March 20, 2010

Employees’ State Insurance Act of India: Labour Ministry Issues Draft Rules For Enhancement Of Wage Ceiling

The Ministry of Labour and Employment has recently issued1 draft rules for enhancement of wage ceiling (salary limit) from INR 10,000 (approx US$ 225) per month to INR 15,000 (approx. US$ 330) per month for coverage under the Employees’ State Insurance Act, 1948 (“ESI Act”). Once the draft rules enter into force, a greater section of employees would get covered under the ESI Act, a federal labour law. It is expected that this new wage ceiling will be implemented from April 1, 2010, which is the beginning of the new financial year.


The ESI Act provides insurance coverage to eligible employees in the case of work related injury, sickness, maternity, disablement and death. The ESI Act applies to all factories employing at least 10 employees. It has also been extended to shops, hotels, restaurants, cinemas, transport undertakings, etc. The ESI Act requires the employer and the eligible employees to contribute insurance premium to the Employees State Insurance Fund, which is administered by the Employees’ State Insurance Corporation (“ESIC”). The contributions are to be made at specified rates which are revised from time to time. With effect from 1997, the rate of employer’s contribution is 4.75% of each eligible employees’ wages and that of the employee is 1.75% of the wages. These contributions are to be made during two contribution periods of six months each. In addition to the insurance coverage, to the extent an employee is already covered under the ESI Act, the employer is exempted from its financial liability under the Employee’s Compensation Act, 1926 and the Maternity Benefit Act, 1961.

As of March 31, 2008, the coverage of the ESI Act extends to approximately 46.8 million beneficiaries and to approximately 0.35 million employers2.

As recent as October 20063, the ESI Act was amended to extend its coverage to employees drawing wages of up to INR 10,000 (approx US$ 225) per month from the earlier limit of INR 7,500 (approx US$ 165) per month.


The proposal seems to have been approved in view of the fact of the increase in cost of living index and subsequent rise in salary levels in India. Further, the Parliamentary Standing Committee on Labour has also been making recommendations in this respect. The Indian Government seems to be in favour of expanding the social security benefits to cover a wider stratum of employees. The Government continues to aggressively pursue certain other amendments under labour laws, inter alia, to increase their coverage or benefits. Recent examples include changes to the Payment of Bonus Act, 1965 and the Employee’s Compensation Act, 1923. Further, discussions are ongoing with respect to increasing the limits under the Payment of Gratuity Act, 1972 and the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

The intention of the ESIC proposal is to provide insurance coverage to a larger section of employees. However, in recent times, employers in some of the new economy sectors have preferred to tie up with private insurance companies / third party administrators, who in turn have tied up with some of the leading hospitals which promise prompt and superior medical facilities. While the ESIC manages over 140 government funded hospitals across the country, there continue to be concerns over the infrastructure and the facilities provided in these hospitals. Besides the procedural formalities involved, some of the ESIC managed hospitals do not appear to be adequately staffed for handling emergency situations. Private insurance companies (both for life and health insurance) and third party administrators, although may be more expensive, have managed to provide customized products and services to meet their clients’ needs. This has made such service providers a preferred choice for some of the progressive Indian companies, who provide extended support to their employees and their families during the times of any health crisis. In view of the background, the ESIC should focus on improving their hospitals’ infrastructure and facilities and address the concerns faced by employers and employees alike. Alternatively, necessary flexibility may be provided to employers to consider private insurance arrangements. At the end of the day, as a welfare legislation, the employees’ interest should be the determining factor.



1 Vide notification G.S.R no. 164 (E) dated February 26, 2010


3 Vide Central Government notification no. S-38025/9/2006-SS-I dated September 22, 2006, effective from October 1, 2006.



- Ajay Singh Solanki & Vikram Shroff



You may direct your comments to Ramya Krishnan-AniL

+91 900465 0363


Management by Trust in a Democratic Enterprise: A Law Firm Shapes Organizational Behavior to Create Competitive Advantage, Global Business and Organizational Excellence, Sep 2009

NDA: A different approach by Shyamal Majumdar, Business Standard, July 23, 2009.

A law firm head spends his time studying organisational behavior.

Pacific Business Press: Winner of ‘Asian-Counsel’s Social Responsible Deals of the Year 2009’

Mr. Nishith Desai, Founder, has been voted ‘External Counsel of the Year 2009’ by Asian Counsel and Pacific Business Press

Ranked #1 in Tax, Investment Funds and TMT practices by Legal 500 (Asia Pacific)



Welcome to connect with us at interesting conferences, seminars and events.



Introducing NDA Dialawgue and Deal Destination.

Vikram Shroff on CNBC TV18: NASSCOM asks govt to relax E-visa norms on expats

Mr. Nishith Desai on ‘The Firm’- CNBC TV 18: Bombay HC ruling in the case of Lawyers Collective



Click here to view Hotline archives.

Great Offshore Takeover Saga – Bharati Shipyard v/s ABG Shipyard, Dec 16, 2009

Second missed call: Bharti Airtel fails to reconnect with MTN, Oct 09, 2009


India’s Dispute Resolution Panel Offers Timely Relief For Taxpayers, Tax Notes International, Harshal Shah & Neha Sinha, March 15, 2010

Trade Unions Act and State Laws Provide Legal Protections to Trade Unions in India, SHRM Legal Report, Vikram Shroff & Akshay Bhargav, March 2010

Doing Business in India

Venture Capital and Private Equity in India: A Primer and Select Research

Mergers & Acquisitions in India

Dispute Resolution in India

Intellectual Property in India

eCommerce Taxation in India

Special Economic Zones

BPO Report

India: Structural Strategy

Inversion - The Basic Facts

Venture Capital at Crossroads


Our email newsletters – Hotlines are very popular for their insights and analysis. Sign-up to receive Hotlines on the following – Tax, CorpSec, HR, Dispute Resolution and our regular updates such as M&A Labs, IP, Pharma, Media, Telecom Updates and Budget and Policy Analyses.


Please visit to access our Research online.





Disclaimer: The contents of this hotline should not be construed as legal opinion. View detailed disclaimer.

This Hotline provides general information existing at the time of preparation. The Hotline is intended as a news update and Nishith Desai Associates neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this Hotline. It is recommended that professional advice be taken based on the specific facts and circumstances. This Hotline does not substitute the need to refer to the original pronouncements. 

This is not a Spam mail. You have received this mail because you have either requested for it or someone must have suggested your name. Since India has no anti-spamming law, we refer to the US directive, which states that a mail cannot be considered Spam if it contains the sender's contact information, which this mail does. In case this mail doesn't concern you, please unsubscribe from mailing list.