How Compensation Is Worked Out

Three ingredients

The Code works out lump-sum compensation from three things: the employee's monthly wages, a percentage fixed by the Code, and an age-related relevant factor from the Sixth Schedule.

The relevant factor is the Sixth Schedule figure for the employee's completed years of age on the last birthday before the compensation fell due. It falls as age rises: 216.91 at age 25, 207.98 at 30, 184.17 at 40 and 135.56 at 55. With equal wages, a younger employee's formula amount is therefore higher.

Monthly wages are worked out under section 78. Where the employee served the employer continuously for at least 12 months before the accident, the figure is one-twelfth of the total wages that fell due in those 12 months.

Death and permanent disablement

Death: 50% of monthly wages multiplied by the relevant factor. Permanent total disablement: 60% of monthly wages multiplied by the relevant factor. In both cases section 76 adds that an amount notified by the Central Government applies if it is more.

The Code states no rupee minimum, and section 76(3) also leaves it to the Central Government to specify monthly wages for this purpose by notification. Neither a minimum amount nor a monthly-wages figure is stated here. Older material written under the 1923 Act quotes fixed figures; those are not given as current.

Permanent partial disablement is a percentage of the permanent total disablement amount. For an injury listed in Part II of the Fourth Schedule, the percentage is the loss of earning capacity given there; loss of a thumb, for example, is 30%. For an unlisted injury, a medical practitioner assesses the loss of earning capacity. Where one accident causes several injuries the amounts are added, but never beyond the permanent total disablement amount.

Temporary disablement

Temporary disablement is not paid as a lump sum. The employee receives a half-monthly payment equal to 25% of monthly wages.

Where the disablement lasts 28 days or more, the first payment falls due on the sixteenth day from the date of disablement. Where it is shorter, a three-day waiting period applies first. Payments then continue half-monthly during the disablement or for five years, whichever is shorter.

Medical and funeral expenses

Under section 76(5) the employer reimburses the actual medical expenditure the employee incurs for treatment of the injury. The section states no rupee cap.

On death, section 76(7) requires the employer to deposit with the competent authority, in addition to compensation, not less than ₹15,000 for funeral expenses, or a higher amount prescribed by the State Government or notified by the Central Government. It is paid to the eldest surviving dependant or to whoever actually met the funeral cost. Older material written under the 1923 Act may quote a lower figure, and State-specific amounts are not stated here.

Rules at a glance

Key points

• Death: 50% of monthly wages × relevant factor. Permanent total disablement: 60% of monthly wages × relevant factor.
• The relevant factor comes from the Sixth Schedule by completed years of age and falls as age rises.
• A higher amount notified by the Central Government applies if it is more; the Code itself states no rupee minimum.
• Permanent partial disablement is the Fourth Schedule percentage, or a medically assessed percentage, of the permanent total disablement amount.
• Temporary disablement is a half-monthly payment of 25% of monthly wages, for the disablement or five years, whichever is shorter.
• Actual medical expenses are reimbursed, and on death not less than ₹15,000 is deposited for funeral expenses.

Common misunderstandings

• Death does not carry the higher percentage: it uses 50%, while permanent total disablement uses 60%.
• The factor does not rise with age: it falls, so a younger employee's formula amount is higher on the same wages.
• Temporary disablement is not a lump sum: it is a half-monthly payment of 25% of monthly wages.
• The rupee minimums in older material are not in the Code: section 76 leaves any such amount to Central Government notification.
• The funeral deposit is not part of the compensation: it is deposited in addition to it.

Questions people ask