The Chakan Factory That Counted Its Workers Wrong
M/s Shreeji Precision Components runs a single factory at Chakan, Pune, and uses electric motors. On 1 April it had 8 permanent workers on its payroll plus 3 packers supplied by a licensed contractor, whose supervisor visits twice a week. On 1 July it added 3 permanent workers and a maintenance engineer on ₹24,000 per month, and engaged a part-time accountant at ₹8,000 per month. No ESI registration was ever taken and no deduction was ever made from wages. On 18 November an ESIC inspector finds 15 persons working on the premises. The proprietor argues that (i) the unit is small, (ii) contractor workers are the contractor's problem, and (iii) the engineer earns above the wage ceiling, so at most 11 persons can be counted and the Act does not apply at all. The inspector must settle the date from which the establishment is covered, who is counted for the threshold, which individuals are insurable, and what the contractor argument is worth.
1. From what date is the establishment covered, and how is the ten-person threshold counted?
Read the worked answer
Coverage date and headcount. A factory wherein ten or more persons are employed is covered under section 1(3) of the ESI Act; the twenty-person threshold applies only to establishments that do not use power, so the motors matter for nothing here. The threshold counts persons employed, not only persons whose wages fall within the ceiling, and section 2(9) treats a person employed through a contractor as an employee of the principal employer. On 1 April the unit already had 8 + 3 = 11 persons, so the Act applied from 1 April; the later additions only enlarge the covered roll. The 15-person headcount found in November is therefore not the trigger, and the inspector should not date coverage from the inspection. Registration was due within the prescribed fifteen days of applicability. The failure exposes the employer to recovery of contributions as arrears of land revenue (section 45), damages up to 100% (section 85B) and prosecution (section 85). Once the Act applies it is not lost because the headcount later falls.
2. Are the ₹24,000 engineer and the part-time accountant insurable?
Read the worked answer
The engineer. The wage ceiling for coverage is ₹21,000 a month (₹25,000 for a person with disability). A person first employed at wages above the ceiling is not an insured person, so no contribution is payable for him - but he still counts in the ten-person headcount, because section 1 counts persons employed, not insured persons. The position is different for an existing insured person whose wages cross the ceiling later: he stays covered until the end of the current contribution period (30 September or 31 March) and leaves coverage only from the next period. Here the engineer joined fresh at ₹24,000, so he is outside coverage from day one. The accountant. Part-time employment does not by itself take a person outside the definition of employee; at ₹8,000 she is within the ceiling and is insurable on her actual wages, so long as the employment is in connection with the work of the factory. Her contribution is 0.75% of ₹8,000, rounded up to the next rupee.
3. Can the principal employer push the packers' contributions onto the contractor?
Read the worked answer
The contractor argument fails. For the purposes of the Act the packers are employees of the principal employer; the contractor is only an intermediary who supplies them. The principal employer must bring their wages into the contribution returns and pay both shares, and may afterwards recover the contractor's share from the contractor's bill or security deposit. It cannot ask ESIC to chase the contractor for a period in which it neither registered nor deducted. Because no deduction was made from the day coverage began, the employer must now deposit both shares; the workers' 0.75% cannot be lost to them merely because the employer failed to deduct it. Recovery of the employees' share from wages is permitted only within the limits the rules allow, and if those workers have left, the employer carries the share. Delay attracts interest and damages under section 85B on top of the principal amount.