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What is Workmen Compensation [Explained in Details]

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24th Mar, 2023
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What is Workmen Compensation [Explained in Details]

Employees have valued assets in any organisation. Safeguarding their welfare helps organisations to achieve success and realise the smooth functioning of most of their operations. Taking care of the employees and their dependents in the event of a fatal accident at the workplace is one of the best practices to ensure their welfare. 

A workplace injury can result in critical long-term physical and monetary losses, which is what the worker’s compensation or the Workmen’s compensation covers.

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What is Workmen’s Compensation Act 1923?

The Workmen’s Compensation Act, 1923 (also referred to as the Compensation Act or WCA in some states) is a federal law that orders employers to compensate their workmen or employees for a work-related accident, injury, illness, or fatality. This act resulted in the creation of a distinctive type of insurance for frontline employees.

According to this act, employers should provide compensation to their workers who encountered injuries that resulted in disablement or demise during employment. It guarantees that workers are sufficiently compensated during such cases in the line of duty.

The Workmen’s Compensation Insurance Policy is created to ensure that employers are liable to compensate the workers/employees in the situation of an injury at the workplace. The act guarantees that the workers’ rights are maintained even after they meet some disability or demise due to an accident during their work.

The Workmen Compensation policy is significant for businesses, too, since it protects them against the threat of a high compensation amount as well as additional lawsuits. Specifically, this holds true for companies in which employees are prone to severe health and life hazards.

The compensation amount depends on various factors like the employee’s age, the type of injury, and average monthly salary. But, the maximum and minimum compensation is fixed for cases associated with death or permanent disability. If an employee is killed on the job, the employer should compensate his/her dependents.

Objectives of Workmen’s Compensation Act 1923:

Two key objectives of this act are:

  • It allows employees and their dependents to receive compensation from their employers in the event of an accident leading to an employee’s disability or death.
  • It instructs employers to pay compensation to their workers if they encounter some job-related diseases or illnesses.

 Reasons to avail of Workmen’s Compensation Insurance

A workmen’s compensation policy benefits both employers and employees. Here are the reasons justifying why all employers should get a workmen’s compensation insurance policy.

  • After an employer gets insured under this policy, the insurance partner covers any expenses or costs incurred.
  • The act governs legal liabilities. Investing in the policy is beneficial if you want to conform to the rules and regulations stated in the act.

What is Workmen’s Compensation Fund?

The (Workmen’s Compensation Fund) WCF was established by abiding by the Workmen’s Compensation Act. The workmen compensation fund aims to substitute the employer’s liability and to provide swift and unbiased protection against disease, injury, death, or disability resulting from employment.

The employer is responsible for contributing exclusively to the workmen compensation fund WCF per year, just like the insurance premium. The employees are entitled to get compensation benefits that cover monthly indemnity, medical services, funeral grants, and rehabilitation in the event of employment-related causes.

Scope of Workmen’s Compensation Policy

The following types of frontline workers are covered under the Workmen Compensation policy:

  • Workers working in mines, factories, construction sites, docks, and particular establishments stated under the Schedule II of the Act.
  • Workers employed abroad under Schedule II of the Act.
  • Railway servants who are not employed permanently in any district, administrative, or sub-divisional railway office.
  • Drivers, helpers, mechanics, captains, crew members on an aircraft, or any vehicle-related work.

Claims process of Workmen’s Compensation Insurance Policy:

The steps involved in filing the workmen’s compensation claims are mentioned below:

  • Firstly, the employer is informed about the employee’s accident or fatality. The on-premise mishaps and accidents should be communicated to the site inspector.
  • Collect all information and documents as required by the norms defined by the insurance provider.
  • Deposit the collected documents with the insurance provider.
  • After evaluating the documents and information collected, the insurance provider approves or rejects the claim and notifies the same to stakeholders.

 Conditions in which employers pay compensation:

As per Section 3 of the Workmen’s Compensation Act, an employer is responsible for compensating for damages to its workers under the below conditions:

  • An injury suffered by an employee during employment that causes partial or total disability.
  • If a worker faces an occupational disease mentioned under Part A, B, and C of Schedule III. In this case, the disease must be caused due to an injury by accident during working hours.
  • The demise of an employee owing to a work-related hazard.

 Calculation of Workmen’s Compensation:

The following guidelines should be followed for calculating workmen’s compensation injury.

  • According to the Workmen’s Compensation Act, the maximum monthly wage permitted for calculating compensation is INR 8,000/-.
  • Workers’ age should be at least 16 years to be eligible for compensation.
  • An age-based multiplier is stated in Schedule IV of the Workmen’s Compensation Act.

 Various cases to consider for calculating compensation:

The process of calculating workmen’s compensation must be done as per the provisions set under Section 4 of the Workmen’s Compensation Act.

  • An accident resulting in permanent total disablement: In this case, the employee receives either INR 1,20,000/- or an amount equivalent to 60% of the injured employee’s monthly salary into the relevant factor, whichever is higher.
  • An accident resulting in death: In this case, the employee receives either INR 1,20,000/- or an amount equivalent to 50% of the dead employee’s monthly salary into the relevant factor, whichever is higher.

Note: As per the new rule stated by the government, the wage considered for calculation under this act is INR 15,000/-. The relevant factor is provided in Section IV of the Act. 

  • Permanent Partial Disability (PPD):  In this case, the employee is paid a percentage of the compensation due under PTD. This percentage must be decided depending on the amount of the reduction in earning potential of the worker.
  • Temporary Disability (Partial or Total):  In this case, the compensation is paid as follows:

The maximum term for the compensation is five years.

25% of the worker’s monthly salary is to be paid every half month.

The compensation is paid only if the worker is disabled for over three successive days.

Who is covered under a Workmen’s Compensation Policy?

The employer who employs “workmen”, as stated in the Workmen’s Compensation Act, 1923, can purchase this Workmen’s Compensation Policy. The employees who aren’t defined as “workmen: in the Workmen’s Compensation Act can be compensated under “Table B Workmen Compensation Policy”.

The following list shows examples of employers who can buy Workmen Compensation Insurance Cover:

  • Civil contractors
  • Engineering firms
  • Nuclear firms
  • Builders and construction firms
  • Farming companies
  • Businesses that hire workers on a contractual term
  • Companies employing watchmen
  • Indian companies hiring workers abroad for menial jobs
  • Shipping companies and shipowners

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Takeaway

The Workmen’s Compensation Act, 1923 is a step forward toward ensuring employees’ welfare at the workplace. Since the states write the rules, several exemptions and exceptions may exist. The best way to comprehend an in-depth understanding of this act is to apply to a legal program, and upGrad enables you to do so!

upGrad’s LL.M. in Corporate & Financial Law by JGLS can be the most useful option if you want to kick-start a career in law. This program significantly assists you in acquiring demanding legal skills. 

The program allows working professionals and lawyers to broaden their perspectives and learn in-demand skills to keep up with the changing trends. With leading industry experts and interactive faculty, you can easily navigate an immersive learning path within a limited duration, enabling you to achieve a successful career post-course completion. 

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Frequently Asked Questions (FAQs)

1Who administers the Workmen’s Compensation Act?

The Ministry of Labour and Employment in India has established a division known as the Social Security Division. It drafts and employs social security policies for workers. Moreover, it also administers the Workmen’s Compensation Act. However, the different state governments administer this law with the help of commissioners selected by them.

2Who provides the benefits of the Workmen’s Compensation Act?

The employers provide for anything guaranteed in the insurance policy. They should provide all the benefits stated in the policy within 30 days of the claim. In several cases, the employers provide individual insurance policies to the employees and settle the workmen's compensation claims.

3Who is exempt from workers’ compensation?

Usually, only salaried employees are entitled to workers’ compensation. The freelancers are exempted from it. Several states eliminate certain professions from the workers’ compensation or restrict the benefits' scope.

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