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Sunday, January 5, 2020

Workmen ~ Employee Compensation Act - calculation of wages 2020

A few decades ago ! ~ life was different .. .. there were white-collared and blue-collared workers ! ~ what ! – how would colour differentiate a worker ? – those were the days of a 9 to 5 gentleman !

A white-collar worker was one who would performs professional, managerial, or administrative work. He mostly would be sitting  in an office or other administrative setting, away from the dust and dirt of the industry.  Blue-collar worker stereotyped  to workers who were engaged in hard manual labour.   Blue typified physically exhausting task. The environment may be outdoors or require interaction with heavy machinery or animals. The blue collar worker may be skilled or unskilled.  The historical basis for the two terms may not have changed radically from their origins. Blue collar workers can get dirt on their shirts from working outdoors or in some physical capacity because of the colour of the uniform. Whites were more of supervisors.  Is there any radical change now ?

Out there in the middle, every workplace is beset with exposure to  accidents to those employed.   Duty is cast on the  Employer and they are liable to pay compensation for such work related injuries / accidents.  There is an enactment dating back to almost a century – regulating compensation to the workmen by the employer,  in respect of death or injuries -  arising out of and in the course of his employment.   The Workmen's Compensation Act, 1923 provides for the payment of compensation by the employer.  Prior to the statutory establishment of workers' compensation, the only recourse available to employees who were injured on the job  was to sue through civil or tort law. In the United Kingdom, the legal view of employment as a master-servant relationship required employees to prove employer malice or negligence, a high burden for employees to meet. Although employers' liability was unlimited, courts usually ruled in favor of employers, paying little attention to the full losses experienced by workers, including medical costs, lost wages, and loss of future earning capacity.  Then came the statue – ‘the workmen Compensation Act’.

As a preface, the scheme of WC Act is not to compensate the workmen in lieu of wages.  The compensation is for the injuries / death arising out of and in the course of employment. Though there could be various definition for the term ‘workmen’ [forget whatever be the colour of his collar !] – WC Act  defines "workman" as  any person (other than a person whose employment is of a casual nature and who is employed otherwise than for the purposes of the employer's trade or business) .  Thus it would mean that the person is not employed as a casual workman and that his employment is in connection with the employer’s trade and business.    The Act lists out many categories of employees who would fall within the purview of workmen as specified. 

The Employees’ Compensation Act, 1923 is an old but an important enactment, as it introduced a kind of social security scheme for the employees of this country. It enables an employee, and in case of death of an employee, his dependents, to get, at the cost of his employer compensation for employment injury. Much later, in 1948, the Employees’ State Insurance Act, introduced a social insurance scheme for the employees of his country. A decade back, the nomenclature of the Act change to be ‘inclusive of gender’ thus becoming Employer Compensation Act.

The Act provides that the employer shall not be liable only in respect of any injury which does not result in total or partial disablement for a period less than 3 days. In respect of any injury not resulting in death or permanent total disablement caused by an accident which is directly attributable to - the workman having been at the time thereof under the influence of drink or drugs or the willful disobedience of the workman to an order expressly given or to a rule expressly framed for the purpose of securing the safety of workmen or the willful removal or disregard by the workman of any safety guard or other device he knew to have been provided for the purpose of securing the safety of workman.

The Act provides for a structured methodology for calculation of wages as also how and when the employer would be  liable in respect of diseases – occupational disease.  No compensation shall be payable to a workman in respect of any disease unless the disease is directly attributable to a specific injury by accident arising out of and in the course of his employment.

Amount of compensation :  Sec 4 of the Act provides that
·         where death results from the injury an amount equal to fifty per cent of the monthly wages of the deceased workman multiplied by the relevant factor; or an amount of ________ thousand rupees whichever is more;
·         where permanent total disablement results from the injury an amount equal to sixty per cent of the monthly wages of the injured workman multiplied by the relevant factor; or an amount of _____ thousand rupees whichever is more.
·         where permanent partial disablement results from the injury in the case of an injury specified in Part II of Schedule I such percentage of the compensation which would have been payable in the case of permanent total disablement
·         where temporary disablement whether total or partial results from the injury a half monthly payment of the sum equivalent to twenty five per cent of monthly wages of the workman to be paid in accordance with the provisions of sub-section (2).
** the factors are specified in the   second column of Schedule IV  of the Act  specifying the number of years which are the same as the completed years of the age of the workman on his birthday immediately preceding the date on which the compensation fell due.  Though the employee may be earning more, the salary here was restricted to actual wages earned, and not exceeding Rs.2000/- (which was subsequently enhanced to 4000 and thence to 8000). 

The WC Policy in effect covers the employment related liability of the employer.  Thus the policy holder (Employer Company) should become liable to their employees arising out of and in the course of employment – and such liability would be calculated as stated above with wages restricted to Rs.8000/- .. In case you are an Insurer, ever wondered why you are collecting premium on actual wages ?   

The Act clearly specifies that the term   "monthly wages" means the amount of wages deemed to be payable for a months' service (whether the wages are payable by the month or by whatever other period or at piece rates) and calculated as :
ü  where the workman has during a continuous period of not less than twelve months immediately preceding the accident, the monthly wages of the workman shall be one-twelfth of the total wages of the    last twelve months  period;
ü  where the whole of the continuous period of service immediately preceding the accident was less than one month – it is the wages earned by a workman employed on the same work by the same employer or if there was no workman so employed by a workman employed on similar work in the same locality;
ü  when it  is not possible for want of necessary information to calculate the monthly wages – it  shall be thirty times the total wages earned in respect of the last continuous period of service immediately preceding the accident from the employer who is liable to pay compensation divided by the number of days comprising such period.

So the term monthly wages  means the amount of wages deemed to be payable for a month’s service.  A period of service for this section shall be  deemed to be continuous which has not been interrupted by a period of absence from work exceeding fourteen days.

Now comes an all important  gazette notification CG-DL-E-04012020-215147 of 3rd Jan 2020 – where  in exercise of the powers conferred by sub-section (1B) of section 4 of the Employee’s Compensation Act, 1923 (8 of 1923) and in supersession of the notification of the Ministry of Labour and Employment issued vide number S.O. 1258(E), dated 31st May, 2010; published in the Gazette of India,  Central Government hereby specifies, for the purposes of sub-section (1) of the said section, the following amount as monthly wages, with effect from the date of publication of this notification in the Official Gazette, namely:- “Fifteen thousand rupees”

After the gazette notification – the liability of the Employer and subsequently of the Insurer would have to be reckoned taking wages @ Rs.15000/0 (or actuals) – which would enhance the outgo of the Insurer substantially from the earlier Rs.8000/-  The Insurer imperatively will have to judiciously fix their rates or at least not grant the high % of discounts that they have been allowing. 

Before concluding a thought on what would happen to the policies issued and in force now ?
1.    One thought is the coverage in defined in the Operative clause as ‘liability arising under WC Act 1923 and all its subsequent amendments’ – and that way for an accident arising after the gazette notification, liability will have to be @ Rs.15000/- as monthly wages
2.    However, the modern day policies of Insurers (check whether your policy is so worded) contains average clause where one of the condition is proportionate settlement of compensation finally arrived further reduced by the amount insured and amount ought to have been insured.
3.    That way if the declared wages were to be less than Rs.15000/- and if compensation were to reckoned at Rs.15000/- condition of average would be applicable
4.    However, if the wages had been adequately declared (note that Insurer had been charging a small proportion for that part of wages exceeding 8000) – condition of average would not apply and Insurer will have to pay a higher compensation.

Any questions ?

With regards – S. Sampathkumar
5th Jan 2020.

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