The Workmen Compensation Act, 1923 was created by the Ministry of Labour in India to provide social security to workers, especially for those who are doing menial jobs. As per the Workmen Compensation Act, 1923, ‘workmen’ as defined under the act and their eligible dependents are entitled to receive compensation from their employer in the case of workplace accidents resulting in death, disability or an injury or suffer an occupational illness. As per the Schedule II of the Workmen Compensation Act, 1923, people employed with railways, ships or any transport establishments, mines, factories, plantations, farming firms, construction firms, developers and many such similar businesses are eligible to claim workmen compensation.

Mainly, workmen compensation payable are on ‘no-fault’ basis and the extent of compensation payable is clearly stated under the provisions of the Workmen Compensation Act, 1923.

When it comes to claiming workmen compensation in case of workplace injuries, workers or employees can directly approach an employer or can take a legal route. However, the legal route is considered to be extremely expensive for both employer and employees. With the statutory compulsion, the employer is legally liable to compensate the affected employees on a ‘no-fault’ basis.

Primarily, workmen compensation benefits are paid by the employer in one or the other way. That means, there has to be a source of funds for an employer to compensate in the event of contingencies. Along with the work safety measures, the employer also needs to be self-sufficient or have a support system to protect the business from possible workmen compensation liability.

Workmen compensation programs are funded in the following ways –

1. Workmen compensation insurance:

As per the Workmen Compensation Act, 1923, employers are required to purchase workmen compensation insurance policy from the insurance companies present in India. In case of an occurrence of a claim event, the insurance company will compensate the injured workers for the loss of wages and for healthcare costs on behalf of the employer. Death benefits will be paid by the insurance companies to eligible dependents of the deceased worker. The workmen compensation policy is designed based on the provisions of the Workmen Compensation Act, 1923. The Act also defines the ‘eligible dependents’ of workers for paying out compensation.

 

2. Self-funding by an employer:

Alternatively, the employer can set aside funds from the business for expected workmen compensation liability. However, direct payment of compensation can place huge pressure on the business. Paying expensive compensation and going through legal hassles can bring down business productivity. The business can even come to a standstill with the exorbitant statutory liability. 

Out of the two ways of funding workmen compensation programs, availing workmen compensation policy is more effective and beneficial for the employer and employees.