General Awareness - Deciding ESI Coverage and Contributions for a Small Tailoring Unit
Ravi Enterprises is a tailoring unit in Indore that stitches uniforms on electrically operated machines. On 1 April it employed 22 persons on its payroll: 14 at ₹15,000 a month, 6 at ₹18,000, and 2 at ₹23,000. It also engages a part-time sweeper for four hours a day at ₹9,000 a month, and one apprentice engaged under a statutory apprenticeship contract. One of the two ₹23,000 workers, Ravi, was drawing ₹20,000 in March and crossed the wage ceiling only in July, after the contribution period had already begun. The unit has never been covered under the Employees' State Insurance scheme, and its accountant wants the position settled before the next inspection. Management argues that the two ₹23,000 workers and the sweeper should be left out, that coverage should begin only from the next financial year, and that coverage must wait until the unit grows further.
1. Is the unit covered, and which of the persons on its rolls are insurable? Deal with each objection raised by management.
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Coverage. The unit is a factory using power and employs more than the threshold of 10 persons, so it is covered under the ESI Act. Coverage attaches from the date the threshold was first reached; there is no question of waiting for the next financial year, and the fact that the unit has never been covered does not postpone the obligation - the employer's liability runs from the date coverage applied, with contributions due for the period of default.
Who is insurable (wage ceiling ₹21,000 a month; ₹25,000 for a person with disability).
- 14 workers at ₹15,000 and 6 at ₹18,000: covered (20 persons).
- Part-time sweeper at ₹9,000: covered. Part-time employment does not take a person outside the definition of an employee; only the wage ceiling matters.
- The two at ₹23,000: normally outside coverage. But Ravi was within the ceiling when the contribution period began and crossed it in July. An insured person whose wages rise above the ceiling continues to be covered until the end of that contribution period (30 September in an April–September period). So Ravi stays covered for the rest of the period.
Result: 22 insurable persons - 20 + sweeper + Ravi. Only the second ₹23,000 worker is left out.
2. On the covered payroll, what is the monthly contribution payable, split between employer and employee?
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Identify covered wages. Only wages of insurable persons enter the base; the excluded ₹23,000 worker's wage does not.
| Group | Wage | Number | Amount |
|---|---|---|---|
| Workers | ₹15,000 | 14 | ₹2,10,000 |
| Workers | ₹18,000 | 6 | ₹1,08,000 |
| Sweeper (part-time) | ₹9,000 | 1 | ₹9,000 |
| Ravi (continuing cover) | ₹23,000 | 1 | ₹23,000 |
| Total | 22 | ₹3,50,000 |
Apply the rates (employee 0.75%, employer 3.25%, i.e. 4% together):
- Employee's share: 0.75% of ₹3,50,000 = ₹2,625.
- Employer's share: 3.25% of ₹3,50,000 = ₹11,375.
- Total monthly contribution: ₹14,000.
Two common errors to avoid. Counting the second ₹23,000 worker would inflate the base to ₹3,73,000 and the total to ₹14,920. Treating Ravi as outside coverage because of his July increment would understate the base to ₹3,27,000 and the total to ₹13,080. Because this is a continuing default, the employer also faces interest on arrears, not just the current month's ₹14,000.
3. A covered worker drawing an average daily wage of ₹520 has 84 days of contribution in the contribution period and falls ill for 20 days in the following benefit period. Is he entitled to sickness benefit, and how much is payable?
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Eligibility test. Sickness benefit requires at least 78 days of contribution in the corresponding contribution period. He has 84 days, so the condition is satisfied - the shortfall of 16 days against the full six-month period is irrelevant.
Rate. Sickness benefit is paid at 70% of the average daily wage: 70% × ₹520 = ₹364 a day.
Duration and waiting days. The spell is 20 days, within the maximum permissible for sickness benefit in a year. Sickness benefit carries a two-day waiting period at the start of the first spell in the benefit period, and those two days are not paid. So payable days = 20 − 2 = 18.
Amount. 18 × ₹364 = ₹6,552, paid through the branch office in the usual manner.
Judgement points. Had his contribution been 76 days, entitlement would have failed entirely despite the illness being genuine - the 78-day test is a contribution test, not a medical one. Had this been a second spell in the same benefit period, the waiting days would already have been served and all 20 days would be payable, i.e. ₹7,280. The difference of ₹728 is exactly the two unpaid days.