Penalties and Legal Consequences for Non-Compliance Under the Employees’ State Insurance Act

Penalties and Legal Consequences for Non-Compliance Under the Employees’ State Insurance Act

2025-11-10 7 min read

The Employees’ State Insurance Act, 1948 mandates social security and medical benefits for workers employed in eligible establishments. Employers must comply with ESIC regulations, including timely registration, contribution filing, employee updates, and maintaining accurate records. Failure to comply can lead to serious penalties, fines, and even prosecution.

This guide explains the complete list of penalties and legal consequences for non-compliance under the ESIC Act, helping employers stay alert and avoid violations.

1. Penalty for Late Payment of ESIC Contributions

If an employer delays or defaults on monthly ESIC payments, ESIC charges:

  • Interest at 12% per annum on late payments
  • Damages up to 25% depending on the duration of delay

These charges continue until the dues are fully cleared.

2. Penalty for Failure to Register Under ESIC

If an establishment becomes eligible but fails to register with ESIC, the employer may be liable for:

  • Retroactive contributions for all past periods
  • Interest and penalties on unpaid dues
  • Prosecution under Section 85 of the ESI Act

3. Penalty for Providing False or Incorrect Information

If an employer submits false documents, hides employee strength, or manipulates wages to avoid ESIC coverage, penalties may include:

  • Heavy fines
  • Prosecution for fraud
  • Inspection notices and audits

4. Penalty for Failure to Maintain Records

Employers must maintain attendance registers, wage records, ESIC contribution receipts, and employee files. Failure to produce these during inspection may lead to:

  • Fines under Section 85
  • Prosecution for non-maintenance of statutory records

5. Penalty for Not Reporting Workplace Accidents

Under the ESI Act, employers must report workplace injuries using Form-12. If they fail to report:

  • ESIC may impose penalties
  • Employees may lose timely benefits
  • Legal action may be taken for withholding information

6. Criminal Penalties Under ESIC

Certain offenses may lead to prosecution under Section 85 and Section 85A of the ESI Act. These include:

  • Imprisonment of up to 2 years
  • Heavy monetary fines
  • Legal proceedings by ESIC authorities

7. Penalty for Deducting Employee Contribution but Not Depositing

This is considered a serious violation. If an employer deducts employee contributions but does not deposit them:

  • ESIC may initiate prosecution
  • The employer may face imprisonment
  • Full recovery with interest and damages

8. Penalty for Obstructing ESIC Inspectors

If an employer refuses access to ESIC inspectors or hides records, it can lead to:

  • Immediate legal action
  • Heavy penalties
  • Prosecution for obstructing a public servant

Conclusion

Non-compliance under the Employees’ State Insurance Act can lead to severe financial and legal consequences. Employers must stay updated, file contributions on time, maintain proper documents, and ensure accurate employee records. By following the ESIC rules, businesses can protect themselves from penalties and provide uninterrupted benefits to their employees.

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