How employee compensation is calculated

Under Chapter VII of the Code on Social Security 2020, death pays 50% of the worker's monthly wages multiplied by a factor for their age; permanent total disablement pays 60% on the same basis; a scheduled injury pays a fixed percentage of that; and temporary disablement pays 25% of monthly wages every half-month. For a 30-year-old on ₹15,000 a month, death compensation works out to ₹15,59,850.

Which workers the formula reaches

Only workers outside ESIC. The First Schedule to the Code applies Chapter VII to "the employers and employees to whom Chapter IV does not apply", and Chapter IV is the ESI chapter. A worker insured with ESIC is paid by the Corporation, at its own rates, and never reaches this formula. On a shop floor in Tamil Nadu, Chapter VII therefore mostly means two groups: supervisors, technicians and operators whose wages are above the ESI ceiling of ₹21,000 a month (Ministry of Labour FAQ of 16 March 2026, Q12), and workers in an establishment too small for ESI coverage.

For Chapter VII, "employee" means a person listed in the Second Schedule (s.2(26), third proviso). The list is wide enough to take in most industrial work: anyone employed on premises where a manufacturing process is carried on with power (item ii), anyone handling or moving goods in a warehouse (item xxvi), and anyone loading or unloading a motor vehicle (item xxxvii). Section 85 then makes the principal employer liable for a contractor's worker injured on its premises, calculated on the wages the contractor paid, with a right to be indemnified by the contractor. Who pays is covered in our article on injuries to contract workers; this one is about how much.

The four formulas

Section 76(1) sets one formula for each outcome of the injury, and the schedules decide which outcome a given injury counts as.

Two sums sit on top. The employer reimburses the actual medical expenditure on the injury (s.76(5)), and on a death deposits at least ₹15,000 with the competent authority for funeral expenses (s.76(7)). The Fourth Schedule percentages are specific: loss of a thumb is 30%, loss of four fingers of one hand 50%, loss of one eye 40%, amputation at the hip 90%.

The "notified amount" is a floor, and its figure is the open point. The 1923 Act wrote its floors into the statute, ₹1,20,000 for death and ₹1,40,000 for permanent total disablement. The Code replaced those numbers with "an amount as may be notified by the Central Government" [VERIFY: whether a minimum has been notified under s.76(1)(a) and (b); none was found in the Social Security (Central) Rules 2026].

Monthly wages and the age factor

Section 78 fixes monthly wages by length of service. A worker with twelve months' continuous service with the liable employer takes one-twelfth of the wages that fell due in those twelve months. A worker with less than a month takes the average earned by someone on the same work with the same employer, or on similar work locally. Everyone else takes thirty times the wages for their last continuous spell, divided by the days in it. Service is continuous unless broken by more than fourteen days' absence. "Wages" is the Code's own definition in s.2(88), so allowances above half of total pay count back in.

The relevant factor comes from the Sixth Schedule, read against the worker's completed years of age at the last birthday before compensation fell due. It falls as age rises, because it converts a lifetime's lost earnings into one sum:

Worked examples, and the ₹15,000 question

On monthly wages of ₹15,000 and an age of 30, every lump sum follows from one product, 207.98 times the wage:

Temporary disablement has its own timing. Where it lasts 28 days or more, the half-monthly payment runs from the date of disablement; where it lasts less, the first three days are a waiting period (s.76(4)). Anything the employer paid the worker as compensation before the award is deducted, but money spent on treatment is not.

The wage figure in that example is not arbitrary. Section 76(3) lets the Central Government specify monthly wages for the formula, the same power the 1923 Act had in s.4(1B). The last notification under it, S.O. 71(E) of 3 January 2020, set ₹15,000, replacing ₹8,000; s.164(2)(a) of the Code keeps notifications under the repealed Acts in force until replaced, to the extent they are not contrary [VERIFY: that no fresh s.76(3) notification has issued]. Whether that figure caps the wage of a worker who earns more has been argued both ways. Before 2010 the 1923 Act deemed wages above ₹4,000 to be ₹4,000; the 2009 amendment deleted that deeming, and in K. Sivaraman v. P. Sathishkumar (2020) the Supreme Court described its object as paying compensation "on the basis of the actual monthly wages drawn", though the case itself turned on the date of the accident.

The difference is large for exactly the workers Chapter VII covers. For a 35-year-old supervisor on ₹25,000, death compensation is ₹24,63,250 on actual wages and ₹14,77,950 on ₹15,000; permanent total disablement is ₹29,55,900 against ₹17,73,540. Which reading the competent authority applies to a given claim is a question for the employer's own counsel.

Paying it: deposit, interest and the clock

Compensation is due as soon as it falls due, and late payment is expensive. Section 77 requires payment on the due date and, where the employer disputes part of a claim, a provisional payment of the part it accepts. Past one month, the competent authority adds interest, which rule 57 of the Social Security (Central) Rules 2026 sets at 12% simple a year from the date the compensation became payable, and may add damages of up to 50% of the arrears where the delay has no justification.

• Death compensation goes through the competent authority. Section 81 says it, and any lump sum due to a woman or a person under legal disability, can be paid only by deposit with the authority; a direct payment by the employer does not count as compensation. The employer may advance up to three months' wages to a dependant, which is deducted from the award and repaid.
• The claim has a two-year window. A claim must be preferred within two years of the accident, or of the death (s.82), though the authority can admit a late one for sufficient cause.
• The date of the accident decides the law. The Supreme Court has held since Pratap Narain Singh Deo (1976) that compensation is fixed as on the accident date, so an increase notified later does not reach an earlier accident (affirmed in Sivaraman, para 32).

Whether an injury arose out of and in the course of employment, what the loss of earning capacity is, and what an individual worker is owed are decided by the competent authority on the facts, and a site facing a claim should take it to its own counsel.

Sources

• Code on Social Security, 2020 (Act 36 of 2020), Gazette text hosted by the Ministry of Labour and Employment. Sections cited: s.2(26) third proviso, s.2(55), s.2(56), s.2(88), s.76 to s.78, s.81, s.82, s.85, s.164(2)(a); First Schedule (Chapter VII row); Second Schedule items (ii), (xxvi), (xxxvii); Fourth Schedule; Sixth Schedule. Opened and read.
• Social Security (Central) Rules, 2026, G.S.R. 344(E) dated 8 May 2026, mirrored copy of the Gazette. Rule cited: r.57 (12% simple interest on compensation unpaid after thirty days). Opened and read [VERIFY: against the e-Gazette original].
• Ministry of Labour and Employment, notification S.O. 71(E) dated 3 January 2020, as reproduced. Monthly wages of ₹15,000 under s.4(1B) of the Employee's Compensation Act 1923, superseding S.O. 1258(E) dated 31 May 2010. Opened and read [VERIFY: against the e-Gazette original].
• K. Sivaraman & Ors v. P. Sathishkumar & Anr, Supreme Court of India, Civil Appeal No. 9046 of 2019, judgment dated 13 February 2020. Paras 13–15 and 26 (deletion of the ₹4,000 deeming), para 32 (date of accident governs, following Pratap Narain Singh Deo v. Srinivas Sabata (1976) 1 SCC 289). Opened and read [VERIFY: against the copy on the Supreme Court's judgment portal].
• Ministry of Labour and Employment, Additional FAQs on Labour Codes (as on 16 March 2026). Q12: ESI coverage continues at ₹21,000 a month. Opened and read for earlier articles in this cluster.