What is Employee Compensation?

Last Updated at: Sep 07, 2020
What is Employee Compensation?
To safeguard the interests of the families, it has been decided to make an ad-hoc payment to the family or legal heir of employees, who die during the period of COVID-19,” an internal circular dated July 20 noted stated.


The monetary compensation will be extended to direct employees as well as contractual labourers, the ministry of shipping said in a statement. Ministry of Shipping has decided that all the Major Ports may grant compensation ex-gratia in the event of loss of life due to COVID-19 to the dependent members or legal heirs of the port employees, it said.


What is the Employee Compensation Act? Who is applicable for it? What is the liability of the employer such as half-monthly payment, and registration of agreement? When is it due, and what is the penalty for non-payment? All these frequent questions are answered in this post.

Are you aware of the term Employee Compensation Act? Do you know if you are eligible for the same? Well, you can get more clarity regarding employee compensation regulations as per the Employee Compensation Act, 1923 from here. We have covered the various aspects related to employee compensation so that you can get a clear understanding.

Employees Compensation Act, 1923 is one of the significant social security legislation. The main intention of this act is to provide financial protection to the employees and their families in the form of compensation in the situations of any accidental injury occurred during the time of employment which results in any kind of disablement or death of the worker. In this article, different aspects of the Employees Compensation Act are discussed in detail.

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Applicability of the Employee Compensation Act

The Employees Compensation Act is applicable to the following entities as listed below-

  • It is applicable to the employees working in factories, docks, mines, construction establishments, oilfields, plantations and other establishments listed in the Schedule II of the Act.
  • It is applicable to the individuals recruited for working abroad and employed outside India according to Schedule II of the Act.
  • It is also applicable to the individual who is recruited as the driver, mechanic, helper, cleaner or any other in connection with the motor vehicle and to the captain or other members of the crew of an aircraft.

Also, the act is not applicable to the members of armed forces of the Union and Workmen whose compensations are covered under the ESI Act (Employee State Insurance).

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Employer’s Liabilities for Compensation

An employer is an authority for paying compensation to the employee according to the following situations-

  • Personal injury through accident- The employer is responsible for paying compensation to the workman if personal injury is caused to him/her by accident arising out during his/her employment.
  • Occupational diseases- Workers employed in the occupations which are usually exposed to some kind of diseases which are common in that occupation.

An employer is not liable to pay the compensation to his/her workers under the following situations-

1)  In case of any kind of injury which does not arise in the partial or total disablement of the workers for a time period of more than three days.

In case of any kind of injury, not resulting in permanent total disablement or death, caused by an accident which is directly applicable to the following-

  • The workman present at the time of the incident under the influence of alcohol or drugs.
  • The intentional disobedience of the workman to an order which is given, or to the rule framed, for the safety of workers.
  • The willful disregard or removal by the workman of any safety guard or other such devices which he/she knew to have been provided for the safety of workers.

Half-Monthly Payment

Half-Monthly payment is reviewed by the Commissioner on the application by the employer or employee. A certificate from the qualified medical practitioner needs to be accompanied along with the application that there has been a change in the condition of the employee. On review, half-monthly payment may be extended, reduced, continued or converted or ended into lump-sum under Employees Compensation Act, 1923.

Registration of Agreements

The amount which is paid as compensation can be settled in the form of the agreement, the employer needs to send a memorandum to the Commissioner. The commissioner will validate and record the memorandum in a registered method if satisfied.

In case, if the agreement is found to be obtained by undue influence or fraud or another inappropriate manner in such cases, the commissioner will disagree to record the agreement.

Due and Penalty for Non-Payment

The employer becomes liable for paying the compensation directly when a personal injury occurs to the employee by accident during the work hours. The compensation which should be paid will be calculated from the date when the accident happened.

If the compensation is not paid within a month from the accident date, the Commissioner will order the employer to pay simple interest at the rate of 12% per annum in any of the scheduled banks along with the compensation amount.

In conclusion, an employer has to pay compensation to the family of an employee if they get injured, disabled, or die during their time of employment. It is paid directly after the incident with a buffer of 30 days and not complying with the law incurs a penalty of 12%.

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.