The Employees' State Insurance (ESI) office has recently issued a notice to all factories/establishments registered through the MCA portal and obtained an ESI code number. The notice emphasizes the need for compliance under the provisions of the ESI Act from the date of reaching the threshold limit of employees, i.e., 10 coverable employees.
According to the notice (notice enclosed), if a unit does not have 10 employees, i.e., employees covered under the provisions of the ESI Act, compliance is not required for the next six months from the date of registration, or until the threshold limit of 10 employees is reached, whichever is earlier. There is a provision called 'DORMANT' mode in the ESI login, which should be activated if the unit does not reach the threshold limit in six months. If the unit fails to extend the dormant status, the registration will get activated automatically, and compliance under the ESI Act will become mandatory.
It's essential for new companies to comply with the ESI Act once they reach the threshold limit of 10 coverable employees. Failure to comply with the ESI Act can result in necessary action under the provisions of the Act.
Impact of the Notice on Business
The notice issued by the ESI office is likely to have an impact on new companies. Companies that have less than 10 employees and are not coverable under the ESI Act have some breathing space, as compliance is not mandatory for the first six months. However, it's important to keep track of the number of employees and start complying once the threshold limit is reached.
The notice also emphasizes the need to activate the 'DORMANT' mode in the ESI login if the unit does not reach the threshold limit in six months. Failure to do so can result in the automatic activation of registration, and companies will have to start complying with the ESI Act. This can be a challenge for new companies, as they may not be aware of the provisions and may not have the necessary infrastructure in place to comply with the Act.
The recent notice from Employees' State Insurance (ESI) office has raised concerns among new companies registered through the MCA portal. The notice states that all the establishments, new companies, business registered through the MCA portal and obtained an ESI code number must comply with the ESI Act from the date of reaching the threshold limit of employees, i.e., 10 coverable employees or within 6months time whichever is earlier.
Before the implementation of the AGILE form in MCA, there was no rule to take ESI or PF. However, with the introduction of the Spice form for new company registration, ESI and other registrations have become compulsory. This has added another burden to new companies, particularly those that are not yet set up to the full headcount level required to comply with the ESI Act.
Furthermore, the ESI Act has given a threshold limit of 10 for manufacturing sectors and 20 for service-oriented companies to reduce the compliance burden. However, the recent notice by the ESI office, which mandates compliance for all companies that obtained ESI through the MCA portal, disregards these thresholds.
Managing ESI Compliance
It's important for new companies to be aware of the provisions of the ESI Act and take necessary steps to comply with the Act once the threshold limit of 10 coverable employees is reached. Some steps that can be taken to manage ESI compliance include:
- Keep track of the number of employees and start complying once the threshold limit is reached.
- Activate the 'DORMANT' mode in the ESI login if the unit does not reach the threshold limit in six months.
- Seek the help of an ESI advisor to understand the provisions of the Act and ensure compliance.
The ESI notice issued by the ESI office is a reminder to new companies to comply with the provisions of the ESI Act once they reach the threshold limit of 10 employees. Companies that are not coverable under the Act have some breathing space, but it's important to keep track of the number of employees and start complying once the threshold limit is reached. Seeking the help of an ESI advisor can also be beneficial in managing ESI compliance.
As we are as professionals (CS, CA and CMA), and other stakeholders, it's important to ensure that compliance with laws and regulations is not an unnecessary burden on new companies. In the case of the recent notice issued by the ESI office, it may be advisable to approach the MCA to consider making the ESI rules applicable to new companies as non-mandatory, at least until they reach a certain threshold limit of employees. This could make compliance easier and more manageable for new companies that may not have the necessary infrastructure or resources to comply with the Act from the outset.
As such, We recommend that Business owners and stakeholders give a representation to the MCA highlighting these concerns and suggesting the need for more flexibility in the application of ESI rules for new companies. It may also be helpful to suggest alternative compliance measures that could be put in place to ensure the protection of employees while minimizing the burden on new businesses.
The author can also be reached at prakashaandco.com.
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