social Security as in the ESI Act at present.

What do you think of these changes to the ESI Scheme under the new Code on Social Security? Do you think that coverage of the ESI Scheme will increase? Will digitization ease compliance for establishments? Let us know your thoughts below!

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney.Simpliance makes no representations or warranties in relation to the information on this article.