A Director is an Employee Under the Employees’ State Insurance Act

A director of a company who is working on a particular amount of remuneration is an employee under the Employees State Insurance Act, 1948 and the remuneration earned by him during his course of employment will be treated as wages under the ESI Act for the purpose of calculation of contributions. The Supreme Court of India in this regard has stated that even if a director is the principle employer of a company, but if he is getting any remuneration on regular basis for performing certain functions in the company, then such director shall be treated as an ‘employee’ and his remuneration shall be treated as ‘wages’ under the Employees’ Insurance Act, 1948.

In the case of Apex Engineering, the ESI Corporation covered the company including their director. The Learned EI Court held that the director being the principal employer would be covered under the Act. Being aggrieved of the said order, the ESI Corporation moved before the Hon’ble High Court. After hearing the learned labour law advocates of both sides, the High Court held that the managing director has been working under the direction of the Board of Directors and hence, the managing director will come under the purview of an ‘employee’ under Section 2(9) of the Employees’ State Insurance Act, 1947 and salary/ remuneration paid to him would be treated as ‘wages’ under Section 2(22) of the said Act.

Finally the High Court set aside the order passed by the Learned Judge, EI Court and held that the managing director of a company will be treated as an employee under the ESI Act.

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