Section 40 of ESI Act : Section 40: Principal Employer To Pay Contributions In The First Instance

Explanation using Example

Imagine a factory where John is the principal employer. He has hired both permanent workers and some through a contractor (immediate employer). According to Section 40(1) of The Employees State Insurance Act, 1948, John is responsible for paying the ESIC contributions for all these workers, not just the ones he hired directly.

When payday comes, as per Section 40(2), John can deduct the employee's share of the ESIC contribution from the wages of the directly hired workers, but he cannot deduct more than what's due for that pay period.

Even if John's contract with the workers says otherwise, under Section 40(3), he can't make the workers pay for the employer's portion of the ESIC contribution; he has to cover that cost himself.

As for the deductions he made from the workers' wages, Section 40(4) states that this money is considered as being held by John in trust to pay the ESIC contribution on behalf of the workers.

Lastly, Section 40(5) makes it clear that any costs associated with sending these contributions to the ESIC are John's responsibility, not the workers'.