This insurance is also commonly known as workman’s compensation Insurance. One of the key responsibilities of an organization is to provide a safe and healthy working environment. In an unfortunate event of an Employee suffering a bodily injury (temporary or permanent), death or Permanent total disability during employment, employer is legally liable to pay compensation to the Employee under the Employee’s Compensation Act 1923 and subsequent amendments of the said Act.
WC policy is usually meant for contractual labour on unnamed basis. The concept of sum insured, or coverage does not exist in WC. Claim amount, if any, will be calculated by the local labour commissioner / labour court considering various factors like wages earned, age of the individual etc as per provisions on Section 4 of the Act and the amount decided by the labour court / commissioner will be paid by the insurance company. Usually, policy is issued for a period of 12 months, however it can be less than 12 months in case of specific contracts.
Employee’s compensation Act
(Before 2010, Employee's Compensation Act was known as Workmen's Compensation Act): Every employee (including those employed through a contractor) who is engaged for the purposes of employer's business and who suffers an injury resulting in Death, Partial or permanent disability in any accident arising out of and in the course of his employment, shall be entitled for compensation under the Act.
An employee cannot claim compensation under this Act if he/she is already entitled to compensation from ESIC.
Definition of Employee
Any such person or persons in direct employment under the Insured in the Business but shall not include any person employed under a Contractor or Sub- Contractor of the Insured unless specifically shown as covered in the Schedule and by an endorsement.
Insured’s liability for Contractors’ Employees.
It is permissible to include the risk of the Insured in respect of the employees of Contractors at a premium calculated based on the wages declared and insured & to be incorporated in the Policy schedule with details of the sub-contractor
In cases in which the contract is for labour only, upon the total amount of the contract.
In cases in which the contract is for labour and material upon a percentage of the full contract price to be determined upon the merits of the case, such percentage in no case to be less than 75 per cent of such contract price.
In cases in which the contract is for labour material and equipment upon a percentage of the full contract price to be determined upon the merits of the case, such percentage in no case to be less than 50 percent of such contract price.
Definition of wages:
Wages means the remuneration payable to an Employee by the Insured for the employment in the Business and includes any privilege or benefit which is capable of being estimated in money other than a travelling allowance or the value of any travelling concession or a contribution paid by the employer of an employee towards any pension or provident fund, or a sum paid to an employee to cover any special expenses entailed on him by the nature of his employment.
Amount of wages to be considered:
The Central government has changed the amount of wages to be considered for calculation of compensation to workers under the Employee's Compensation Act 1923 vide notification S.O.71 (E) dated January 3, 2020. The number of wages considered previously for the calculation of compensation was just Rs 8,000. Now, it will be Rs 15,000, according to the notification by the Ministry of Labour and Employment.
Declaration of Employees and Wages:
It is clearly agreed and understood that the Insured shall be always bound to declare all Employees and Wages payable in respect of such Employees based on which the Premium for this Policy is calculated. In case of increase in Employees or Wages after insurance, Insured shall keep the Company intimated and obtain Endorsement by payment of necessary additional premium.
Average clause: Notwithstanding anything contained hereinabove,
Calculation of Premium:
It has two components
Basic Premium which is calculated by multiplying the wages with the guide rate of premium.
Additional Premium for Medical Expenses (optional).
Rates:
| Per Employee limit (Rs.) | Aggregate liability for all accidents during the period of Insurance (Rs.) | Additional premium on the basic premium ( % percentage) |
|---|---|---|
| Rs. 25,000/- | Rs. 2,50,000/- | 10% |
| Rs. 50,000/- | Rs. 5,00,000/- | 15% |
| Rs. 75,000/- | Rs. 7,50,000/- | 20% |
| Rs. 1,00,000/- | Rs. 10,00,000/- | 25% |
Maintenance of record of Employees/Wages:
The Insured undertakes to maintain an accurate record of the Employees and Wages in respect of the Business throughout the Period of Insurance, in compliance with all statutory requirements or otherwise, and allow the Company to inspect such records during or upon expiry of this Policy.
Period of Insurance:
All policies are to be issued for 12 months except in cases of specific contracts or work which will be completed in less than 12 months.
All premiums must be paid in advance for the full term of the Policy Accepting or agreeing to accept of premiums by instalments is not permitted.
Joint Policies:
Joint Policies may be issued indemnifying more than one person or firm in respect of the same employees engaged upon a particular job for an additional premium of 25% which may be modified or waived in the following circumstances:
a)Where an insurance is required in the names of a Parent Company and its subsidiary and/or Associated Companies, a Joint Policy may be issued without additional premium.
Compensation calculation:
The computation of compensation under the Act is done as per provisions on Section 4 of the Act:
An amount equal to fifty per cent. of the monthly wages of the deceased multiplied by the relevant factor; or an amount of Rs 1,20,000, whichever is more.
2.If the accident results in permanent total disablement:An amount equal to 60 per cent. of the monthly wages of the injured employee multiplied by the relevant factor; Rs 1,20,000, whichever is more.
Exclusions:
The employer will not be liable to pay compensation when:
An injury does not result in the total or partial disablement of the employee for more than 3 days.
An injury doesn't result in death or permanent total disablement caused by an accident under the influence of drink or drugs.
In case of accidents caused by wilful disobedience of the rules by the employee and wilful removal of safety guards, the employer is not liable to pay compensation.
Note:
The Insurers are offering attractive discounts on the Premium I.e., more than 90% of the premium and therefore we recommend the following while taking a Policy.
Being statutory in nature & the exposure to Heavy amount of liabilities due to increase of wages, legal consciousness, it is recommended to insure the correct number of employees ( by declaring the skilled , semi-skilled separately) nature of the job etc. Regarding the wages Paid, please consider all the components as per the wages definition and ensure that no under insurance exists to avoid the average as per the Policy condition.
If you wish to cover the Employees of the Contractor/ sub-contractor, please ensure that their name is specifically appear in the Policy schedule by ensuring that the number of employees and the wages are considered as per above para .
OR
you insist the contractor or sub-contractor to submit a separate Employees liability insurance Policy in their name while awarding them the job. Failure to do so may result in a situation where in you may be exposed to liability as per law if their employees are injured in work related accidents resulting in death or disability.
If the any Contractor is given a piece meal contract, you may get the same endorsed on the policy for the short period or advise them to obtain a policy accordingly.
Since the extension of legal expenses is optional, you may examine extending the same on the Policy.