Premiums, Policy Types and 2026 Rules
Employees' compensation insurance in India: the Social Security Code, ESIC and premiums
How employer liability for work injuries works in India after the Code on Social Security 2020, how ESI interacts with it, and how compensation and premiums are calculated.
An Indian employer is liable to pay compensation when an employee suffers personal injury by accident arising out of and in the course of employment, or contracts a listed occupational disease. For decades this was governed by the Employees' Compensation Act, 1923 (called the Workmen's Compensation Act until 2009). With the four labour codes brought into force on 21 November 2025, these provisions now sit in the Code on Social Security, 2020, which carries over the familiar structure: compensation is a multiple of monthly wages based on the employee's age, with a statutory minimum. An employees' compensation (EC) insurance policy pays that liability for workers who are not covered by the ESI scheme, and usually medical expenses and legal costs as extensions.
This guide is part of the business liability insurance overview. Rules under the Code and transitional notifications were still being issued during the transition; check the Ministry of Labour and Employment for the current rules, wage ceilings and schedules. Related rules for hazardous workplaces are in the Public Liability Insurance Act guide, and tax on the premium in GST on liability premiums.
ESI or employees' compensation: who needs which
| Worker situation | Main source of injury benefit | Employer action |
|---|---|---|
| Employee covered by ESI (in an implemented area, wages within the ESI ceiling, currently ₹21,000 a month for most employees; a rise to ₹30,000 was under discussion in 2026) | ESIC pays employment injury benefits | Pay ESI contributions on time; EC insurance generally not needed for these employees |
| Employee above the ESI wage ceiling | Employer liable under the Code | Buy EC cover for them |
| Establishment or area not covered by ESI | Employer liable under the Code | Buy EC cover |
| Contract labour through a contractor | Contractor primarily, principal employer may be liable | Require the contractor's EC policy or ESI coverage; consider cover for contractors' workers |
Where an employee is insured under ESI, the law bars a separate claim against the employer for compensation for the same employment injury, so the employer's duty is to keep ESI contributions in order. Supervisors, managers and sales staff above the ESI ceiling are the group most often left uninsured.
How compensation is calculated
The formula from the 1923 Act, carried into the Code, is:
- Death: 50% of the monthly wages × the relevant factor for the employee's age, or a statutory minimum, whichever is more
- Permanent total disablement: 60% of the monthly wages × the relevant factor, or a higher statutory minimum, whichever is more
- Permanent partial disablement: a percentage of the permanent total amount, based on the loss of earning capacity listed in the schedule or assessed by a qualified medical practitioner
- Temporary disablement: a half-monthly payment of 25% of monthly wages for the period of disablement, after a short waiting period
- Funeral expenses: a fixed amount in addition, in death cases
Under the 1923 Act the minimums were ₹1,20,000 (death) and ₹1,40,000 (permanent total disablement), the monthly wage used in the calculation was capped at ₹15,000 by a 2020 notification, and funeral expenses were ₹15,000. Treat these as the reference figures to verify against the rules under the Code, which may revise them.
Illustrative worked example
A machine operator aged 40 earns ₹22,000 a month and is not covered by ESI. He suffers permanent total disablement in a workplace accident. Using the reference figures:
- Wage for calculation, capped: ₹15,000
- 60% of ₹15,000 = ₹9,000
- Relevant factor for age 40 in the schedule: 184.17
- ₹9,000 × 184.17 = ₹16,57,530, which is more than the ₹1,40,000 minimum
Had he died, the figure would be 50% × ₹15,000 × 184.17 = ₹13,81,275, plus funeral expenses. If compensation is not paid within one month of falling due, the authority can order interest (12% a year under the 1923 Act) and, if the delay is not justified, a penalty of up to 50% of the amount. Insurance policies often exclude interest and penalty caused by the employer's own delay, so report claims quickly.
How EC insurance premiums work
Premiums are worked out from the annual wages you declare for each category of worker, with a rate for each category that reflects its hazard. Office staff are cheap to insure; drivers, loaders, construction and machine workers cost more.
| Category (illustrative) | Workers | Annual wages declared | Illustrative rate | Premium |
|---|---|---|---|---|
| Office and admin | 6 | ₹21,60,000 | 0.10% | ₹2,160 |
| Drivers | 3 | ₹9,00,000 | 1.00% | ₹9,000 |
| Machine operators | 10 | ₹26,40,000 | 1.50% | ₹39,600 |
| Total before GST | ₹50,760 | |||
| GST at 18% | ₹9,136.80 | |||
| Total payable | ₹59,896.80 |
The rates above are invented to show the method, not market rates. Many EC policies are adjustable: you pay on estimated wages and declare actual wages at expiry. Under-declaration can lead to an additional premium demand or, worse, a dispute when a claim arises. Use the GST calculator to split GST from any quote.
Common extensions
- Medical expenses (often with a per-employee limit)
- Occupational disease cover
- Contractor's employees, where you as principal may be liable
- Legal liability under common law (employer's liability beyond the statutory scale), sometimes sold separately
What changed with the Code on Social Security
The Code consolidates nine social security laws, including the ESI Act, 1948 and the Employees' Compensation Act, 1923, into one statute. Points to check with the current rules:
- The Code is understood to treat accidents while commuting between residence and workplace as arising out of employment, subject to conditions; confirm the exact text and conditions
- Revised wage ceilings, minimum amounts and schedules may be notified under the Code
- Extension of ESI coverage to more districts and to new classes of workers can change who needs EC cover
Ask your insurer to confirm the policy wording refers to liability under the Code as well as the 1923 Act for older claims.
Frequently asked questions
Do I need EC cover if all my workers are under ESI?
Generally not for ESI-covered employees, but check managers above the ceiling, workers outside implemented areas and contract labour.
Does a public liability policy cover injuries to my employees?
No. Public liability and CGL policies exclude injury to your own employees; that is what EC cover and ESI are for.
Who decides the compensation if there is a dispute?
The competent authority under the Code (previously the Commissioner for Employees' Compensation). Appeals go to the High Court on substantial questions of law.
Can I pay a worker directly and claim later?
Speak to the insurer first. Settling without the insurer's consent can breach policy conditions.
Sources
- Ministry of Labour and Employment — Code on Social Security, 2020, rules and notifications
- Employees' State Insurance Corporation — coverage, wage ceiling and employment injury benefits
- India Code — text of the Code and the Employees' Compensation Act, 1923
- IRDAI — registered general insurers offering EC policies
