Compliance Requirements for Newly Incorporated Companies Under the ESI Act
This editorial discusses the compliance obligations that 'Newly Incorporated Companies with AGILE' must adhere to in accordance with the Employee State Insurance (ESI) Act. Common queries from companies and professionals regarding ESIC compliances include:
- Is every newly incorporated company required to comply with the ESI Act regarding ESIC?
- If an employee's earnings are below the ESI threshold, does the company still need to comply with ESIC requirements?
Understanding ESI and ESIC
The Employees' State Insurance (ESI) is a social security program administered by the Employees' State Insurance Corporation (ESIC), an autonomous entity established under the Ministry of Labour and Employment, Government of India. The ESI scheme provides various medical, monetary, and social benefits to Indian workers funded through contributions from both employers and employees.
Applicability of ESIC
The ESI scheme is applicable to:
- Factories and establishments with 10 or more employees.
- A threshold of 20 employees applies specifically in Maharashtra.
- Various sectors, including restaurants, motor transport, newspapers, hotels, and shops.
Company Law Provisions
New companies incorporated via the MCA Portal (including OPC, Private, or Public) must submit the web form AGILE PRO, which requires mandatory ESIC registration. Consequently, every company incorporated in India will receive an ESIC registration number regardless of employee count at the time of registration.
Compliance Obligations
ESIC compliance becomes mandatory for companies exceeding the 10-employee threshold. For companies with fewer than 10 employees, the following information is crucial:
- Circular Update: As of 15th February 2022, ESIC ceased new registrations for OPCs, Private, and Public Companies on the Shram Suvidha Portal. Companies must obtain ESIC registration through the AGILE PRO form during incorporation.
- Practically, newly incorporated companies need to adhere to the provisions of the ESI Act, 1948 when they surpass the employment threshold defined by the Act.
Recent Clarifications by ESIC
- Companies registered via the MCA portal that do not meet the ESIC coverage criteria are exempt from compliance for:
- Six months after incorporation, or
- Until they reach the ESIC coverage threshold, whichever occurs first.
Dormant Status
- If the company does not reach the threshold within six months, it must log in to the ESIC website to extend its 'Dormant' status.
- Failure to extend will activate the registration, requiring the company to commence compliance with the ESI Act.
- Non-compliance may result in actions being taken against the respective company as per existing ESI Act provisions.
Action Steps for Newly Incorporated Companies
- The company’s ESIC registration will be activated upon incorporation. Compliance with the ESI Act must begin within the first six months.
- Within this timeframe, the company can declare its registration as dormant if it is not yet liable for ESI compliance.
- The maximum period for choosing dormancy is six months.
- Prior to the expiration of 180 days from the application for dormant status, the company must log in to the ESIC website to potentially extend the dormancy.
Conclusion
Based on the ESIC Circular, it is necessary for all companies incorporated through AGILE PRO to comply with the provisions of the ESIC Act unless they apply for Dormant Status every six months.