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Section 31: All employees to be insured

The Code on Social Security, 2020 (Act No. 36 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter IV: Employees' State Insurance Corporation
Competent Labour Forum
Act No. 36 of 2020
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Legal Commentary & Landmark Judgments: Section 31

Section 31 of the Code on Social Security, 2020 establishes the paramount statutory liability of the principal employer to pay both employer and employee contributions in the first instance, regulating the strict mode of wage deduction and conferring a statutory right of reimbursement against immediate employers.

  • Paramount Liability of Principal Employer in the First Instance: Section 31(1) fastens absolute liability upon the principal employer to pay both the employer's contribution and the employee's contribution for all workers, including workers engaged through immediate employers (contractors).
  • Strict Restriction on Mode of Wage Deduction: Under Section 31(2), the employer can recover the employee's share only by deduction from wages for the period to which the contribution relates; employer's share can never be recovered from workers, and retrospective deductions for past unpaid periods are strictly prohibited.
  • Statutory Indemnity & Recovery from Immediate Employer: Section 31(4) empowers the principal employer to recover contributions paid on behalf of contract workers by deducting equivalent amounts from any sums payable to the immediate employer under service contracts or as a civil debt.
Key Landmark Precedents:
  • Employees' State Insurance Corporation v. Harrison Malayalam Ltd. (1993) 4 SCC 361: The Supreme Court held that the principal employer is liable to pay ESI contributions for workers engaged through contractors, regardless of whether the contractor is registered or workers are traceable, and the principal employer must enforce its statutory right of recovery against the contractor.
  • Royal Western India Turf Club v. E.S.I.C. (2016) 4 SCC 521: The Supreme Court held that the principal employer cannot evade liability for casual or agency workers deployed within its premises or operational activities.
  • Saraswath Film Exchange v. Presiding Officer (2002) 4 SCC 472: The Supreme Court held that an employer who fails to deduct employee contributions from wages at the time of wage payment cannot subsequently make retrospective deductions from future wages; the employer must bear the loss resulting from its own statutory default.
Courtroom Practice & Strategic Litigation Guidance:

Corporate enterprises utilizing third-party staffing, security, or facility management contractors must structure vendor contracts with explicit ESI indemnity clauses. Withhold at least ten percent of contractor bill payments until the contractor furnishes monthly ESIC challans and ECR returns proving that deployed contract staff have been properly registered and covered. Failure to deduct employee contributions from current wage cycles permanently bars retrospective recovery from workers.

Section 30 All 163 Sections of Code on Social Security, 2020 Section 32