A person ‘X’ , aged 48 years, was working in a mine where he met a fatal accident while working underground. He was receiving monthly wage of ₹ 12,000 when this unfortunate incident occurred. What is the amount of compensation payable to him under the Employees' Compensation Act, 1923 ? (Relevant factor being 159·80)

Correct — C, (c) ₹ 9,58,800. Death from an employment accident is governed by section 4(1)(a) of the Employees' Compensation Act, 1923, and the formula there is fixed:

an amount equal to FIFTY PER CENT of the monthly wages of the deceased employee multiplied by the relevant factor; OR ₹ 1,20,000, whichever is more.

Work it in four steps.

Step 1 — is the Act engaged? The deceased was working underground in a mine when the accident occurred. A person employed in a mine on work incidental to or connected with mining operations is an employee within Schedule II to the Act, and the accident arose out of and in the course of his employment, so section 3 fastens liability on the employer.

Step 2 — what monthly wage is used? ₹ 12,000. Section 4(1B) empowers the Central Government to notify the monthly wages to be used for the purposes of section 4, and the figure notified by S.O. 71(E) of 3 January 2020 is ₹ 15,000, superseding the ₹ 8,000 notified in 2010. Because ₹ 12,000 is below that figure, the actual wage is used in full and no substitution arises.

Step 3 — apply the formula. Fifty per cent of ₹ 12,000 is ₹ 6,000. Multiply by the relevant factor the stem supplies, 159·80:

6,000 × 159·80 = ₹ 9,58,800.

Step 4 — check the floor. Section 4(1)(a) also offers ₹ 1,20,000 and directs that the higher of the two be paid. ₹ 9,58,800 is far higher, so the computed figure stands.

The relevant factor is worth a second look, because it is a check on the arithmetic rather than a free gift. Schedule IV tabulates a factor against each completed year of age, and the entry against 48 is exactly 159·80 — the stem's figure and the deceased's age agree, which is the sign that the calculation has been set up correctly. The factors fall as age rises, from 228·54 at sixteen or below to 99·37 at sixty-five and above, because the compensation is meant to stand in for the earnings the worker would have had left.

One point of accuracy about the stem: the compensation is payable in respect of the deceased employee but not to him. Section 8 requires compensation for death to be deposited with the Commissioner, who distributes it among the dependants; a payment made directly to a dependant is not, with limited exceptions, a payment of compensation under the Act.

Why the others are wrong

• (a)₹ 6,40,680 — ₹ 6,40,680 does not correspond to any correct route through section 4. It is not the figure produced by applying the ₹ 8,000 wage ceiling that was in force before 3 January 2020 either — fifty per cent of ₹ 8,000 multiplied by 159·80 gives ₹ 6,39,200, which is close to this number but not equal to it. Nor is it fifty per cent of ₹ 12,000 at some other factor from Schedule IV: dividing ₹ 6,40,680 by 159·80 gives about ₹ 4,009, a wage the stem does not mention. It is a distractor of the right order of magnitude and no more, and the way to reject it is to run the formula rather than to look for the option that feels plausible.
• (b)₹ 8,30,700 — ₹ 8,30,700 is likewise not the product of the statutory formula on these facts. Dividing it by the relevant factor of 159·80 gives about ₹ 5,198, which is neither fifty per cent nor sixty per cent of ₹ 12,000 and corresponds to no notified wage figure. Its function on the paper is to sit between the correct answer and the lower distractor so that a candidate who has estimated rather than computed cannot separate them. Note also that sixty per cent is the wrong percentage here in any case: sixty per cent belongs to section 4(1)(b), permanent total disablement. Death takes fifty per cent under section 4(1)(a), and using the wrong percentage is the single commonest error on this calculation.
• (d)₹ 10,43,760 — ₹ 10,43,760 is the highest figure offered and is the one a candidate gravitates to on the assumption that death must attract the largest award. It does not follow the formula: divided by 159·80 it implies a base of about ₹ 6,532, which is not fifty per cent of ₹ 12,000. The instinct behind it is also mistaken as a matter of the Act's structure — for the same wage and the same age, permanent total disablement under section 4(1)(b) attracts SIXTY per cent of monthly wages multiplied by the relevant factor and therefore yields more than death, which attracts fifty. The Act's minimum amounts follow the same pattern, ₹ 1,40,000 for permanent total disablement against ₹ 1,20,000 for death.

Section 4 of the Employees' Compensation Act, 1923 replaces damages with a tariff, and the tariff has four heads. Death: fifty per cent of monthly wages multiplied by the relevant factor, or ₹ 1,20,000, whichever is more. Permanent total disablement: sixty per cent of monthly wages multiplied by the relevant factor, or ₹ 1,40,000, whichever is more. Permanent partial disablement: for an injury specified in Part II of Schedule I, that percentage of the permanent-total figure; for an unlisted injury, such proportion as a qualified medical practitioner assesses. Temporary disablement, total or partial: a half-monthly payment equal to twenty-five per cent of monthly wages. Two supporting provisions make the formula work. Explanation I to section 4 defines the relevant factor as the figure in the second column of Schedule IV against the employee's completed years of age on his last birthday immediately preceding the date on which the compensation fell due, and the factor declines with age. Section 4(1B), inserted by the Amendment Act of 2009 in place of the old Explanation II, lets the Central Government notify the monthly wages to be used for the purposes of the section; the notified figure has been ₹ 15,000 since 3 January 2020, having been ₹ 8,000 from 2010 and ₹ 4,000 before that. Around section 4 sit section 4A, which requires compensation to be paid when it falls due and imposes interest at twelve per cent and a penalty of up to fifty per cent for default; section 8, which requires death compensation to be deposited with the Commissioner for distribution among dependants; and section 10, which governs notice of the accident and the two-year limitation for a claim.

Key facts

• Employees' Compensation Act, 1923, section 4(1)(a) — on death, fifty per cent of monthly wages multiplied by the relevant factor, or ₹ 1,20,000, whichever is more.
• Section 4(1)(b) — on permanent total disablement, sixty per cent of monthly wages multiplied by the relevant factor, or ₹ 1,40,000, whichever is more.
• Explanation I to section 4 — the relevant factor is taken from Schedule IV against the employee's completed years of age on the last birthday preceding the date the compensation fell due.
• Schedule IV gives 159·80 as the factor for age 48; the factors run from 228·54 at sixteen and below down to 99·37 at sixty-five and above.
• Section 4(1B) — the Central Government may notify the monthly wages to be used for section 4; the notified figure is ₹ 15,000 under S.O. 71(E) of 3 January 2020, which superseded S.O. 1258(E) of 2010 fixing ₹ 8,000.
• On these facts: 50% of ₹ 12,000 = ₹ 6,000; ₹ 6,000 × 159·80 = ₹ 9,58,800, well above the ₹ 1,20,000 floor.
• Section 8 — compensation for death must be deposited with the Commissioner, who distributes it among the dependants.
• Section 4A — compensation must be paid when due; default attracts simple interest at twelve per cent a year and a penalty of up to fifty per cent of the amount.
• Schedule II includes persons employed in mines on work incidental to or connected with mining operations.

Common traps

• Using sixty per cent instead of fifty. Sixty belongs to permanent total disablement; death takes fifty.
• Forgetting to test the actual wage against the ₹ 15,000 notified under section 4(1B). Here it passes; on a higher wage it would not.
• Missing the ₹ 1,20,000 floor. It rarely bites but the section requires the higher of the two.
• Assuming the larger option must be right because a death is involved. For the same wage and age, permanent total disablement attracts more.
• Reading the relevant factor as rising with age. It falls.

• practice — not a real PYQ

  An employee aged 48 years drawing monthly wages of ₹ 20,000 dies in an employment accident. Taking the relevant factor as 159·80 and the monthly wages notified under section 4(1B) of the Employees' Compensation Act, 1923 as ₹ 15,000, the compensation payable is :

  • (a)₹ 9,58,800
  • (b)₹ 11,98,500
  • (c)₹ 15,98,000
  • (d)₹ 19,17,600

  Answer(b) ₹ 11,98,500

• practice — not a real PYQ

  Under section 4 of the Employees' Compensation Act, 1923, the minimum amount of compensation payable where death results from the injury is :

  • (a)₹ 80,000
  • (b)₹ 1,20,000
  • (c)₹ 1,40,000
  • (d)₹ 2,00,000

  Answer(b) ₹ 1,20,000