2017

Group - 2

Workers Compensation
COMPENSATION AND BENEFITS

Amish Sharad Hemrom-H006-16 || Arnab Bhatacharya-H007-16 || Deeptapran Sonowal-H014-16

Gottumukkala Sanjeev Samuel-H017-16 ||Gourab Ghosh-H018-16|| Mohit Kumar Sethy-H034-16
Satadru Chakraborty- H042-16
Table of Contents
Title And Purpose 3
Introduction 3
Method 4
Important Acts 4
Wage Code bill: 5
Marginal Utility of Income 5
TOTAL BENEFITS 7
Contractual workers compensation 10
Minimum Wages in India 10
Overtime Pay: 13
Compensation of a worker 14
Some Special Cases and Recent Trends 15
Critical Learning from the Project 15

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Title And Purpose

The project Title is A brief Study on Workers Compensation in India. We chose to study the
workers compensation in India because it will give us a chance to know more closely about the way
shop floor workers are compensated in India and therefore benefit us as we take up critical
responsibilities to design innovative compensation packages for workers when we take up such IR
roles as future HR Managers. It is very important for us to understand the different laws regulating
the wages and working conditions of workers (who were largely exploited before the enactment of
such laws) so that we can design the packages keeping in mind the provisions given in the laws and
at the same time devising ways to motivate the workers.

Introduction
Shop floor workers were exploited and treated as machines previously by employers without taking
into consideration the humane aspects of working with human beings. Little importance was given
to workers personal needs and aspirations. Wages were exploitative and the working conditions
were inhumane resulting in frequent accidents and poor morale of the workers. Welfare was never
the priority for the employers as they looked to cut cost and increase their own margins. Work
Duration was above normal and no guidelines set for regulating the working hours and Overtime.
The aim was to bring in Equity, Equality and Social Justice for Workers who had to face several
adversities while working in an Industrial Setup.
Equity:- This provides proportionate pay according to the work performed. A worker reaching better
performance levels than another worker doing similar work would be paid more according to the
laws of equity.
Equality:- Workers to paid and treated at par and should not be differentiated based on caste,
creed, sex, gender etc.
Social Justice:- Previous laws outlined that in case of accidents, workers had to prove their
innocence and that the employer had been negligent and casual in their attitude which resulted in
the accident. Many employers made sure that the workers were not able to prove the employers
fault resulting in injustice and dissatisfaction among workers. New regulations in order to be fair and
just ensured that the employer had to prove their innocence in case of an accident and not the
worker.
The regulations and laws were established to reduce the power enjoyed by the employers and
aimed to give sufficient power to the workers so that the two parties coordinate and co-determine
the wages, conditions of labor and other employment matters like welfare etc.
Over time, employers have become paternalistic and humanistic in their attitudes towards workers.
Welfare schemes and increased involvement of the labor force in the decision making have helped in
improving both the productivity levels and the motivation of the workers.

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Method
The data was collected from
Different sites describing the government regulations and other benefits designed for workers
Research Articles
Recent Trends and News

Important Acts

The Workmens Compensation Act: - In case of Industrial accidents and occupational

diseases which resulted in disablement or death of a worker, the dependents of the worker
are liable to get, in case of death, an amount equivalent to 50% of the monthly wages of the
unfortunate workman followed by multiplication of the relevant factor or an amount of
80000 whichever is more. When permanent disablement is caused, then amount equal to
60% of the monthly wages of the disabled person followed by multiplication of the relevant
factor or an amount of 90000 whichever is more.
The Employee State Insurance Act :-The act provides for cash benefits and also relevant
health care in cases of different aspects like maternity, employment injury of workers,
maternity and sickness. The scheme is done from 737 centres in 27 states. Both the
employer and the employee contributes towards this fund. It is administered by both the
state government the central government.
The employees provident fund and miscellaneous provisions act:- The act is relevant for
177 industries which have employed 20 or more workers. The maximum amount to be given
would not exceed Rs. 6500 per month. The provident fund, pension fundand Deposit-linked
Insurance fund are administered by EPFO.
Maternity Benefit Act :- It regulates the well-being of women employees before the
prenatal and postnatal period of child birth and provides 26 weeks of leave, the medical
bonus and other benefits. The act not only covers illness related to maternity, but has
provisions for leave in case of miscarriage, surrogate motherhood and tubectomy as well. In
addtition to leave and medical bonus, the act also mentioned the prescribed time before
which the mother should go on leave and the types of wok a pregnant woman can do.
Payment of Gratuity Act:- It provides for payment of gratuity at the rate of half monthlys
wages for each year of the service in excess of 7 months. The maximum amount to be given
as gratuity payable from 1 lakh to 3.5 lakh. Gratuity becomes payable in case of termination
of employment only if the employee has been in continuous service with the employer for 5
years. The gratuity amount also qualifies for tax exemption.
Industrial Disputes Act:- Industrial disputes act has provisions for regulating disputes
between employers and employees. The purpose of the act is to facilitate speedy resolution
of dispute and to promote industrial harmony. The act provides for alternate dispute
resolution mechanisms and adjudication if those fail.
Minimum Wages Act:- This act provides for the minimum wages that need to be paid to
labour of different skill levels. This act is applicable to whole of India, and appropriate
government is empowered to set minimum wages. However, the act has been criticized
because it has failed to protect workers in unorganized sector and still 42% of Indian workers
are working at wage below minimum wage.

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 Equal Remuneration Act:- This act aims to prevent discrimination of workers on the basis of
sex. It mandates employers to pay employees according to the principle of equal pay for
equal work and also restricts recruitment on the basis of sex. The Act provides for definitions
on how to determine equal work.
Factories Act:- Factories act contains mostly welfare provisions for workers. It also provides
for rules on overtime wages. Overtime wages are to be paid at a rate of 1.5 times the normal
hourly rate. It also has provisions for leaves with wages.

Wage Code bill:

In a reform to the current wage regulations, union cabinet cleared the Wage code bill in June 2017.
The key takeaways from the bill are

Centre can set a minimum wage across all sectors in the country and states will have to
maintain that. However, states will be able to provide for higher minimum wage in their
jurisdiction than fixed by the Centre.

It will subsume the current laws: Minimum Wages Act of 1948, the Payment of Wages Act of
1936, the Payment of Bonus Act of 1965 and the Equal Remuneration Act of 1976.

Once the bill is passed by the competent authority, minimum wage or remuneration will
always be provided regardless of his/her employment status.

Workers, who are earning more than Rs 18,000 is also guaranteed minimum income.

44 different labour laws is to clubbed in 4 sections, which are: wages, industrial relations,
health and working conditions, social security and safety.

Marginal Utility of Income

The marginal utility of income is defined as the change in human satisfaction resulting from an
increase or decrease in an individual's income. It says that people who get pay raises tend to be
more satisfied than they otherwise would have been, and people who lose income tend to be less
satisfied than they otherwise would have been. As with most other marginal values, marginal utility
is assumed to be diminishing in nature; people value each subsequent dollar less and less because it
satisfies less urgent wants.

To have a deeper understanding of the concept we went through various research articles on
marginal utility of income and found some interesting results. According to a research on marginal
utility of income by Richard A. Easterlin, it is observed that when mean happiness of different
countries are plotted with the real GNP per capita,the trend line across these two parameters shows
that the marginal utility of income diminishes as the Real GNP per capita increases.

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Veenhovens analysis from surveys of 14 countries, is depicted in the figure above where rich and
poor, communist and non-communist, conducted by Hadley Cantril (1965)

Another interesting revelation came up when the research compared the happiness levels within the
selected countries. Most of the countries showed diminishing marginal utility curve,which was
similar to the curve of inter country comparison but in case of Japan it was not so. Japan was the
country with lowest levels of income among all the 14 countries under study and the pay levels were
way lower than the other countries.

According to the general trend the line should have been the way it is depicted in the figure above
but interestingly the actual results varied significantly. The trend line was more or less constant and
it was not similar with other countries. From this observation we can infer that in case of low wage

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pay workers whose compensation is around the minimum wage pay limit the law of diminishing
marginal utility would not be applicable as these people earn to fulfil the basic needs. As seen in
Maslows hierarchy the lowest level of needs consists of physiological needs such as cloths, shelter
and food. For these sections the diminishing marginal utility would be effective only when the
workers will be able to complete the physiological needs and are in quest of the second or third level
of needs.

TOTAL BENEFITS
1. Social Security:- India has provisions for social security for Industrial workers and has
enacted several laws to make sure that the provisions are abided by. The following contains
some brief explanation of the same
The Workmens Compensation Act :- In case of Industrial accidents and occupational
diseases which resulted in disablement or death of a worker, the dependents of the worker
are liable to get, in case of death, an amount equivalent to 50% of the monthly wages of the
unfortunate workman followed by multiplication of the relevant factor or an amount of
80000 whichever is more. When permanent disablement is caused, then amount equal to
60% of the monthly wages of the disabled person followed by multiplication of the relevant
factor or an amount of 90000 whichever is more.
The Employee State Insurance Act :-The act provides for cash benefits and also relevant
health care in cases of different aspects like maternity, employment injury of workers,
maternity and sickness. The scheme is done from 737 centres in 27 states. Both the
employer and the employee contributes towards this fund. It is administered by the state
government and the central government.
The employees provident fund and miscellaneous provisions act:- The act is relevant for
177 industries which have employed 20 or more workers. The maximum amount to be given
would not exceed Rs. 6500 per month. The provident fund, pension fundand Deposit-linked
Insurance fund are administered by EPFO.

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 Maternity Benefit Act :- It regulates the well-being of women employees before the
prenatal and postnatal period of child birth and provides 26 weeks of leave, the medical
bonus and other benefits
Payment of Gratuity Act:- It provides for payment of gratuity at the rate of half monthlys
wages for each year of the service in excess of 7 months. The maximum amount to be given
as gratuity payable from 1 lakh to 3.5 lakh.
Industrial Disputes Act:- Any retrenchment, layoff requires all types of notice, consultation,
prior administrative office, compensation from the authority
Minimum Wages Act:- Guarantees that wages are paid and with the norms for payment for
extra work permissible deductions etc.
2. Social Insurance:- Social Insurance from the employer for health benefits that is to be
contributed from both the employers and the employees.
3. Social Assistance:- Through welfare fund legislations funded through tax on employers
4. Employees Pension Scheme:- EPS introduced in 1995, the scheme clearly provides for
pensions, which is contributed by the employees and employer both after the retirement of
the employee
Pensionable salary * pensionable salary/70
5. Medical Care and Health Benefits:- Sickness, Employment Injury and Occupational
Health/Diseases. Insurance cover is also provided for relief from accidents. Also
Hospitalization costs is also provided with maximum limit upto one months basic pay and in
some cases basic pay plus dearness allowance. In the factories Act, there is provisions for the
workers the right to get suitable working environment. A safety committee is constituted of
both workers and safety committee members and the factory inspector is given the power
to penalize the employer if safety conditions are not maintained.
6. Reimbursement for Hospitalization:- Schemes provide for major diseases like heart disease
and other ailments not exceeding Rs. 1 lakh in the whole tenure of employment.
7. Medical Facilities for Dependents:- Spouse, dependent, unmarried children below 21 years
of age provided are covered for these benefits
8. Reimbursement for Medical Care Related Travel:- Employers also make sure that travel
expenses are reimbursed for medical care.
9. Free Medical Check-ups:- Employers provide free medical checkups to all their employees
but usually to those over 45 years of age.
10. Welfare Funds:- Welfare funds for coal, mica, iron ore, manganese ore, limestone etc. and in
beedi and cine industries to make sure that employees are fairly treated owing to the health
hazards in these industries.
11. Educational Allowances:- 109 collective agreements covering 85 private sector and also 24
public sector companies provide for Rs 100 per month towards educational allowance.
12. Death Relief/Benevolent Fund:- Nominal contributions from employees and employers
would help in building a benevolent fund which would be passed on to the nominees of the
deceased employee.
13. Power to form Unions:- Employees can form unions and then sit with the employer to
ascertain collectively the wages, working conditions and other employment issues. Collective
Bargaining, Workers participation in Management etc. giving the power to employees to
bargain with the employer
14. Bodies protecting Workers Rights:- Works committee, and other bodies formed at
industrial, national level to make sure that the workers are not exploited. Labour Courts,
National Tribunal, Conciliation procedures to help the workers resolve their disputes.

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 Adjudication and Arbitration important procedures to resolve disputes between employees
and employers.
15. Training:- Reskilling employees to equip them with handling automated plants and other
new set of machineries.
16. Yearly Gifts and Festival Bonuses:- Employees are entitled to get festival bonuses and gifts
every year and employers make sure that the bonuses are given timely to keep the workers
motivated.
17. Crches:- The government has made sure that crches are provided in every company
where the number of employees exceed 50 workers.
18. Facilities of being a member in a union:- Union members are entitled to different monetary
benefits to be awarded from union funds. Funding is provided to members having political
aspirations to file nominations and stand in elections.
19. Canteen and Free Meals:- Canteen provided to employees if number exceed 250 workers. In
some companies like Asian Paints, free meals including dinner, breakfast, snacks and lunch is
provided.
20. Housing and Transport:- Some companies provide temporary housing to the workers or
contribute to the building of the houses of workers. Also transportation to plants and back
to homes are also provided.
21. Employment to Dependents:- Some employers assure employment of the workers
dependents in case of death of the worker or disablement of the worker. Also in many cases,
post retirement of the worker, job is offered to the dependent based on the eligibility of the
dependent.
22. Loans at subsidized rates:- Many employers look to provide loans to employees at
subsidized rates and help them in attaining financial stability
23. Health, Safety and Welfare in Factories Act:- The factories Act outlines strict guidelines to
make sure that the working conditions, wages, and other welfare benefits are strictly
adhered to by the employer.
24. Right to Strike:- Workers can also resort to strike in a legal way to meet their demands and
coax the employer to listen to their wishes. Picketing, Go-slow, Hunger Strike are several
ways of resorting to strike. The two parties can then sit down and bargain to reach the best
possible solution.

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Contractual workers compensation
Contract Worker : According to Section 2(b) of the Contract Labour (Regulation and
Abolition) Act, 1970, a workman shall be deemed to be employed as "contract labour" in or
in connection with the work of an establishment when he is hired in or in connection with
such work by or through a contractor, with or without the knowledge of the principal
employer.

Contract workers are mostly found in unorganised sectors

They have very low bargaining power

They have little or no job security when compared to permanent employees

The following acts are applicable for contractual workers:

Minimum Wages Act, 1948

Unorganised Workers Social security Act, 2008
Employees Provident funds and Miscellaneous Provisions (EPF&MP) Act, 1952
Employees State Insurance Act, 1948
Employees Compensation Act, 1923
Contract workers and regular workers need to be provided with similar rights and securities

Pay slips are not issued to contractual employees by a company

Pay slips can be issued only by a contractor but not by a principal employer

Minimum Wages in India

Any modern nation provides the legislative shield for the workers to get the minimum wage. It is
one of the most important premises for having a smooth and decent labor-management relation
and decent work environment. In, India Minimum wage act was implemented in 1948 to enforce
the scheduled minimum wages. The act was aimed at preventing the exploitation of labour(
According to NSSO the total unorganized sector constitutes the 86% of the labor work force). The
act also requires appropriate agencies of Government (preferably both central and state) to decide
the minimum fixed rate for the employees mentioned in the schedule.
Presently 45 types of employees are scheduled as per central Government circular where as the
number reaches up to 1650 as per state government circular. The National floor Level of the wage
has been thus raised from Rs. 100 to Rs. 137 with effective circular dated from November,2009.
Further, it has been raised upto Rs. 160 from July, 2015.
The disadvantage of this mechanism is the huge disparity often seen in the final minimum level of
wage among the states because the states are also a party to fix the upper limit of the wage.
Therefore to keep the parity intact government has created 5 regional sub committees.

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 5 Regional Committees in India

Current Minimum Wages

Region States/UTs covered

Eastern Region (6) West Bengal, Orissa, Bihar, Jharkhand, Chhattisgarh and Andaman and Nicobar
Islands.

North Eastern Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and
Region (8) Sikkim.

Southern Region (6) Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Puducherry and Lakshadweep.

Northern Region (9) Punjab, Rajasthan, Himachal Pradesh, Jammu and Kashmir, Haryana, Uttar
Pradesh, Uttrakhand, Delhi and
Chandigarh.

Western Region (6) Maharashtra, Gujarat, Goa, Madhya Pradesh, Dadra and Nagar Haveli and Daman
and Diu.

Minimum wages in Different states:

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Here we can see that disparity still exists to a certain extent because of the stake of the state
governments. This is primarily because the different kind of industries that exists in different states
and therefore the demand and supply of skilled and semi skilled labor. Earlier Assam was the state
with the lowest level of daily wage which has been significantly increased due to the migration of
skilled worker from the state to the states with significant industrial development. But another
disparity still exists that is the wage that has been fixed for different level of labor remains same
across occupation which again creates a disparity because the economic and other parameters in each
industry remain different. Available jobs and the disparity between available labor of different level
creates further friction in the wage structure.

The Table below also shows the minimum wage across some typical jobs.

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The above table shows minimum wages of workers as decided by central government for different
jobs and at different areas.

The difference in minimum wages across jobs is because workers in different jobs require different
skills and the hardship of a worker also changes based on the nature of the job. Example : The
minimum wage of a highly skilled construction worker in Area A is Rs 693 whereas the minimum
wage of a unskilled cleaning and sweeping worker in Area A is Rs 523. This is because a construction
worker requires high skill and also has increased occupational hazards as compared to a worker
involved in sweeping and cleaning.

The difference in minimum wages for the same job across various locations/ areas is because the
demand and supply of labour is not the same in different locations. Also the cost of living and taxes
that needs to be borne by a worker differs with location.

Overtime Pay:
How many hours (maximum) per day, week and year can a person work?
As per the factories act 1948, for an adult work hour per week is 48 hours and per day the same is 9
hours. And the spread over should not be more than 10.5 hours in a day. These are the minimum
working hours to avail overtime pay.
The Minimum Wages Act also states that for an adult up to 9 hours in a day is normal working hour.
And the ones working above these working hours can avail overtime pay.
What is the overtime wage rate compared to normal wage rate?

According to Minimum Wages Act, 1948 overtime wages are to be paid at the rate of twice
the ordinary rates of wages of the worker. Actual work can be mentioned by the employer on any
day up to 9 hours in a 12 hours shift. But he must pay double the rates for any hour or part of an
hour of actual work in excess of nine hours or for more than 48 hours in any week.
If any worker whose minimum wage rates are fixed with certain period of time according to
company policy (pay by hour, pay by day, pay by week, pay by month), then the employer will have
to pay him for every hour or for part of an hour for which he has worked in excess at the overtime
rate which is twice the rate of normal wage rate.

Calculation of Overtime Pay

Lets consider a worker in an Indian factory.

With basic pay of Rs. 6000, dearness allowance of Rs. 800 and HRA of Rs. 1000

Total salary = 6000 + 800 +1000 = Rs. 7800

this is monthly basis. Suppose, one employee worked 10 hours as overtime in factory. Then we will
pay him overtime double of normal salary. Normal working hours per day for a worker is 8 hours.

According to Indian legislations the minimum work hour to receive overtime pay= 48 hours/ week
or 9 hours/ day
Overtime pay rate= 2 times the normal rate

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First of all we convert normal salary into hourly salary

Hourly salary rate = 7800 / 26 = Rs. 300 per day = 300 / 8 = Rs. 37.5 per hour

Overtime salary = Normal hourly rate of salary X 2 = Rs. 37.5 X 10 X 2 = Rs. 750

Total Salary=Rs. 7800+Rs. 750= Rs. 8550

Compensation of a worker

Here total working hours= 474 Hours

Rate= 2$ per hour

so total pay= 474*2= 948$

Deductions= Others+ Cash in advance+ PUB (Public Utility Benefits)

Net Pay = 948-(80+50+37)

= 781$

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Some Special Cases and Recent Trends
1. Profit Sharing :- Ford Motor and Fiat Chrysler Automobiles on January 2017, decided to give
around 100000 hourly employees profit sharing bonuses from February onwards to reward
its workers for their dedication and commitment in achieving strong operating results in
North America. More than 56k unionized workforce received profit sharing cheques for their
strong performances.
2. Pay for Productivity :- Many companies are moving towards a trend where each worker will
be paid according to his/her output. Though the minimum wage, pension, gratuity etc. will
be maintained in line with the government regulations, but the income above the minimum
wages will be determined by the workers efficiency and productivity. In other words, there
is a trend of introducing variable component in the wages of the workers. The classic
example is of Asian Paints where each of the components of the designated work has been
articulated and efficiency standards calculated. Workers who work at the specified speed
and are able to fill the specified x number of containers per hour( excluding the hours
wasted for rest, lunch breaks and other operational breakdowns) would be given the full
wage, otherwise a certain portion of the wage is cut for not reaching performance levels and
efficiency. The benefit of this process is that the workers cannot waste their time in the
plant premises as they have targets to achieve which is in line with the plant targets. Hence
alignment is achieved. However this was possible for Asian Paints because they have well
documented procedures for their workers which make things easier to measure
performance levels.

Critical Learning from the Project

The learning was immense

Helped us understand different Regulations and laws enacted for the health, safety, welfare of
the workers

Gave us the basic rules to keep in mind while designing compensation packages for laborers and
the basic entitlements that the workers are entitled and cannot be compromised with

The scope of innovation in designing the compensation for workers is minimal since we have
strict rules and guidelines to be followed

However the benefits given to the workers can be innovative and designed to motivate the
employees and increase productivity levels

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References
1) Compensation by Milkovich, Newman, Venkata Ratnam

2) www.india-briefing.com

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