HiToday we are discussing

LWF & ESI Concepts

Presented by Santhosh Nagappa

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Labour welfare fund

The concept of Labour Welfare Fund was, evolved in order to extend a measure of social assistance to workers in the unorganized sector.

Towards this end, following separate legislations have been enacted by Parliament to set up five Welfare Funds to be administered by Ministry of Labour to provide below:

housing, medical care, educational and recreational facilities

For benefit of 49 lakh beedi workers, 73,650 mine workers and 68,000 cine workers:-

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Labour welfare fundLabor welfare refers to all the facilities provided to labor in order to improve their working conditions, provide social security, and raise their standard of living.

Karnataka Labour Welfare Board:It is constituted under the Act, to administer the welfare schemes. The Board is headed by the Hon’ble Minister for Labour as Chairman.The Board consists of 14 members including two women members. The representatives of employers, employees and experts are members.http://labour.kar.nic.in/labour/klwboard.htm

As per the amendment, employee contribution has been revised to Rs. 6 and employer contribution has been revised to Rs. 12, making the total contribution per employee of Rs. 18. This will be a one time deduction in the month of December. The LWF contribution needs to be submitted on or before January 15.

For more information on KLWF refer: http://www.labour.kar.nic.inLast date :15th Jan

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What is ESI ?• Employees' State Insurance is a self-financing social security

and health insurance scheme for Indian workers. • Employees’ state Insurance Corporation of India, is a

multidimensional social system tailored to provide socio-economic protection to worker population and immediate dependent or family covered under the scheme.

• The 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, come together to mitigate the physical and financial distress arising out of such risks.

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• E.S.I. Scheme being contributory in nature, all the employees in the factories or establishments to which the Act applies shall be insured in a manner provided by the ESI Act 1948.

• The contribution payable to the ESI Corporation in respect of an employee shall comprise of employer's contribution and employee's contribution at a specified rate. The rates are revised from time to time.

• Employees in receipt of a daily average wage upto Rs.100/- are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.

More details about ESI

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• The Scheme is funded by the contributions raised from the employees and employers of the covered employers. The rates of contribution, as a percentage of wages paid / payable to the employees, are as under: Employees’ contribution –1.75% of the wages. Employers’ contribution–4.75% of the wages.

** Wages is referred to earned gross in all coming slides.

How is the Scheme financed ?

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• Thus, in respect of each of the employee,6.50% of the wages (including overtime allowance) is to be paid as contribution to Scheme. The Scheme does not receive any budgetary support from the Government.The State governments, as per the provisions of the Act , contribute 12.5% of expenditure on medical care on ESI beneficiaries in their respective States within the per capital ceiling.

Note: ESI will be applicable only for all employees earnings is equal to or less than INR 15000 per month

How is the Scheme financed ? (contd)

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• This fund is managed by the ESI Corporation (ESIC) according to rules and regulations stipulated there in the ESI Act 1948, which overseas the provision of medical and cash benefits to the employees and their family through its large network of branch offices, dispensaries and hospitals throughout India

• ESIC is an autonomous corporation by a statutory creation under Ministry of Labour and Employment, Government of India. The Corporation (similar to Board of Governors) the comprises of representatives of the employers, employees, the Central Government, State Governments, eminent medical professionals.

• Besides the Corporation, there is a Medical Benefit Council which advises the Corporation on matters related to the extension of medical care to the beneficiaries of the Scheme

Who is managing this fund ?

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The Scheme is applicable to only those areas where the Scheme is extended / made applicable by the State Government by notification. The Scheme applies to all factories, shops, hotels, restaurants, establishments, cinema theatres, offices, medical institutions, educational institutions, etc. subject that:

The employer is located in an area to which the Scheme is extended to by the State Government

Ten or more persons are employed

To whom the ESI Scheme is applicable ?

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Seasonal factories exclusively engaged in one or more of the following manufacturing processes , viz., cotton

ginning, cotton or jute pressing, decortications of ground- nuts, the manufacture of coffee, indigo, rubber, sugar or tea etc

Mines subject to the operation of the Mines Act.

To whom the ESI Scheme is not applicable ?

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• In March 1947 before Indian independence "B. N. Adarkar" was appointed by the Government of India to create a health insurance scheme for industrial workers . A year later the report he submitted became the base for the Employment State Insurance (ESI) Act of 1948.

Just a slide on History of ESI

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• Bhaskar Namdeo Adarkar (May 18, 1910–March 20, 1998) was the ninth Governor of the Reserve Bank of India from 4 May 1970 to 15 June 1970. His term as governor was 42 days.

The promulgation(declaring a new statutory) of Employees' State Insurance Act, 1948 envisaged (desirable future event) an integrated need based social insurance scheme that would protect the interest of workers in contingencies such as:

sickness, maternity, temporary or permanent physical disablement, death due to employment injury resulting in loss of wages

(or earning capacity).

The Act also guarantees reasonably good medical care to workers and their immediate dependants.

What does the “Employees' State Insurance Act, 1948” say

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Who is responsible to deduct ESI??

An employer is liable to pay his contribution in respect of every employee and deduct employees contribution from wages bill and shall pay these contributions at the above specified rates to the Corporation within 21 days of the last day of the Calendar month in which the contributions fall due. The Corporation has authorized designated branches of the State Bank of India and some other banks to receive the payments on its behalf.

** Unlike the PT , method of remittance & date of remittance for ESI will be constant across the states .

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Any employer who becomes coverable under the Act can register online (www.esic.in) and get registered. While registering online, the employer has to give correct and complete details. (the employer would be contacted through the email for communicating the access credentials to the employer portal, reset of password, etc.); once registered, the employer will be allotted a 17 digit employer code. Except for employers who supply manpower, all the employers can proceed with the compliance under the Act, without even visiting the ESI offices, as all activities, like registering the employees employed, filing contribution, generating challan for remitting contribution, filing periodical returns, etc. can be done online. .

How to Register for ESI??

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Sample format for ESI registration

1.List of components where ESI is not applicable & Why

WASHING ALLOWANCE: It is a sum paid to defray special expenses entailed by the nature of employment and as such this amount does not amount to wages. (In lieu of old instructions issued vide Memo No.Ins.III/2/1/65 dt. 8.2.1967)

ANNUAL BONUS: Bonus paid to the employees could not be treated as wage for the purpose of charging of contribution under Sec.2(22), provided the periodicity of the payment is more than 2 months. The ESI Corporation agreed to the recommendations of the Standing Committee that bonus may not be treated as wage (19.12.1968).Hence no contribution is payable on annual Bonus.

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2.List of components where ESI is not applicable & Why

INCENTIVE BONUS and PRODUCTION BONUS: According to definition of the term wages as defined in Sec.2(22) the Act, hence no contribution is payable on the incentive bonus, provided the periodicity of payment is more than 2 months.

ANNUAL COMMISSION: According to act, if payment not done on monthly basis there is provision not contribute ESI.

SERVICE CONTRACT: Amount paid to an organization for maintenance of Machinery/Equipments as part of service contract will not attract ESI contribution.

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3.List of components where ESI is not applicable & Why

SERVICE CHARGES: Service charges are collected by management of the hotel on behalf of their employees in lieu of direct tips and the same is paid to their employees at a later date.

COMMISSION TO DEALERS/AGENTS: Where dealers/agents are appointed by the employers but no regular wages are paid.

Fuel allowance/Petrol allowance and Entertainment allowance : As these are reimbursement components. Reimbursement components should not be considered for ESI calci.

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Even the below earnings should not be treated for ESI computation:

Payment made on account of un-availed leave at the time of discharge/ Payment made on encashment of leave.

Commission on advertisement secured for Newspapers, if not paid to the regular employee.

Shoes allowance/Dress allowance Payment made on account of gratuity on

discharge/retirement.

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Implementer’s Note:Please remember this is mainly intended for information & knowledge sharing, if client wants any of above components to included for ESI, then we have to configure accordingly.

In addition to regular earning components(Basic, DA, HRA, Spl Allow) below are considered for ESI computation :

INAM/EX-GRATIA PAYMENT: Inam represents a payment made by the employer as a reward.

WAGES PAID DURING LAYOFF:(During the period of layoff though the employee is not given actual work and is also not given full remuneration but certain wages are paid to the employee)

NIGHT SHIFT/HEAT/GAS/DUST ALLOWANCE/NEWSPAPER ALLOWANCE:

EDUCATION ALLOWANCE:

ATTENDANCE BONUS

Now we will discuss on few components which is having an impact on ESI Basic

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Whether Conveyance is covered under ESI ?

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Fixed conveyance allowance flowing out of a wage settlement or as per terms and conditions of employment should be treated as wages under section 2(22) & will be considered for ESI calculation on all purposes except:

Amount towards conveyance paid or reimbursed to any employee for incurring expenses for specific duty related journey .

Reimbursement of actual cost of conveyance for coming to work and going

from work on production of ticket or season ticket and subject to proof of actual expenditure .

Payment of certain amount for maintenance of vehicle depending upon cadre of the official and category of vehicle and subject to production of records for actually maintaining the vehicles.

Fixed allowance paid at an interval exceeding 2 months, unless such payment is made as per contract or agreement.

Conveyance :

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Whether Food allowance is covered under ESI ?

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Tiffin/Food/Milk/Lunch Allowance paid in cash at a fixed rate irrespective of whether the person is absent or on authorized leave etc. may be considered for ESI computation.

Tiffin/Food/Milk/Lunch allowance paid in cash with deduction for leave or absence etc. may not be considered for ESI computation.

Tiffin/Food/Milk/Lunch allowance paid in kind i.e. canteen subsidy/food subsidy etc. may not be considered for ESI computation

Food Allowance applicability for ESI:

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Punishment for failure to pay contributions, etc.If any person(Employer): fails to pay any contribution which under this Act he is

liable to pay, or deducts or attempts to deduct from the wages of an

employee the whole or any part of the employer’s contribution, or

Fails or refuses to submit any return required by the regulations, or makes a false return, or

Obstructs any Inspector or other official of the Corporation in the discharge of his duties/for inspection.

Is guilty of any contravention of or non-compliance with any of the requirements of this Act or the rules or the regulations.

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PENALTIES as per ESI act, 1948Punishment for failure of payment of ESI may be: With imprisonment for a term which may extend to three

years OrShall be liable to pay fine of ten thousand rupees or five

thousand.

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Due Date: Payment date : 15th of every month.Return date : 15th of every month.

Contribution Period : There are two contribution periods/cycle each of six months duration --->

Apr to Sep & Oct to March

FAQ and answers:

1) Which of the employees are eligible to avail benefits under the Scheme?All employees of a covered unit, whose monthly remuneration

(excluding overtime) does not exceed Rs.15,000/- per month, are eligible to avail benefits under the Scheme

2) What benefits do the employers avail under the Scheme ? • No expenditure to be incurred towards administration of medical

care to the employees / their dependants.

• No requirement for medical insurance policy as all medical facilities, including Super specialty treatment is extended to the beneficiaries without any ceiling on expenses.

• Employers are exempted from the provisions of / liabilities under: Maternity Benefit Act Employees’ Compensation Act

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FAQ and answers:

3)Can an employee, who is already having an insurance number, be allotted an insurance number afresh, when he joins a different organization?

No. The insurance number is unique for each employee and is valid throughout the life of the employee, irrespective of his changing jobs.

4) Should an employer who has operations all over the country, register only once where it’s head office is located, or should it get registered separately for each of it’s branch offices also?

No. An employer who is already registered under the ESI Act (who is having a 17 digit code) need not apply for registration afresh in respect of its branch offices located in different locations of the country. Instead, the employer can get a sub-code generated in respect of it’s branch offices (can be generated online) so as to comply with the provisions of the Act.

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FAQ and answers:

5)Should the employer register all the employees employed by it under the Scheme, even if they are not entitled for benefits under the Scheme (employees whose are salaries more than 15k pm) ?

No.

6) Are there any other exemptions in respect of any special category of employees ?

Yes. If employee average daily wages is less than Rs.100 per day, the employee’s share need not be paid. However, the employer’s share (4.75% of the wages) need to be paid.

7) What is Pehchan card? All the employees who are entitled to benefits under the Scheme

are issued a set of two smart cards, named as ‘Pehchan Card’. Using this card, the employee can go to the ESI dispensary and avail medical treatment. One card is meant for the employee, i.e., the Insured Person (IP), and the other card is meant for the family members

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How superior is the ESI Scheme as compared to the Mediclaim policy / Group mediclaim policy issued by the general insurance companies.

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Next phase we will move with configuration part

Thank YouAny questions ?