If the worker is insured with ESIC, the Corporation pays: medical care and 90% of wages for as long as the disablement lasts, from the first day of insurable employment. If the worker is outside ESIC, the employer pays compensation under Chapter VII of the Code on Social Security 2020, and section 85 makes the principal employer liable for a contractor's worker as if it had hired the worker directly. Which route applies is decided by headcount and the wage ceiling, not by who signed the contract.
Two routes, and only one applies
The First Schedule to the Code on Social Security 2020 puts every establishment with ten or more persons employed under Chapter IV, the Employees' State Insurance chapter, and applies Chapter VII, employee's compensation, only "to the employers and employees to whom Chapter IV does not apply". The two are exclusive by design. For a factory or warehouse in Chennai the ESI route is the default and the compensation route is the exception, reached only by a worker the ESI chapter does not reach.
The gap is the wage ceiling. Section 2(26) limits "employee" for Chapter IV to a person drawing wages up to the ceiling the Central Government notifies, and the Ministry of Labour's March 2026 FAQ on the Code confirms that the ceiling in force is ₹21,000 a month (Q12), applied to the new wage definition in section 2(88) from 21 November 2025. ESIC's circular of 11 December 2025 tells its field offices to expect more people inside the ceiling under that definition than under the old Act, and to look for units whose EPFO headcount is well above their ESIC headcount. Most contract labour on a shop floor sits under ₹21,000 and is therefore ESIC's. A supervisor or technician above it is the employer's.
| Chapter IV: ESIC | Chapter VII: employee's compensation | |
|---|---|---|
| Applies to | Establishments with 10 or more employed, for workers at or below the notified wage ceiling (₹21,000 a month, FAQ Q12) | Employers and employees Chapter IV does not cover, subject to the Second Schedule |
| Who pays the worker | The Corporation, funded by contributions | The employer, or the principal employer under s.85 |
| When it starts | Day one of insurable employment, no contribution history needed (ESIC) | When the disablement exceeds three days (s.74(1)(a)) |
| Rate for lost wages | 90% of wages while temporary disablement lasts; 90% on permanent disablement scaled to loss of earning capacity; 90% to dependants on death (ESIC) | Death: 50% of monthly wages times the age factor; permanent total: 60%; temporary: 25% half-monthly (s.76) |
| Medical treatment | Corporation hospitals and dispensaries from day one | Not part of the compensation; the employer's own arrangement |
| Civil suit for damages | Barred by the scheme | Barred once a claim is filed or a settlement made (s.74(7)) |
Inside ESIC: who funds it and what the site owes
The site pays the contributions first, for everyone. Section 31(1) makes the employer liable for both the employer's and the employee's contribution "in respect of every employee, whether directly employed by him or by or through a contractor", and section 31(6) gives it the right to recover the amount from the contractor by deduction from the contract bill or as a debt. The contractor keeps a register of its people and hands it over before any settlement (s.31(7)). The rates are 3.25% from the employer and 0.75% from the employee [VERIFY: the ESI (Central) Rules amendment of 2019 that set these rates, and whether the 2026 rules under the Code restate them]. On a wage of ₹18,000 that is ₹585 a month from the employer's side and ₹135 from the worker's, and it buys the whole of Chapter IV.
The benefit does not depend on the contribution having been paid. Section 42 says that where an employer fails to insure a worker, insures them only after the accident, or fails to pay a contribution so that the worker gets less, the Corporation pays the worker the benefit anyway and then recovers the capitalised value of that benefit from the employer as an arrear of land revenue. A contractor who has been remitting late, or not at all, has not saved the site anything; it has moved the bill from a monthly challan to a lump-sum recovery after the accident, with the establishment as the employer the Corporation comes to.
An accident is an employment injury by deeming in section 35, and section 74(4) extends the same deeming to a commuting accident where the time, place and circumstances connect to the employment. Sickness benefit is separate and runs at 70% of average daily wages for up to 91 days (ESIC). The worker's IP number, the contribution-status printout and the accident report to the branch office are the three things the site needs on the day; the accident report goes in immediately, in the form the ESI regulations prescribe [VERIFY: Form 12 and the 24-hour timing under the ESI (General) Regulations, 1950, and whether the 2026 regulations under the Code change it].
Outside ESIC: the employer's own liability
For a worker above the ceiling, or in an establishment Chapter IV has not reached, section 74(1) makes the employer liable for personal injury "by accident or an occupational disease listed in the Third Schedule arising out of and in the course of his employment". Three defences exist for non-fatal injury: the disablement lasted three days or less, the worker was under the influence of drink or drugs, or the worker wilfully disobeyed an express safety order or removed a safety guard. None of them applies to death or permanent total disablement.
Section 76 sets the amount. Death is 50% of monthly wages multiplied by the relevant factor for the worker's age in the Sixth Schedule, or the notified minimum, whichever is more; permanent total disablement is 60% on the same basis; permanent partial disablement is the percentage of that sum listed against the injury in the Fourth Schedule; temporary disablement is a half-monthly payment of 25% of monthly wages [VERIFY: the current notified minimum amounts and the monthly-wage cap under s.76(3), from the Central Government's notification]. Section 77 adds the clock: compensation is paid "as soon as it falls due", and an employer more than a month late pays interest at the prescribed rate plus, where there is no justification, damages of up to 50% of the arrears.
Section 85 is the provision written for a staffing arrangement. Where an employer contracts out work that is "ordinarily part of the trade or business of the employer", it is liable to pay compensation to the contractor's worker "which he would have been liable to pay if that employee had been immediately employed by him", calculated on the wages the contractor actually paid. The employer is then entitled to be indemnified by the contractor, and the worker may choose to claim from the contractor instead. The section applies only to accidents on or about premises the employer controls, which for a site is exactly where the contract labour is.
What the site does in the first seven days
| Action | Deadline | Where it comes from |
|---|---|---|
| Notice to the authorities of a death, or an injury that keeps the worker off work for 48 hours or more | Within the time the rules prescribe [VERIFY: OSH (Central) Rules 2026 timing, and the Tamil Nadu rules for state-sphere factories] | OSH Code 2020, s.10(1); a death triggers an inquiry within two months under s.10(2) |
| Accident report to the ESIC branch office, with the worker's IP number | Immediately, in the prescribed form [VERIFY: Form 12 and timing] | ESI regulations under Chapter IV |
| Report of a death or serious bodily injury to the competent authority | Within seven days | SS Code 2020, s.73(1); applies only where Chapter IV does not (s.73(3)) |
| Pull the contractor's last three ECR and ESIC challans and the s.31(7) register | Same day | SS Code s.31, s.42; the monthly evidence pack described elsewhere on this site |
| Confirm which route the worker is on: wage against the ₹21,000 ceiling, insured or not | Same day | SS Code s.2(26), First Schedule; FAQ Q12 |
| If Chapter VII: accept or dispute liability in writing, and pay within one month of the due date | One month | SS Code s.77(2), s.77(3) |
Notice the order. The statutory notices go out before the site knows who pays, because the deadlines do not wait. The route question is answered by two documents the site should already hold from onboarding, the wage rate and the ESIC registration, and the contractor's challans tell the site whether section 42 is about to be a problem. The one thing a site cannot do is treat the contractor's presence as the end of its own exposure; sections 31, 42 and 85 each put the establishment first in line and give it a right of recovery afterwards, which is a very different thing from not being liable.
Whether a particular injury arose out of and in the course of employment, whether a defence under section 74 is available, and what an individual worker is owed are questions of fact for the Corporation or the competent authority, and a site facing one should take it to its own counsel rather than to this article.
Sources
- Code on Social Security, 2020 (Act 36 of 2020), Gazette text hosted by the Ministry of Labour and Employment — s.2(26) and s.2(89) (employee, wage ceiling), s.31 (contributions for contractor employees), s.32 (benefits), s.35 (deeming), s.42 (Corporation's rights on employer default), s.73 (reports), s.74 to s.77 (liability, amount, timing), s.85 (contracting), First Schedule (applicability of Chapters IV and VII). Opened and read.
- Ministry of Labour and Employment, Additional FAQs on Labour Codes (as on 16 March 2026) — Q12: ESI coverage continues at ₹21,000 a month under the s.2(88) wage definition from 21 November 2025. Opened and read.
- ESIC, circular No. P-11/12/MinistryMol&E/2024-RevII dated 11 December 2025 — implementation of the s.2(88) wage definition for ESI coverage. Opened and read [VERIFY: public URL on esic.gov.in].
- ESIC, Benefits and Temporary Disablement Benefit — 90% of wages for temporary and permanent disablement and for dependants; sickness benefit 70% for up to 91 days; cover from day one. Opened.
- Occupational Safety, Health and Working Conditions Code, 2020, Gazette text hosted by DGFASLI — s.10 (notice of accidents causing death or 48 hours' absence). Opened and read.
- ESI (Central) Rules, 1950, as amended in 2019 — contribution rates of 3.25% and 0.75% [VERIFY: notification number and date, and continuity under the 2026 rules]