Definition of Factory under ESI Act

Under ESI, a factory is defined as any premises, including the precincts thereof, where 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 or without the aid of power.

If within the same premises of a factory a number of departments are situated and the departments are engaged in the work in connection with or incidental to a manufacturing process of the factory, they would all form part of the factor.

Also, the definition of a factory under ESI includes a seasonal factory which works for a period not exceeding seven months in a year and is engaged during that period in any process of blending, packing or repackaging of tea or coffee or other manufacturing process notified by the Central Government.

The definition of a factory under ESI does not include a mine, subject to the operation of the Mines Act, 2952 or a railway running shed.

In summary, as long as the number of persons working on the factory premises is ten or more, the premises is a factory irrespective of the consideration whether they are paid wages or not. Also, all persons working in a factory need not be employed for the manufacturing process.

Definition of Establishments under ESI Act

Under the ESI Act, an establishment is an organised body of men or women or an institution, not necessarily confined to a premise or place. Hence, as long as an establishment employs 20 or more persons, it would be required to obtain ESI registration. Establishments employing less than 20 employees drawing less than Rs.21,000 per month as wages will not be required to obtain ESI registration.

Shops must also be registered under the ESI Act. The Supreme Court has held that ESI Act is a beneficial legislation, and the word shop has to be construed in a liberal sense. Further, The Supreme Court has held that a ‘shop’ includes the premises where economic activities leading to sale or purchase are carried on. Thus, the essential ingredient for determining a shop is that services are rendered to the customer. Hence, service providers like advertisement agencies, liaison office, consultancy service providers, real estate service providers and more will be required to obtain ESI registration, if other criteria’s are fulfilled.

However, while considering the coverage of shops, educational institutions, hospitals, dispensaries, offices of Auditors and Solicitors, Chartered Accountants and private commercial hospitals are excluded.

Benefits of ESI Registration for Employee

The following are some of the major benefits for employees working in a ESI Registered entity.

• 1

  Medical Benefit

  Full medical care is provided to all persons registered under ESI and their family members – from the day the person enters insurable employment. There is no ceiling on expenditure on the treatment of an Insured Person or his family member. Medical care is also provided to retired and permanently disabled insured persons and their spouses on payment of a token annual premium of Rs.120/-.

• 2

  Sickness Benefit

  Sickness benefit in the form of cash compensation at the rate of 70% of wages is payable to insured workers during the periods of certified sickness for a maximum of 91 days in a year. In order to qualify for sickness benefit, the insured worker is required to contribute for 78 days in a contribution period of 6 months. Workers suffering from malignant and long-term diseases can claim extended sickness benefit for upto two years at an enhanced rate of 80% of wages. Also, enhanced sickness benefit equal to full wage is payable to insured persons undergoing sterilization for 7 days/14 days for male and female workers respectively.

• 3

  Maternity Benefit

  Maternity benefit for confinement/pregnancy is provided for three months, which is extendable by further one month on medical advice at the rate of full wage subject to contribution for 70 days in the preceding year.

• 4

  Disablement Benefit

  From the day of entering insurable employment and irrespective of having paid any contribution, 90% of wage is payable so long as temporary disability continues. Permanent disablement benefit is payable at the rate of 90% of wage in the form of monthly payment, in case of permanent disablement based on the extent of loss of earning capacity as certified by a Medical Board.

• 5

  Dependant Benefit

  Dependant benefit is paid at the rate of 90% of wage in the form of monthly payment to the dependants of a deceased insured person, in cases death occurs due to employment injury or occupational hazards.

• 6

  Funeral Expenses

  An amount of Rs.10,000/- is payable to the dependents or to the person who performs last rites from day one of entering insurable employment.

• 7

  Unemployment Allowance

  Under the Rajiv Gandhi Shramik Kalyan Yojana, unemployment allowance is payable to an insured Person who become unemployed after being insured three or more years, due to closure of factory/establishment, retrenchment or permanent invalidity. The applicable unemployment allowances provided are:

  • Unemployment Allowance equal to 50% of wage for a maximum period of upto one year.
  • Medical care for self and family from ESI Hospitals/Dispensaries during the period IP receives unemployment allowance.
  • Vocational Training provided for upgrading skills – Expenditure on fee/travelling allowance borne by ESIC.