Understanding Workmen Compensation Rights for Contractual Employees

Published on July 24, 2025 at 06:16 PM

Workmen Compensation Act 1923 is an integral part of ensuring employee safety at the workplace. The WC policy provides compensation to employees who are injured in the workplace. However, there are also contractual employees associated with organisations who provide their services. Do they receive compensation under the labour insurance policy? That is what needs to be understood by both employers and contractual employees.

Who Are Contractual Employees?

Contractual employees are the individuals who work and provide their services to a business under specified terms and a contract. Unlike full-time employees, contractual employees have more control over how, when and for whom they work; moreover, they are responsible for their tools and work methods.

Eligibility Criteria for WC Policy for Contractual Employees

Usually Have No Coverage

Under Workmen Compensation Act 1923, contractual employees are not automatically covered under the WC policy. It is because the labour insurance policy has been legalised to provide coverage to employees of organisations. Employees are typically defined as ones who work under the direction and control of their employer. Contractual employees are not in direct control of an employer on a full-time basis; thus not eligible for labour insurance policy coverage.

Contractual Obligations

Contractual employees are eligible for workers’ compensation (WC) policy coverage under certain circumstances, such as when they are performing work considered dangerous or hazardous. This ability is decided based on the contractual employee’s contract terms with the hiring party, or if the work they perform falls under employee-like conditions.

Difference Between Contractual Employees and Full-Time Employees

Employer-Employee Relationship

The employee has a more comprehensive professional relationship with their employees as they work under their direct control and supervision. However, when it comes to contractual employees, they are not as involved in working with the business and are responsible for their own work conditions and risk management.

WC Policy Exclusion

An employee-employer relationship does not bind contractual employees; thus, they do not automatically have access to the labour insurance policy coverage. On the other hand, employees are automatically covered under the labour insurance policy to safeguard them against workplace injuries.

When Contractual Employees May Get Coverage?

Statutory Coverage Under Specific Professions

There are certain professions in which even contractual employees are eligible for workers’ compensation policy coverage. The reason is that these professions are hazardous, and the employer is legally obliged to protect any employee’s well-being.

Contractor-Employer Contract

Contract employees can also obtain coverage if they work under a specific employer or are part of a broader employer contract agreement. In such cases, they may be eligible for labour insurance policy compensation as per their contract. Some companies provide workers’ compensation (WC) policy benefits voluntarily to contract employees; however, as it is not a legal requirement, some companies choose to forgo it.

Inclusion in the WC Policy Scheme

Contractual employees in high-risk industries, such as construction, mining, and manufacturing, can then negotiate the contract terms with the business to include the workers’ compensation (WC) policy scheme. Otherwise, they might be required to obtain independent insurance coverage.

Alternative Coverage Options for Contractual Employees

There are alternatives for contractual employees that they can consider if they are not included in the WC policy scheme.

Personal Insurance Coverage

Contractual employees can buy a personal labour insurance policy or disability insurance to protect themselves in case of work-related injuries or disablement. They can choose an insurer like TATA AIG and get benefits similar to those provided by the regular workers’ compensation policy, including medical coverage, disability benefits, and wage replacement.

Case Law and Precedents

In certain cases, the law may determine whether a contractual employee should be covered under a workers’ compensation policy or not. These cases typically involve contractual employees who work under an employer that exercises significant control over the contractual workers’ duties, working hours, and responsibilities. Then, a contractual employee would be considered more like a regular employee and would be eligible for the workers’ compensation (WC) policy.

Health and Safety Rules

Another way for contractual employees to get labour insurance policy protection is based on the nature of their occupation. They receive protection under labour laws, such as health and safety regulations designed to provide additional protection to employees against workplace accidents, illnesses, or disabilities.

Summing Up

Now, it is clear that contractual employees do not automatically get WC policy coverage under the Workmen Compensation Act 1923, because they are considered self-employed. However, under certain circumstances, they provide workers’ compensation (WC) coverage; these circumstances include the dangerous nature of the work, the degree of control and responsibility exerted by the employer, the terms of the contract signed, and the law regulations that provide protection.

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