[Analysis] Employee’s Compensation Act under Code on Social Security 2020 – Liability | Computation | Claims

Employee's compensation under the Code on Social Security 2020 is governed by Chapter VII of the Code, which replaced the Employee's Compensation Act, 1923. An employer is liable where personal injury is caused to an employee by accident, or by an occupational disease listed in the Third Schedule, arising out of and in the course of employment. Compensation on death is 50% of monthly wages multiplied by the relevant factor in the Sixth Schedule, or the amount notified by the Central Government, whichever is higher.

Law stated as on 20 July 2026. The Code on Social Security, 2020 was brought into force in stages, the bulk of it with effect from 21 November 2025.

Table of Contents

1. What replaced the Employee’s Compensation Act, 1923
2. When the employer is liable
3. When the employer is not liable
4. Occupational disease and the six-month rule
5. Commuting accidents
6. How compensation is calculated
7. The relevant factor and the Sixth Schedule
8. Reporting a fatal accident or serious bodily injury
9. The bar on parallel civil proceedings
10. Frequently asked questions
11. Conclusion

1. What replaced the Employee’s Compensation Act, 1923

The Employee’s Compensation Act, 1923, often written as the Employees Compensation Act, was the oldest of the nine welfare statutes subsumed by the Code on Social Security, 2020. It now sits in Chapter VII of the Code, sections 73 to 99, which is the longest chapter in the Code after the ESI chapter.

The framework is recognisable. Section 74 corresponds to section 3 of the 1923 Act, and much of the wording is carried over verbatim. What changed is mostly compression: a scheme that ran across several sub-sections, provisos and three separate Parts of a Schedule has been reduced to a single set of tests.

2. When the employer is liable

Section 74(1) states the rule. Where personal injury is caused to an employee by accident, or by an occupational disease listed in the Third Schedule, arising out of and in the course of employment, the employer is liable to pay compensation.

That drafting is worth pausing on. Under section 3(1) of the 1923 Act, liability attached to personal injury caused “by accident” alone; occupational disease was dealt with separately in section 3(2) and its provisos. The Code brings occupational disease into the primary liability provision itself.

Three conditions have to be met:

• personal injury caused by accident, or an occupational disease listed in the Third Schedule
• the accident or disease arising out of and in the course of employment
• the injury being directly attributable to that accident or disease[1]

3. When the employer is not liable

The proviso to section 74(1) carves out two exclusions, and they operate differently.

The first is absolute. No compensation is payable where the injury does not result in total or partial disablement of the employee for a period exceeding three days. This is a threshold, not a defence: it applies whatever the circumstances.

The second is conditional. Where the injury does not result in death or permanent total disablement, the employer is not liable if the accident is directly attributable to any of three things:

• the employee having been at the time under the influence of drink or drugs
• the employee’s wilful disobedience of an order expressly given, or a rule expressly framed, for the purpose of securing the safety of employees
• the employee’s wilful removal or disregard of a safety guard or other device that he knew had been provided for securing employee safety

Exclusion	When it applies	Available where the injury caused death or permanent total disablement?
Three-day threshold	Injury does not cause total or partial disablement for more than three days	Not in point: the clause turns on a period of disablement, which death does not produce, and permanent total disablement always exceeds three days
Drink or drugs	Accident directly attributable to the employee being under the influence	No
Wilful disobedience	Breach of a safety order expressly given or a safety rule expressly framed	No
Removal of a safety device	Wilful removal or disregard of a guard or device known to be provided for safety	No

The words to watch are “not resulting in death or permanent total disablement”. Where the accident kills the employee or leaves him permanently and totally disabled, none of these three defences is available, however clear the drink, disobedience or removal of the guard. That is the part of the proviso most often read too quickly.

Section 74(2) closes off a separate line of argument. It is an exception to the rule in section 74(6), not to the proviso defences. An accident or occupational disease is deemed to arise out of and in the course of employment even where the employee was acting in contravention of a law, or of orders given by the employer, or without instructions, provided two conditions are met: it would have been so deemed had the act not been done in contravention, and the act was done for the purpose of, and in connection with, the employer’s trade or business.

4. Occupational disease and the six-month rule

Section 74(3) sets out a single, clean test. Where an employee in an employment specified in the Second Schedule contracts a disease specified in the Third Schedule that is peculiar to that employment, while in the service of an employer for a continuous period of not less than six months, the disease is deemed to be an injury by accident. Unless the contrary is proved, the accident is deemed to have arisen out of and in the course of employment.

Compare that with what it replaced. Section 3(2) of the 1923 Act ran a different rule for each of Parts A, B and C of its Schedule III, with a six-month qualifying period for Part B, and a period notified by the Central Government for Part C. Two provisos sat under it, one relieving Part C employees who fell short of the notified period, the other catching diseases contracted after service had ceased. Sub-section (2A) apportioned liability among multiple employers in Part C employments “in such proportion as the Commissioner may, in the circumstances, deem just”. All of that is gone. One employment schedule, one disease schedule, one six-month period.

The Third Schedule lists the notified diseases in three parts, running to thirty-eight entries in all. Section 74(5) allows the Central or State Government to add to either Schedule by notification, after not less than three months’ notice of intention.

5. Commuting accidents

Section 74(4) covers the journey to and from work. An accident occurring to an employee while commuting from his residence to the place of employment for duty, or from the place of employment to his residence after performing duty, is deemed to have arisen out of and in the course of employment.

The deeming is not unconditional. It applies only if nexus between the circumstances, time and place in which the accident occurred and his employment is established. The burden of establishing that nexus sits on the claimant. A detour, an unexplained gap in time, or a journey that was not for duty will break it.

6. How compensation is calculated

Section 76 fixes the amount, and it falls into a four-row matrix. The four situations:

Situation	Compensation
Death	The higher of 50% of the monthly wages multiplied by the relevant factor, or the amount notified by the Central Government
Permanent total disablement	The higher of 60% of the monthly wages multiplied by the relevant factor, or the amount notified by the Central Government
Permanent partial disablement	Where the injury is specified in Part II of the Fourth Schedule, that percentage of the compensation payable for permanent total disablement. Where the injury is not specified in the Fourth Schedule at all, a percentage proportionate to the loss of earning capacity as assessed by the medical practitioner
Temporary disablement, total or partial	A half-monthly payment of 25% of the monthly wages

Two timing rules govern the half-monthly payment under section 76(4). It is payable on the sixteenth day from the date of disablement where the disablement lasts twenty-eight days or more; where it lasts less than twenty-eight days, the sixteenth day runs from the expiry of a waiting period of three days from the date of disablement. Payment continues half-monthly during the disablement or for five years, whichever is shorter.

Where the injury results in death, section 76(7) requires the employer, in addition to the compensation, to deposit with the competent authority a sum of not less than ₹15,000, or such amount as the State Government may prescribe, for funeral expenditure, payable to the eldest surviving dependant or to whoever actually incurred the expense. Under section 4 of the 1923 Act that figure was ₹5,000.

7. The relevant factor and the Sixth Schedule

The death and permanent-total-disablement heads both turn on the relevant factor, which is not a formula but a table. Column (3) of the Sixth Schedule gives a factor against each completed year of age in column (2), taken as at the employee’s last birthday immediately preceding the date on which the compensation fell due.

The factor declines steeply with age, from 228.54 at sixteen or below to 99.37 at sixty-five or more. Two employees on identical wages, injured identically, will therefore receive materially different sums depending only on age. Getting the birthday right matters as much as getting the wage right.

Where more than one injury is caused by the same accident, compensation under the permanent-partial head is aggregated, but capped: it cannot exceed what would have been payable had permanent total disablement resulted.[2]

8. Reporting a fatal accident or serious bodily injury

Section 73 imposes a reporting duty that is separate from, and earlier than, any claim. Where notice of an accident occurring in the employer’s premises and resulting in death or serious bodily injury is required to be given to any authority under any law, the person required to give it must within seven days send a report to the competent authority setting out the circumstances.

The Explanation defines serious bodily injury, and the definition is broader than it sounds:

• an injury involving, or in all probability involving, permanent loss of the use of or permanent injury to any limb
• permanent loss of or injury to sight or hearing
• fracture of any limb
• enforced absence of the injured person from work for a period exceeding twenty days

That last limb catches a great deal that would not ordinarily be called serious. An absence of twenty-one days from an injury with no permanent consequence triggers the seven-day report.

Section 73(3) draws the boundary with the insurance route: nothing in the section applies to establishments to which Chapter IV, relating to the Employees’ State Insurance Corporation, applies. Where an establishment is ESI-covered, employment injury is dealt with through the disablement and dependants’ benefits described in our note on ESI under the Code on Social Security, not through Chapter VII.

9. The bar on parallel civil proceedings

Section 74(7) forecloses the double route, in both directions.

An employee who has instituted a civil suit for damages in respect of the accident or disease, against the employer or any other person, acquires no right to compensation under the Chapter. And no suit for damages is maintainable in any court where the employee has either instituted a claim for compensation before a competent authority, or entered into an agreement with the employer providing for payment of compensation in accordance with the Chapter.

The election is therefore made early, and it is made by conduct rather than by any formal step. An adviser asked to file quickly should establish first whether anything has already been commenced elsewhere.

One question the Code leaves open. Section 74(3) requires continuous service with “an employer” for not less than six months, but unlike section 3(2A) of the 1923 Act, which apportioned liability among successive employers in Part C employments, it contains no apportionment mechanism at all. Section 3(2) also expressly excluded from the Part B six-month period any period of service under another employer in the same kind of employment; section 74(3) drops that qualification. Whether the last employer now bears the whole liability, or whether apportionment survives as a matter of general principle, is not resolved by the commentary. Taxmann’s Law & Practice Relating to Code on Social Security prints section 74 against section 3 of the 1923 Act in a two-column table, which is where that gap becomes visible.

10. Frequently asked questions

What is the salary limit for the Employee’s Compensation Act?

The Code does not fix a wage ceiling for coverage. Section 76(3) empowers the Central Government to notify, for the purposes of computing compensation, such monthly wages in relation to an employee as it considers necessary. Eligibility depends on whether the person is an employee within the Code and falls within the Second Schedule, not on a salary threshold.

How is a death claim calculated under the Code?

Compensation on death is the higher of two amounts: 50% of the employee’s monthly wages multiplied by the relevant factor for his age in the Sixth Schedule, or the amount notified by the Central Government. In addition, section 76(7) requires the employer to deposit not less than ₹15,000 towards funeral expenditure.

Who is eligible for compensation under Chapter VII?

An employee who suffers personal injury by accident, or an occupational disease listed in the Third Schedule, arising out of and in the course of employment. The Second Schedule lists fifty categories of persons who are employees for this purpose. Establishments covered by Chapter IV are dealt with through the Employees’ State Insurance route instead.

When is an employer not liable to pay compensation?

Where the injury does not result in total or partial disablement of the employee for a period exceeding three days. And, where the injury does not result in death or permanent total disablement, where the accident is directly attributable to the employee having been at the time under the influence of drink or drugs, to his wilful disobedience of an order expressly given or a rule expressly framed for the purpose of securing the safety of employees, or to his wilful removal or disregard of a safety guard or device.

Are accidents while travelling to work covered?

Yes, under section 74(4), where the employee is commuting from residence to the place of employment for duty or returning after performing duty. The accident is deemed to arise out of and in the course of employment only if a nexus between the circumstances, time and place of the accident and the employment is established.

11. Conclusion

Chapter VII rewards care in two places. The first is the proviso to section 74(1), where the availability of the drink, disobedience and safety-device defences depends entirely on whether the injury caused death or permanent total disablement. The second is the Sixth Schedule, where a factor keyed to a single birthday can move a death claim by a wide margin.

Everything else in the chapter is procedural, and the procedure is where claims are lost: a seven-day report under section 73 that nobody filed, a twenty-one day absence that nobody recognised as a serious bodily injury, or a civil suit begun in parallel that quietly extinguished the statutory claim.

For section 74 and section 76 set against sections 3 and 4 of the 1923 Act, with the Sixth Schedule factors reproduced in full, see Taxmann’s Law & Practice Relating to Code on Social Security. For structured training on the compensation chapter and the wider labour codes, Taxmann.com | Learning runs certification courses, and Taxmann.com | Research carries the notifications and case law as they issue.

---

[1] Section 74(6), Code on Social Security, 2020.

[2] Explanation 1 below clause (c) of section 76(1), Code on Social Security, 2020.