Newly incorporated Public Limited, Private Limited and One Person Companies registered with effect from February 15, 2020 ['Companies'] are being allotted ESIC registration number by default at the time of its incorporation. Once these Companies are registered under Employee State Insurance Act, 1948 ['ESI Act'] they will have to comply with the provisions of ESI Act mandatorily as their registration becomes active automatically on generation from the date of incorporation, irrespective of whether these Companies fall under the ambit of the thresholds limits as applicable[1]. However, it raised a new challenge before the Employee State Insurance Corporation to identify whether these Companies fall under the thresholds or not?
To meet the above issue, Employee State Insurance Corporation had released a Circular in this regard dated December 22, 2022 which states that Companies who have got default registration under ESI Act on incorporation through MCA portal need not comply with the provisions of ESI Act for a period of six months from the date of registration or until it exceeds the thresholds as specified under ESI Act, whichever is earlier.
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For the time being until these Companies reach the thresholds, Employee State Insurance Corporation has given an option on its website to change the applicability status to “dormant” and note that it is to be done immediately post incorporation or on allocation of the ESIC Number. However, this status remains updated for maximum period of six months only.
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Hence, if the Company still does not meet the threshold within the first six months period, then it will have to then affirm the same by extending the 'dormant mode' by logging on ESIC Website for further period of six months. Thus it is to be done on expiry of every six months period to disclose to the Employee State Insurance Corporation that Company does not fall under the criteria and hence not required to comply with the provisions of the ESI Act.
Implication on Companies not changing its status to Dormant: In case the Companies fail to extend the 'Dormant mode' as specified above on expiry of six months from registration or its earlier intimation then ESI registration will be activated automatically, and Company will be obligated to comply with the provisions of ESI Act. In this regards, it is further stated that in spite of provisions of ESI Act becoming applicable if Companies are found not complying with provisions of same, actions against the defaulting companies will be taken. This facility is given to Companies that have got registration through MCA portal.
Conclusion
So, every newly incorporated Companies will have to keep a track of meeting the thresholds as applicable and if not then ensure to change its applicability status to 'Dormant' on expiry of every six months period of their earlier intimation.
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement
[1] [To whom is ESI Act applicable: ESI Act is applicable to all non-seasonal factories employing 10 or more persons. Entities under State Govt. has extended the coverage of the Act to Shops, Hotel, Restaurants, Cinema including preview theatres, Road-motor transport undertakings, Newspaper establishments, Private Medical Institutions, Educational Institutions and to contract and casual employees of Municipal Corporation/Municipal Bodies employing 10 or more persons in the certain States/UTs, where State Govt. is the appropriate Govt. Entities under Central Govt. has extended the coverage to Shops, Hotels, Restaurants, Road Motor Transport establishments, Cinema including preview theatres, Newspaper establishments, establishment engaged in Insurance Business, Non-Banking Financial Companies, Port Trust, Airport Authorities, Warehousing establishments employing 20 or more Persons, where Central Govt. is the appropriate Govt. The existing wage limit for coverage under the Act is Rs.21,000/- per month (Rs.25,000/- per month in the case of Persons with Disability]
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