All you need to know about Workmen Compensation Act - BetterPlace (2023)

Employees are prized assets for any organisation, and ensuring their welfare is key to long-term success. This includes ensuring workers and their dependents are cared for in the event of a fatal accident at the workplace that results in a loss of income.

The Workmen’s Compensation Act 1923, led to the creation of a special type of insurance for frontline workers. It ensures that workers are adequately compensated for injuries sustained in the line of duty.

The policy is important for businesses as well, as it protects them from the threat of a high compensation amount and further lawsuits. This is particularly true for organisations with employees who are exposed to extreme health and life hazards.
All you need to know about Workmen Compensation Act - BetterPlace (1)
All you need to know about Workmen Compensation Act - BetterPlace (2)

Definition: Workmen’s Compensation Insurance

A workmen’s compensation insurance policy is meant for commercial establishments. It provides legal liability coverage to an employer and also assists employees in times of financial emergencies. The policy compensates employees if they are injured at the workplace. Work-related fatalities and illnesses are also covered under this policy.

This type of insurance also provides financial relief to employers as it can cover the legal costs when employees press charges. Some policies may even cover compensations ordered by worker and labour courts.

Scope of Workmen’s Compensation Policy

Frontline workers in India covered under Workmen’s compensation are as follows:

  • Workers in factories, mines, docks, construction works, and specific establishments mentioned under the Schedule II of the Act.
  • Workers hired abroad under Schedule II of the Act.
  • It is applicable to helpers, drivers, mechanics, or any work associated with vehicles, crew members on an aircraft, or captains.
  • Railway servants not employed permanently in any administrative, district, or sub-divisional office of railway

Coverage under Workmen’s Compensation cannot be availed by members of the armed forces as they are covered under the Employee State Insurance Act.

As per the 2017 amendment in the Act, employers must inform workers of their rights to receive compensation. This can be done through written documents, electronically, and in a language understood by the worker.

Understanding Workmen’s Compensation Act, 1923

The Workmen’s Compensation Act, 1923, also known as WCA or the Compensation Act in some states, is a federal statute that mandates employers to pay compensation to their employees or workmen for a work-related accident, fatality, injury, or illness.

There are two main objectives of this act. First, it enables employees and their dependents to get compensation from their employers in case an accident causes an employee’s death or disability; second, it mandates employers to pay compensation to their workers if they contract certain job-related illnesses or diseases.

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Employees who are injured on the job are entitled to workers’ compensation. The amount of compensation depends on a number of factors: the employee’s age, the nature of the injury, and average monthly salary or wages. However, the minimum and maximum compensation are set for cases related to permanent disability or death. If an employee is killed on the job, the employer must pay compensation to his or her dependents.

The Ministry of Labour and Employment in India has set up a division called the Social Security Division, which drafts and implements social security policies for workers. The division also enforces the Workmen’s Compensation Act. However, the various state governments superintend this law through commissioners appointed by them.

The Need for Workmen’s Compensation Insurance

A workmen’s insurance policy is a win-win for both companies and their employees. Let’s take a look at the 3 main reasons why every employer should consider buying a workmen’s compensation insurance policy.

Reason #1: Once an employer is insured under such a policy, any costs or expenses incurred are covered by the insurance partner.

Reason #2: The compensation paid out to employees or their dependents in the event of a workplace mishap, injury, illness, or fatality can be substantial. It’s a legal liability for an employer, which is covered by the insurance company that sells the workmen’s compensation insurance policy.

Reason #3: The legal liabilities are governed by the Workmen’s Compensation Act, 1923. In order to abide by the rules and regulations mentioned in the aforementioned and to fulfil the legal liabilities, investing in a workmen’s compensation policy becomes quintessential.

When Do Employers Pay Compensation?

According to Section 3 of the Workmen’s Compensation Act, an employer is liable to pay damages to its workers under the following conditions:

  • If a worker has an occupational disease mentioned under Part A, B, C of Schedule III. The disease has to be a result of an injury by accident during work hours.
  • An injury sustained by an employee during work that leads to total or partial disability
  • Death of an employee due to a work-related hazard

The Extent of Cover Offered by a Workmen’s Compensation Policy

The extent of coverage eventually depends on the insurance partner you choose. Some may provide basic coverage whereas others may go above and beyond.

In general, the following are some of the common aspects that are covered by most workmen’s compensation insurance policies in India.

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  • Any injury, bodily harm or otherwise, brought upon by a mishap during employment
  • Disease, injury, or condition aggravated by work conditions
    Temporary disablement or death
    Partial or complete disablement that is permanent in nature
    Any or all legal expenses and costs incurred

What is Not Covered Under Workmen’s Compensation Policy?

There are specific situations and cases where a workmen’s compensation insurance will not cover your organisation and employees.

  • Any or all liabilities assumed under an agreement
  • Injury or accident caused by consumption of drugs or alcohol
  • Injuries caused as a result of insurrections, war, or invasion
  • Contractor employees are not covered unless they’re declared or insured
  • The first 3 days of disablement when the disablement lasts less than 28 days
  • Any type of injury that does not cause partial disablement for more than 3 days
  • Any injury or disablement caused as a result of the employee flouting safety norms and regulations

Amount of Compensation Payable under the Act

The amount of compensation an employer has to provide frontline workers is as follows:

Death of the worker: 50% of the worker’s monthly wages multiplied with relevant factors; or ₹1,20,000, whichever is more.
Permanent Total Disability: 60% of the monthly wages, multiplied by relevant factor; or ₹1,40,000, whichever is more.
Permanent Partial Disability: In such cases, the amount payable is a percentage of the loss of earning capacity due to the injury. These injuries are mentioned in Part II of Schedule I of the Act.
Temporary Disability: 25% of the employee’s monthly wages.

Eligible employers have to get a Workmen’s Compensation policy that provides comprehensive protection to their employees. There are specific documents needed to be eligible for this policy, and a structured process to file claims. Managing this process for a huge distributed workforce can be challenging.

An Employer’s Guide To Finding The Best Workmen’s Compensation Policy Online

Buying an insurance policy, that too for your employers, can be tricky. Why? Because there are many insurance companies in the market that have an assortment of products.

Furthermore, insurance needs are unique. A policy for one organisation may not suffice the needs of another. Keep in mind that the need for this type of insurance stems from rules and regulations enforced by concerned authorities and governments, which must be adhered to.

So, how do you find one that’s right for your organisation? Here are a couple of things you need to keep in mind.

  • Coverage: Your workmen’s insurance policy should provide maximum coverage for your organisation and employees.
  • Optional covers: A standard workmen’s compensation insurance policy may not cover all risks and liabilities. Explore the insurance market for a company that does. Before that, understand the requirements of your business and see if you really need any add-ons.
  • Sum insured: Your insurance partner should provide you with the flexibility to enhance the sum insured based on the risks to your employees and business.
  • Claims: You’ll have to look at the claim settlement ratio of your insurance partner. It’s an important part of any type of insurance policy so look for one that simplifies the process and provides excellent claims assistance 24×7.
  • Extras: Look for an insurance partner that offers additional benefits like a no-claim bonus (if possible), reduction in premiums, offers, employee and employer self-service apps etc.

Every company wants to save money and minimise risks. While a low premium with maximum coverage and excellent claims process is the ideal policy, a lower price doesn’t always mean excellent benefits.

Spend some time comparing insurance policies. Get in touch with insurance representatives to get a complete picture of their policy offerings.

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Workmen’s Compensation Insurance Policy Claims Process

Here’s the typical procedure when a workmen’s compensation policy claim is to be made.

  • Employer is intimated about the employee fatality or the accident
  • On-premise accidents and mishaps must be communicated to the site inspector
  • All documents and information as per the norms set by the provider must be gathered
  • Collected documents should be deposited with the insurance provider
  • Based on the information and documents gathered, the provider accepts or rejects the claim and informs the same to the stakeholders

Paperwork for Workmen’s Compensation Policy

Here’s a look at the typical paperwork requirements for claims made under a workmen’s compensation insurance policy.

All Claims

Temporary
Disablement

Permanent
Disablement
Fatal Claims
Duly filled and signed claim form.Medical bills.Medical certificate for disablement.Death certificate and final investigation report.
Medical bills and compensation records.Medical certificate for disablement.MOA between the employer and the claimant.Postmortem report copy, witness statements, Form A filled by the insured.

Betterplace offers a seamless online process for employee benefits and insurance coverage that fit evolving business needs. It offers an end-to-end technology platform to aid businesses in everything from policy distribution to claims assistance. Contact BetterPlace to learn more.

Workmen Compensation Policy FAQs

1. Is workmen’s compensation policy strictly followed in India?

In India, any organisation with more than 20 employees must mandatorily have Workmen’s Compensation Insurance. This mandate by the Employees’ State Insurance Act, 1948 ensures that employees and workers receive insurance benefits from their employers.

Even those companies that employ less than 20 employees must sign up for the insurance policy in order to comply with the rules and regulations mentioned in the Fatal Accidents Act, 1855 and Workmen’s Compensation Insurance Act, 1923.

2. What is the scope of coverage offered by Workmen’s Compensation?

A Workmen Compensation insurance policy covers the following:

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  • Temporary disability or fatality
  • Injuries caused or worsened as a result of work conditions
  • Any bodily harm caused by an accident while being employed
  • Permanent disability
  • Legal expenses and costs incurred

3. Whose responsibility is it to dispense the benefits of the Workmen’s Compensation Act?

Anything underwritten in the insurance policy must be provided by the employer. Typically, employers must provide all the benefits mentioned in the policy within 30 days of claim.

In many cases, it’s the employer who provides individual insurance policies to employees and settles claims.

4. How is The Employee Compensation Act different from The Workmen’s Compensation Act?

They’re the same. When the government brought it into effect, it was called the Workmen’s Compensation Act. Later on, it changed to Employee Compensation Act.

5. Is purchasing a worker compensation insurance policy online advisable?

There’s nothing wrong with purchasing a worker’s compensation insurance online. In fact, it’d be a great place to start as most platforms allow you to compare all aspects of insurance policies side by side. Just be sure to get on a genuine insurance comparison platform.

Furthermore, once you narrow down the list to a handful of insurance providers, read all the policy documents carefully before settling on one.

FAQs

What is covered by workers compensation scheme? ›

Workers' compensation benefits typically include some or all of the following: Lost wages. Medical expenses. Disability benefits.

How does workers compensation work in Act? ›

If a worker makes a claim in relation to an injury, the insurer is liable to pay weekly compensation and costs in relation to the injury from the date of the injury until the insurer rejects or settles the claim.

What is compensation amount? ›

The Workmen Compensation Act mandates the employer to pay a compensation amount equal to 50% of the monthly wages of the deceased employee. It can be a maximum monthly wage ceiling of Rs. 8000 multiplied by the relevant factor, or a sum of Rs. 140,000, whichever is higher. Permanent Total Disablement.

What 4 types of issues are not covered by workers compensation? ›

What injuries are NOT covered by workers' comp?
  • An incident that arose out of an act of God.
  • Common, one-time illnesses such as influenza or headaches.
  • Condition(s) that existed before an employee was hired or began performing a particular job.
  • Contracting ordinary disease of life.

What are the 3 three basic compensation plans are? ›

Three basic compensation plans are available to sales management: salary, commission, and combination (salary plus incentive) plans.
...
Companies pay by one or more of these typical methods:
  • A fixed commission on all sales.
  • At different rates by product category.
  • On sales above a determined goal.
  • On product gross margin.

What is the main goal of workers compensation law? ›

The primary objective of the Workmen Compensation Act, 1923, is to provide financial relief to employees' families in case of their death or injury at the workplace. The act also provides cover for employees that get an occupational disease while in employment.

How do you calculate workers compensation compensation Act? ›

Compensation in Case of Total Permanent Disability

In the case of total permanent disability of an employee due to an accident in the workplace, the compensation that is offered under workmen compensation policy are: 50% of the monthly salary X relevant factor based on the age of the worker.

What are the basic methods of compensation to workers? ›

The Four Major Types of Direct Compensation: Hourly, Salary, Commission, Bonuses. When asking about compensation, most people want to know about direct compensation, particularly base pay and variable pay. The four major types of direct compensation are hourly wages, salary, commission and bonuses.

What are the 5 types of compensation? ›

6 Different Types of Sales Compensation Plans and Models
  • Straight Salary. Straight salary sales compensation plans aren't very common, but they're suitable for some organizations. ...
  • Commission Only. ...
  • Salary Plus Commission. ...
  • Territory Volume. ...
  • Tiered Commission. ...
  • Profit Margin.

Who are not covered under Workmen Compensation Act? ›

Any disease caused by war or associated perils. An injury that does not lead to fatality or partial disability after 3 days will not cover. Any liability towards contractual employees unless contractual employee cover is purchased by an employer. Any unspecified liability towards employees on a contractual basis.

What are the most common claims for worker compensation? ›

7 Common Workers Compensation Claim Injuries
  • Lacerations. Deep cuts or tears in skin or flesh. ...
  • Sprains and strains. Sprains are stretched or torn ligaments, while strains are stretched or torn muscles and tendons. ...
  • Contusions. ...
  • Burns. ...
  • Eye Injuries. ...
  • Fractures. ...
  • Cumulative or Continuous Trauma.

What are the four 4 major elements of compensation? ›

This refers to the mix of the four basic components of compensation—base pay, wage add-ons, incentives, and benefits—that we employ.
...
Components of compensation include the following four items:
  • Base pay, either an hourly wage or salary. ...
  • Wage and salary add-ons. ...
  • Incentive pay for performance. ...
  • Benefits.

What are the limitations of compensation? ›

Compensation Limitation means the maximum amount of annual compensation under Section 401(a)(17) of the Code that may be taken into account in any Plan Year for benefit accrual purposes under the Pension Plan or the Cash Balance Plan.

What are the 6 types of compensation? ›

Types of Compensation Plans for Compensating Employees Beyond Commissions:
  • Straight Salary Compensation. Straight salary refers to the basic salaries and wage given to the worker. ...
  • Salary plus Commission. ...
  • Commission Only. ...
  • Territory Volume Compensation Plans. ...
  • Profit Margin/Revenue Based Compensation Plans. ...
  • Residual Commission.
21 Jul 2017

What are two common types of compensation? ›

Direct compensation involves monetary payments to employees for time worked or results obtained. Indirect compensation involves expenditures made by an employer on behalf of all employees and is typically referred to as "fringe benefits." Intangible compensation involves non-monetary rewards such as....

What are the two types of employee compensation? ›

There are two types of compensation: Direct compensation (financial) Indirect compensation (combination of financial and non-financial)

What are the four objectives of workers compensation? ›

Workers' compensation was developed to allow injured employees to be compensated without the need for litigation. It has four main objectives: replacement of income, rehabilitation, accident prevention, and cost allocation.

Who is eligible for compensation? ›

According to Section 3 of the Workmen's Compensation Act, an employer is liable to pay damages to its workers under the following conditions: If a worker has an occupational disease mentioned under Part A, B, C of Schedule III. The disease has to be a result of an injury by accident during work hours.

When employer is not liable for compensation? ›

An employer is not liable for paying the compensation if: An injury that doesn't result in partial or total disablement of the employee for more than three days. Any injury that does not result in permanent total disability or death because of an accident in the influence of drugs or drink.

How much do I get paid for injury on duty? ›

If the employee is booked off due to an IOD for a period longer than 3 months, the employer pays the injured employee at a rate of least 75% of the workers earnings, for the first 3 months. Once the 3 month period expires, the injured employee must claim his money from the Compensation Fund.

What qualifies as injury on duty? ›

An accident must be reported when an employee meets with an accident arising out of and in the course of employment resulting in a personal injury for which medical treatment is required. Written or verbal notice of an injury at work is to be given to the employer before the completion of the shift.

How is settlement amount calculated? ›

The settlement amount is calculated by adding back the accrued interest on the clean price and then multiplying by the face value.

What are the three types of pay? ›

Three methods employers use to compensate employees include salary, hourly wage and commission. The method you select depends largely on the nature of each job position. For example, commission is the typical payment method in sales positions while salary is typical in management positions.

What are the 10 bases for compensation? ›

Base Compensation
  • Basic pay- It depends on the pay scale or salary scale of the job. ...
  • Dearness Allowance(DA)- It is paid to the employees to compensate them against inflation.
  • House Rent Allowance(HRA)-It is paid partly to meet the expenditure incurred by an employee on his housing accomodations.

What is the first step in compensation? ›

How to Set Compensation in 5 Easy Steps
  1. Define the job. ...
  2. Price the job. ...
  3. Determine the job's value to your organization. ...
  4. Review where a job fits within a grade/range. ...
  5. Consider organizational factors, including budget.
16 Oct 2013

What is the difference between salary and compensation? ›

Key Takeaways. Annual compensation, in the simplest terms, is the combination of your base salary and the value of any financial benefits your employer provides. Annual salary is the amount of money your employer pays you over the course of a year in exchange for the work you perform.

What is the best form of compensation? ›

What are the Best Forms of Compensation for Your Employees?
  1. Base pay package. Base pay package refers to the standard compensation an employee receives for working a previously set number of hours. ...
  2. Equity package. ...
  3. Bonuses. ...
  4. Commission. ...
  5. Benefits and Perks. ...
  6. Non-Financial Compensation.
31 Oct 2022

What is difference between pay and compensation? ›

Compensation is broader than pay as it includes all of the benefits and perks that companies provide to employees on top of income. Compensation refers to all of the pay types and benefits that employers provide to employees.

Why is it called compensation? ›

Your salary is called compensation because you are being compensated for being somewhere you'd rather not be, doing something you'd rather not do.

What are the stages of compensation? ›

Key Stages to Making a Compensation Claim
  • Initial Instructions. ...
  • Letter of Claim. ...
  • Collating Evidence. ...
  • If Liability is Admitted. ...
  • Obtaining Medical Evidence. ...
  • Preparing a Schedule of Financial Losses. ...
  • Negotiating Settlement. ...
  • If Liability is Denied.

How do I pay workman's compensation? ›

Employers can send a cheque to: The Compensation Commissioner PO Box 955 Pretoria 0001. If they send a cheque, employers must include the remittance advice part of the notice of assessment with the cheque. Employers should also write their reference numbers at the back of the cheque.

Who is eligible for workmen compensation Act? ›

Employers with over 20 workers come under the purview of the Workmen Compensation Act, 1923. This act is now called the Employees Compensation Act, of 1923. Employers need to register themselves under the Employees'State Insurance Act (ESI Act).

Who comes under workmen's compensation? ›

Every employee (including those employed through a contractor but excluding casual employees), who is engaged for the purposes of employer's business and who suffers an injury in any accident arising out of and in the course of his employment, shall be entitled for compensation under the Act.

Who is covered under Work Injury compensation Act? ›

The Work Injury Compensation Act ( WICA ) covers any local or foreign employee who is under a contract of service or contract of apprenticeship, regardless of salary, age or citizenship. It doesn't cover: Independent contractors and the self-employed.

Who is not covered under employees compensation Act? ›

Any disease caused by war or associated perils. An injury that does not lead to fatality or partial disability after 3 days will not cover. Any liability towards contractual employees unless contractual employee cover is purchased by an employer.

What are the four types of compensation and benefits? ›

The Four Major Types of Direct Compensation: Hourly, Salary, Commission, Bonuses. When asking about compensation, most people want to know about direct compensation, particularly base pay and variable pay. The four major types of direct compensation are hourly wages, salary, commission and bonuses.

What are the four basic types of compensation plans? ›

The four primary direct forms of compensation are salary, hourly, commission and bonuses. Beyond direct compensation, there is indirect compensation, such as benefits and equity-based programs, which is just as important a part of your plan.

Can I get full pay after a work related injury? ›

While you do have some rights after being injured at work, there is no obligation on any employer to pay a staff member their full standard salary if they are off work due to illness or injury – even if it was caused by an accident at work, or materials used at work.

How long after an injury at work can I make a claim? ›

Accident at work claim time limit: For accidents at work, you will have three years from the date of your workplace accident to claim. Slip, trip or fall accident: Injuries that occur from a slip, trip or fall have a three-year time limit from the date of accident.

How do you calculate compensation under workers compensation Act? ›

The amount of compensation payable to the employee in case of his death is 50% of the monthly wages multiplied by the relevant factor specified in the Schedule IV of the Workmen's Compensation Act subject to a minimum of Rs1,20,000.

What does compensation not include? ›

total compensation. Base pay does not include other types of compensation, like bonuses, overtime, and commission. These types of pay are included in an employee's total compensation but not their “base pay.”

What all comes under compensation? ›

Different types of compensation include:
  • Base Pay.
  • Commissions.
  • Overtime Pay.
  • Bonuses, Profit Sharing, Merit Pay.
  • Stock Options.
  • Travel/Meal/Housing Allowance.
  • Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

When the workman is not entitled for compensation? ›

(ii) if he does not present himself for work at the establishment at the appointed time during normal working hours at least once a day; (iii) if such laying off is due to a strike or slowing-down of production on the part of workmen in another part of the establishment.

What are the 5 bases for compensation? ›

5 essential factors for determining compensation
  • Years of experience and education level. It probably goes without saying, but the more experience and education a candidate has, the higher their expected compensation. ...
  • Industry. ...
  • Location. ...
  • In-demand skill sets. ...
  • Supply and demand.

What are the 2 types of remuneration? ›

Remuneration Package Types. In order to understand the various types of remuneration packages, they are broken into two categories: direct and indirect compensation. Direct compensation covers payment methods from salaries to bonuses, while indirect compensation covers benefits and incentives.

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