The Employee’s Compensation Act, 1923 (formerly the Workmen’s Compensation Act) is a significant piece of social security legislation that provides financial protection to employees and their dependents in case of employment-related injuries or death.
1. Entitlement for Compensation
Under Section 3 of the Act, an employer is liable to pay compensation if a personal injury is caused to an employee by an accident arising out of and in the course of employment.
Arising "Out of" Employment: There must be a causal connection between the injury and the work (e.g., a machine operator injured by a blade).
Arising "In the Course of" Employment: The accident must occur during the period of employment and at a place where the employee may reasonably be while performing their duties.
Occupational Diseases: If an employee contracts a disease specific to their occupation (listed in Schedule III), it is deemed an "injury by accident."
Exceptions (When Compensation is NOT payable):
The injury does not result in total or partial disablement for more than 3 days.
The accident is directly attributable to the employee being under the influence of alcohol or drugs.
Willful disobedience of safety rules or willful removal of safety guards/devices.
Note: These exceptions do not apply if the accident results in death.
2. Amount of Compensation (Section 4)
The amount of compensation is not fixed but is calculated based on the nature of the injury, the age of the employee, and their monthly wages.
| Nature of Injury | Amount of Compensation |
| Death | 50% of the monthly wages $\times$ Relevant Factor (based on age) OR $₹1,20,000$, whichever is higher. |
| Permanent Total Disablement | 60% of the monthly wages $\times$ Relevant Factor OR $₹1,40,000$, whichever is higher. |
| Permanent Partial Disablement | A percentage of the compensation payable for total disablement, based on the loss of earning capacity (as per Schedule I). |
| Temporary Disablement | A half-monthly payment of 25% of the monthly wages, payable for the duration of the disablement. |
Key Considerations:
Wage Ceiling: For the purpose of calculation, the Central Government currently caps the monthly wage at $₹15,000$. Even if an employee earns more, the calculation is capped at this limit.
Relevant Factor: This is a multiplier provided in Schedule IV of the Act. The factor is higher for younger employees (reflecting a longer loss of future earning years) and lower for older employees.
Funeral Expenses: In case of death, the employer must also pay not less than $₹15,000$ toward funeral expenses.
Medical Expenses: The employer is also liable to reimburse the employee for the actual cost of medical treatment incurred.
3. Payment Procedure
Time Limit: Compensation must be paid as soon as it falls due. If the employer defaults for more than a month, the Commissioner may direct the payment of simple interest (usually 12% per annum).
The Commissioner: Compensation in case of death must be deposited with the Employee's Compensation Commissioner; it cannot be paid directly to the dependents by the employer.
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