Understanding the Worker's Compensation Amount Under the Workmen Compensation Act

Written by : TATA AIG Team
·
Published on : 2025-08-11

Thousands of workers in India’s auto manufacturing sector lose fingers each year, as highlighted in the CRUSHED2024 report.

But this is just one of many studies that reveal the risks workers face across industries. The Workmen Compensation Act plays a crucial role in ensuring financial support for such injuries.

This blog explains how the Workmen Compensation Policy amounts are determined and why the right insurance partner matters for businesses and their workforce.

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List of Content

  • bullet
    What is the Workmen Compensation Act - An Overview
  • bullet
    Current Compensation for Workers Amount and Calculation Methods
  • bullet
    Factors that Influence the Workmen Compensation Policy Insurance Amount
  • bullet
    Instances When Workers' Compensation Insurance Cannot be Claimed
  • bullet
    Why Employers Need Workmen's Compensation Insurance
  • bullet
    Penalties for Non-Payment Towards Workmans Comp Insurance Payout
  • bullet
    To Conclude

What is the Workmen Compensation Act - An Overview

The Workmen Compensation Act, introduced in 1923 and renamed the Employees' Compensation Act in 2010, ensures that workers are financially protected in case of injuries, disabilities or death at the workplace. Despite being over a century old, it remains the backbone of employee compensation laws in India.

The Act covers a wide range of workers, whether employed full-time, part-time, temporarily, casually or on contract. If an employee is injured or falls ill while performing job-related duties, the employer is legally required to provide compensation.

Recent amendments have significantly enhanced compensation amounts. These updates reflect the government's commitment to providing adequate financial support to injured workers and their families, ensuring the Act remains relevant in today's economic landscape.

Also Read: Benefits of Workmen Compensation Insurance

Current Compensation for Workers Amount and Calculation Methods

Recent updates have made the provisions more relevant to current times. The current compensation amounts are as follows:

  • Maximum wage limit for compensation calculation - ₹15,000 per month
  • Minimum compensation for death - ₹1,40,000
  • Minimum compensation for permanent total disability - ₹1,70,000

Let us now understand the calculation methods for each -

** In Case of Death**

Formula: 50% of Monthly Wage × Relevant Factor (based on age) (or ₹1,40,000, whichever is higher)

Example: Ramesh, a 35-year-old assembly line worker at a mid-sized auto parts factory, earned ₹12,000 per month. Unfortunately, he lost his life in a workplace accident.

So, his compensation amount will be calculated as –

  • 50% of his monthly wage = ₹6,000
  • Relevant factor (for age 35) = 197.06

Total Compensation = ₹6,000 × 197.06 = ₹11,82,360

Since ₹11.82 lakh is higher than the minimum ₹1.4 lakh, his family would receive ₹11.82 lakh as compensation.

In Case of Permanent Total Disablement (PTD)

Formula: 60% of Monthly Wage × Relevant Factor (or ₹1,70,000, whichever is higher)

Example: Sushil, a 40-year-old construction site supervisor, suffered a severe spinal injury that led to permanent total disability. His monthly wage was ₹15,000.

So, his compensation amount will be calculated as –

  • 60% of ₹15,000 = ₹9,000
  • Relevant factor (for age 40) = 184.17

Total Compensation = ₹9,000 × 184.17 = ₹16,57,530

₹16.57 lakh would be payable to Sushil to support him after the injury, as it is higher than ₹1,70,000.

Also Read: How to Apply for Workmen Compensation

In Case of Permanent Partial Disablement (PPD)

Formula: % of Disability × Amount Payable for PTD

Example: Anita, a 30-year-old garment factory worker, lost two fingers in a machine-related accident. The medical board assessed her disability at 30%. She earned ₹10,000 per month.

PTD compensation (calculated using her profile) -

  • 60% of ₹10,000 = ₹6,000
  • Relevant factor (for age 30) = 207.98

PTD Compensation = ₹6,000 × 207.98 = ₹12,47,880

For 30% disability, the compensation would be = 30% of ₹12,47,880 = ₹3,74,364

Anita would be entitled to approximately ₹3.74 lakh as per the Act.

Things to Note

  • Under the Act, PPD compensation for workers is based on a percentage of the amount that would have been payable in case of Permanent Total Disablement (PTD). This percentage corresponds to the loss of earning capacity due to the injury, as listed in Schedule I of the Workmen Compensation Act.

  • The relevant factor used in compensation for workers calculations under the Employees’ Compensation Act, 1923, is determined from a predefined schedule, Schedule IV of the Workmen Compensation Act. It is based on the employee's age at the time of their last birthday before the accident or injury.

In Case of Temporary Disability

Formula: 25% of the Monthly Wage paid every half-month (15 days) and paid till recovery or a maximum of 5 years

Example: Iqbal, a 28-year-old forklift operator, injured his leg on duty and was advised by the doctor to rest for three months. His monthly wage was ₹16,000.

  • 25% of ₹16,000 = ₹4,000 paid every 15 days
  • 3 months = 6 fortnights

Total Compensation = ₹4,000 × 6 = ₹24,000

Iqbal would receive a total of ₹24,000 for the recovery period.

Also Read: How Does Workmen Compensation Injury Settlement Work?

Factors that Influence the Workmen Compensation Policy Insurance Amount

Several key factors influence the amount payable under a workers' compensation insurance policy.

  • Monthly Wage of the Worker - Compensation is calculated based on a percentage of the worker’s monthly earnings at the time of the incident.

  • Age of the Worker (Relevant Factor) - A younger worker typically receives higher compensation due to a longer expected earning period, as determined by a government-prescribed relevant factor (as described above).

  • Nature and Severity of Injury - More serious injuries, like permanent total disability, result in higher compensation compared to minor or temporary ones.

  • Type of Work or Industry - Jobs involving physical risk (e.g., construction, factory work) may lead to higher claims and require broader coverage.

  • Medical Assessment and Disability Certification - For partial disabilities, a certified medical evaluation determines the percentage of earning capacity lost, which affects the final compensation amount.

Instances When Workers' Compensation Insurance Cannot be Claimed

Workers' compensation insurance provides vital financial support in case of workplace injuries. However, the Employees’ Compensation Act outlines specific situations where claims cannot be made.

  • No compensation is payable if an employee suffers an injury by disregarding established safety norms. For instance, if protective gear was not worn or machinery was handled improperly in violation of safety instructions, the employer is not liable.

  • The compensation is not applicable when the injury results in partial or total disablement lasting less than three days. The Workmen Compensation Act only considers cases where the disability affects the employee’s ability to work for three or more days.

  • If an accident occurs while the employee is under the influence of alcohol or drugs, the claim is not valid. In such cases, the injury is considered to have occurred due to personal negligence, and the employer bears no legal responsibility.

Why Employers Need Workmen's Compensation Insurance

Workmen compensation insurance is not just important, it is legally compulsory for employers under the Employees’ Compensation Act, 1923. It ensures that workers are financially protected in case of workplace accidents, injuries or death while performing their duties.

  • Without insurance coverage, businesses can face potentially devastating out-of-pocket expenses when accidents happen, especially considering the updated compensation amounts that can reach several lakhs.

  • Having the right coverage helps reduce financial risks and ensures timely support to the affected worker or their family. It also fosters trust among employees, demonstrating that their well-being is a top priority. This can improve morale and reduce workplace stress.

  • In sectors such as construction, manufacturing, logistics or field services, where physical work is common, this insurance becomes even more critical. Moreover, organisations with a large workforce, in particular, benefit from comprehensive coverage that manages their increased exposure to workplace risks and potential compensation claims.

Also Read: Is Workmen’s Compensation Insurance Policy Compulsory?

Penalties for Non-Payment Towards Workmans Comp Insurance Payout

It is vital to note that as per Section 3 of Employees Compensation Act, the compensation must be paid as soon as it becomes due under the law.

If an employer does not agree to the full compensation amount claimed, they must still make a provisional payment based on what they accept as their responsibility. This payment should be made to the employee or deposited with the Commissioner, without affecting the employee’s right to claim the remaining amount.

If the employer fails to pay the compensation within one month from when it became due, the Commissioner may:

  • Ask the employer to pay interest on the unpaid amount (usually 12% per year or a rate specified by the government).

  • If there is no valid reason for the delay, the Commissioner can also impose a penalty of up to 50% of the due amount.

Both the interest and penalty, once imposed, are to be paid to the injured employee or their dependents.

[Note: Under the Employees’ Compensation Act, 1923, the Commissioner is a government-appointed authority responsible for handling claims related to worker injuries, disabilities or death occurring during employment.]

To Conclude

Understanding how Workmen Compensation is calculated and when it applies is essential for every responsible employer, especially in labour-intensive sectors. It not only ensures compliance with the law but also shows genuine care for the workforce.

For small and mid-sized businesses, choosing the right SME Insurance plan can make a significant difference in managing risk and providing timely support to employees during unexpected incidents. Employers need insurers who understand both legal requirements and business realities, offering seamless support when workplace accidents occur.

For those looking to streamline claims, safeguard their teams and build a responsible workplace, now is a good time to explore TATA AIG’s business insurance options that fit the organisation’s size and nature. Because when workplace safety matters, the right insurance partner makes protecting everyone easier.

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