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All you need to know about Statutory Compliances in India

25 min read

India is a unique market – not only for products, but also for talent. As HR professionals, you often find yourselves walking a fine line between professional interests and compliance with the law of the land. Balancing the pursuit of top talent with legal requirements can be challenging. For example, when negotiating salary structures, it’s common to discuss benefits that help employees reduce tax liabilities. As a people-oriented function, finding a middle ground that aligns with internal priorities and appeals to prospective talent is essential.

At each step, you might hear a voice within, questioning whether the step you are pondering is legal and if it could lead to trouble for your company or even jeopardize your job. As guardians of your employers, it is imperative that you have a firm grasp of statutory compliance to ensure smooth operations. Every year during the annual budget announcements by the Government of India, income tax rules in India are subject to change. As a result, HR professionals must rewire their systems to ensure they comply with the country’s legal requirements. That can get daunting for many. However, we have you covered. This blog post provides a handy guide to help you navigate statutory compliance in HR, get familiar with the list of statutory compliances for companies in India, and stay ahead of the curve.

What is statutory compliance?

Statutory compliance is a pre-defined set of rules based on the legal framework that sets the boundaries within which organizations must function. In India, this means it incorporates provisions in the Central and State labor laws to ensure how organizations conduct themselves, operate, and treat their employees.

The reason these laws are created is to ensure the welfare of employees, employers, as well as protect businesses. As professionals, it’s best to view them as a guide to stay safe, rather than a hindrance that is a hurdle. Irrespective of the size of your employer, whether you’re a part of a startup, a large corporation headquartered out of India, or even a multinational conglomerate with some presence in India, statutory compliance is mandated by law. Any deviation or a lack of judgment in following the law would result in corrective consequences.

Key Benefits of Statutory Compliance in HR

Adhering to statutory compliances is necessary for all business set-ups to stay safe and away from any legal trouble. A deep knowledge of statutory compliances always combat risk and avoid any potential complications because of non-compliance.

Since every country has unique local laws that govern the working of businesses, it is a natural expectation that organizations stay abreast about the changes and modifications in labor rules prevalent in their country.

Statutory compliance stands to benefit everyone – the overall business, the owners (or employers), and employees.

However, specifically for employees and very relevant from an HR standpoint, it ensures fair treatment and timely resolution of concerns. It also ensures that the working conditions for the employees are satisfactory and well managed.

With respect to the organization (and the employer), statutory regulation is the best way to ensure clarity in the understanding of necessary rules and regulations. Having a clear understanding of the ground rules is the best way to avoid losses from lawsuits. And in turn, creates a trustworthy and safe environment. Indian law is stringent and has an elaborate number of clauses that result in imprisonment in the event of non-compliance. According to a report by Observer Research Foundation, “At an aggregate, there are 26,134 imprisonment clauses in India’s 843 economic legislations, rules and regulations that oversee and influence doing business in India.” Considering that the jail term for non-compliance in India varies from three month to more than 10 year, there is a strong cause for incorporating an effective HR Payroll System in India to ensure statutory compliance with your business.

Top 9 Benefits of Statutory Compliance to a Business

Statutory compliance for businesses is not just a legal obligation. These are principles that are put in place in the best interest of businesses to drive growth. Growing businesses boost economies and policymakers work towards boosting the local economy. Complying with these regulatory frameworks ensures that your corporate reputation is protected.

A positive reputation for your business also means that top talent in your industry considers you as a potential employer since your business fosters a culture of ethical practices. Here are the top nine advantages of ensuring statutory compliance.

Legal Protection

Statutory compliance ensures that businesses operate within the confines of the law, safeguarding them against legal liabilities and penalties.

Enhanced Employee Relations

Compliance fosters a positive work environment, fostering better relations between employees and employers.

Talent Attraction and Retention

Organizations that prioritize statutory compliance build a reputation as responsible employers, attracting and retaining top talent.

Mitigating Risks

Compliance helps identify and address potential risks in areas such as workplace safety, health, and employee welfare.

Reputation Management

Compliant organizations earn a reputation for ethical practices, which enhances their brand image and trust among stakeholders.

Financial Stability

By adhering to tax and financial regulations, businesses avoid unnecessary financial losses and maintain stability.

Competitive Advantage

Compliance differentiates businesses from competitors and provides a competitive edge in the market.

Smooth Operations

Complying with statutory requirements ensures seamless operations without interruptions due to legal issues or disputes.

Ethical Responsibility

Compliance reflects a commitment to ethical business practices, demonstrating a company’s commitment to corporate social responsibility.

How Do Statutory Compliance Benefits Both Employees and Employers?

Statutory compliance benefits employees by ensuring fair treatment, safe working conditions, and protection of their rights. It provides a framework that prevents exploitation and encourages employee well-being. For employers, compliance reduces legal risks, enhances productivity, fosters a positive work culture, and improves the overall reputation of the organization.

Statutory Compliance Rules and Regulations in India – 2023

The year 2023 brings several important statutory compliance rules and regulations in India. These changes aim to improve employee welfare, streamline processes, and align with evolving business dynamics. Staying updated with the latest changes is crucial for HR professionals to ensure compliance and avoid any legal pitfalls.

Industrial Relations Guide for Statutory Compliance

Industrial relations play a vital role in statutory compliance, as they govern the relationship between employers, employees, and trade unions. By fostering healthy relations, maintaining open communication channels, and resolving disputes amicably, organizations can promote compliance and create a harmonious work environment.

Statutory Compliance on tax liabilities

Compliance with tax regulations is a significant aspect of statutory compliance. HR professionals must understand the intricacies of tax laws and ensure accurate tax deductions, timely deposits, and proper documentation. This helps organizations fulfill their tax obligations while minimizing the risk of penalties and legal complications. For the uninformed though, navigating the intricacies of tax compliance can be a daunting task. In a piece referring to GST compliance for businesses for The Economic Times, Pratik Shah, Associate Partner – Indirect Tax, BDO India said, “a pathbreaking and progressive piece of fiscal law has turned into a horror story from the perspective of a compliance ease promise.” It is therefore recommended to work with trusted partners and tools to ensure that you have your back covered by solving for your business’ compliance needs.

Statutory Compliance Checklist in 2023

As the regulatory landscape continues to evolve, HR professionals face the challenge of ensuring statutory compliance in their organizations. To navigate this complex terrain, it is essential to have a comprehensive checklist of the legal provisions and requirements that need to be fulfilled. This checklist for 2023 will serve as a valuable resource, covering crucial compliance areas and serve as a guide for organizations to meet their obligations effectively.

  • Shops and Commercial Establishments Act (S&E)
  • The Employee Provident Fund, and Miscellaneous Provision Act 1952
  • The Employees State Insurance Corporation Act 1948 (ESIC)
  • The Professional Tax Act (PT) 1975
  • The Labour Welfare Fund Act (LWF) 1965
  • The Contract Labour (Regulation & Abolition) Act 1970 (CLRA)
  • The Child Labour (Prohibition & Regulation Act) 1986
  • The Minimum Wages Act 1948
  • The Payment of Wages Act 1936
  • The Payment of Bonus Act 1965
  • The Maternity Benefit Act 1961
  • The Payment of Gratuity Act 1972
  • The Equal Remuneration Act 1976
  • The Industrial Establishment (N&FH) Act 1963
  • The Employment Exchange (Compulsory Notification of Vacancies) Act 1959
  • Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act 2013
  • The Employees Compensation Act 1923
  • The Industrial Employment (Standing Orders) Act 1946
  • The Industrial Disputes Act 1947
  • The Apprentice Act, 1961
  • The Interstate Migrant Workmen (Regulation of Employment and Conditions of Services) Act, 1979
  • The Factories Act, 1948
  • The Trade Unions Act, 1926

A look at major statutory compliances in India

The Minimum Wages Act, 1948

The Minimum Wages Act fixes the minimum wage rates for companies in India, where both the State and Central Governments determine rates. These minimum wage rates get declared at the occupational, sectoral, state, and national levels and may be set for any sector, occupation, or region.

This is done to ensure that labor (both skilled and unskilled) can sustain their livelihood. The core objective of this act is to prevent the exploitation of workers and offer remedial legal recourse against the organization in case of non-compliance. It is precisely for these reasons that the legal system in India has awarded a jaw-dropping 26,134 imprisonment clauses in its statutory compliance recommendations.

There are two methods for fixing or revising minimum wages:

Committee method

In this method, the government changes minimum wages after setting up committees and subcommittees for holding recommendations and inquiries.

Notification method

Here, proposals from the government regarding people who are likely to be affected by changes in minimum wages are published in the Official Gazette. These are then considered at a specified date.

The Payment of Bonus Act, 1965

This Act provides employees of specific establishments (such as factories with over 20 employees) with an annual bonus. Besides, as per the provision of this Act, the amount of bonus is calculated with reference to the employee’s salary and the profits made by the business.

Employees drawing ₹21,000 per month or less (basic + DA, excluding other allowances) and who have completed 30 working days in that financial year are eligible for the bonus payment.

TDS deduction

Each employer is responsible to deduct tax from employee income, which is referred to as Tax deducted at Source (TDS). The salary components that impact TDS deduction are HRA, Special allowance, Leave travel allowance, Children education allowance, medical allowance, Investments.

According to the latest income tax laws 2020, an employee has the leverage to choose from old and new tax regimes. The TDS deduction depends upon the choice an employee makes.

Statutory compliances for ESI fund and PF deduction

Employee State Insurance governed by the ESIC is applicable to employees earning Rs 21,000 or less per month. It provides the means to extend cash and medical benefits to employees and their families. Any non-seasonal factory or establishment that consists of 10 or more employees and that is covered under the Employees’ State Insurance Act, 1948 is covered under this scheme.

Provident Fund is a mandatory contributory fund meant to secure employees’ future post their retirement, and their dependents (in the event of their early death). Statutory compliances associated with provident fund contribution are:

  • EPF (Employee Provident Fund)
  • EPS (Employee Pension Scheme)
  • Any company with employees of 20 or more must be EPFO-compliant.

PT (Professional taxes)

Each state has its own laws governing professional tax, and hence this tax is levied by state governments. However, they all follow a slab-based system. This tax is a mandate for every individual who earns an income. In the event of non-compliance, the individual faces a penalty.

Gratuity

In the event an employee leaves their job after the completion of five years in service, then they are entitled to gratuity. The amount of gratuity is calculated as follows:

Gratuity Amount: (Basic salary + Dearness Allowance / 26) x (Total no. of years of service) x 15.

It is an act that aims to give rights as well as statutory obligations to employers and employees who work in shops and establishments, which belong to the unorganized sector.

Gratuity requires commercial establishments and/or shops to mandatorily register within 30 days of commencing work.

Maternity Benefit Act, 1961

The Maternity Benefit Act is meant to regulate the employment of women employees in certain establishments for specified periods – before as well as after childbirth. It provides maternity and other benefits for women.

As per the Act, women employees must be informed in writing or electronically about maternity benefits available to them once they join the workforce.

According to Indian law, it is mandatory for establishments to provide maternity benefits to women employees. The rules around maternity benefits are governed by the Maternity Benefit Act, 1961 and apply to shops and establishments with 10 or more employees. Those women who work in factories with 10 or more workers are given maternity benefits as available under the Employees’ State Insurance Act, 1948.

The Employees’ State Insurance Act, 1948

The ESI Act provides certain benefits to employees in case of sickness, maternity, and employment injury. The act applies to non-seasonal factories using power and employing more than 10 employees, and non-power using factories and certain other establishments employing 20 or more employees.

All benefits are provided in ESIC hospitals, clinics, and approved independent medical practitioners. The upper limit of wages specified according to this act is enhanced from Rs. 7,500 to Rs. 10,000 per month.

How can you ensure statutory compliance for your organization?

Ensuring statutory compliance is of utmost importance for organizations to operate within the legal framework and avoid potential risks and penalties. Here are some key steps to help you establish and maintain statutory compliance:

Stay Informed

Keep abreast of the latest labor laws, regulations, and amendments relevant to your industry and jurisdiction. Regularly review and update your knowledge to ensure compliance.

Conduct Internal Audits

Regularly audit your organization’s processes, policies, and practices to identify any gaps or non-compliance. Address and rectify these issues promptly.

Establish Robust Policies

Develop clear and comprehensive policies and procedures that align with statutory requirements. Communicate these policies effectively to all employees and ensure their understanding.

Documentation and Record-Keeping

Maintain accurate and up-to-date records of employee data, financial transactions, and compliance-related documentation. This includes employee contracts, attendance records, payroll information, tax filings, and more.

Training and Awareness

Conduct regular training sessions and workshops to educate employees about their rights, obligations, and the importance of statutory compliance. Foster a culture of compliance throughout the organization.

Seek Professional Assistance

Engage legal counsel or compliance experts to ensure you have the necessary expertise and guidance in navigating complex legal requirements.

By following these steps, your organization can establish a strong foundation for statutory compliance, minimize legal risks, and create a compliant and ethical work environment.

FAQ’s

1. What is meant by statutory compliance?

Ans: Statutory compliance is a predefined framework within which businesses are expected to operate. In short, businesses must follow the rules and regulations when dealing with employees’ and employees’ concerns. The employers must communicate with the employees to ensure that they abide by the laws and regulations of the country where they run the business. It is always better to ensure that the company operates ethically and officially.

2. What are the types of statutory compliance?

Ans: It is necessary for the organizations that legally operate to comply with the law. Types of some significant statutory compliance are listed below:

  • The Minimum Wages Act, 1948
  • The Employees State Insurance Act, 1948
  • TDS deduction
  • Gratuity
  • The Shops and Commercial Establishments Act (1953)
  • The payment of Bonus Act, 1965
  • Statutory compliance for PF deduction
  • Maternity Benefit Act, 1961

3. Why is statutory compliance needed?

Ans: It has become challenging to keep up with every company’s operational element due to a significant rise in business complexity. Any organization’s major goal is to comply with the constantly evolving business landscape. Statutory compliance is essential for all businesses as it increases efficiency, leads to higher employee morale, and avoids penalties or legal consequences.

4. What is statutory compliance in payroll?

Ans: The legal framework established by the national or state government to control business operations is referred to as Statutory Compliance. Each nation has a unique set of payroll regulations,

and businesses operating there must abide by them. Establishing a flawless compliance record has several perks for the company. Payroll is thus governed by the legal system.

5. Is GST statutory compliance?

A: Yes, GST (Goods and Service Tax) is statutory compliance. It is a mandatory tax regime that businesses must comply with if their annual turnover exceeds a certain threshold. Non-compliance with GST can result in penalties and legal action.

6. What comes under statutory compliance?

A: Statutory compliance encompasses a range of legal obligations that organizations must adhere to. It includes following the provisions and regulations set forth in various labor laws, such as the Minimum Wages Act, Payment of Bonus Act, Employees’ Provident Fund Act, and Maternity Benefit Act, among others.

Statutory compliance also extends to areas like tax regulations, industrial relations, workplace safety, and employee welfare. Essentially, it covers all the rules and regulations that govern how organizations should operate and treat their employees within the boundaries of the law.

7. What is the role of HR in statutory compliance?

A: HR plays a pivotal role in ensuring statutory compliance within an organization. HR professionals are responsible for staying updated on the latest labor laws, regulations, and amendments. They need to understand the legal requirements and ensure that the organization adheres to them in all aspects of employment, from recruitment and onboarding to employee management and termination. HR professionals are responsible for implementing policies and procedures that align with statutory compliance, educating employees about their rights and entitlements, and maintaining accurate records and documentation. They also collaborate with other departments, such as finance and legal, to ensure seamless compliance across the organization. The role of HR in statutory compliance is crucial in protecting the rights of employees, mitigating legal risks, and fostering a positive work environment.

8. What is the statutory compliance of PF?

A: The statutory compliance of PF (Employee Provident Fund) refers to the obligations and regulations that employers must follow regarding provident fund contributions for their employees. Under the Employees’ Provident Funds and Miscellaneous Provisions Act, employers are required to deduct a certain portion of an employee’s salary towards the provident fund and contribute an equal amount from their own funds.

This fund is meant to provide financial security to employees upon retirement or in case of certain contingencies. Employers must register their establishment with the Employees’ Provident Fund Organization (EPFO) and ensure timely and accurate deduction and deposit of provident fund contributions. Non-compliance with PF regulations can lead to penalties and legal consequences. Therefore, it is essential for employers to understand and fulfill their statutory compliance obligations related to the provident fund.

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    Meet the author

    Keka Editorial Team

    A bunch of inspired, creative and ambitious youngsters- that’s Keka’s editorial team for you. We have a thirst to learn new subjects and curate diverse pieces for our readers. Our deep understanding and knowledge of Human Resources has enabled us to answer almost every question pertaining to this department. If not seen finding ways to simplify the HR world, they can be found striking conversations with anyone and everyone , petting dogs, obsessing over gadgets, or baking cakes.

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