All you need to know about Statutory Compliances in India

In India, organizations invest time and efforts to rest assured that the company’s payroll is compliant as per the required proper laws and regulations. Organizations often worry about facing legal problems related to statutory compliances. Regardless of whether an organization doesn’t have any intentions to break laws, there are possibilities of loopholes within the organization. With increasing non-compliance risks, it becomes necessary for the companies in India to have statutory compliance in HR in India.

What is statutory compliance?

The pre-defined legal framework within which any given organisation must function. This framework is termed as statutory compliance. Basically, the organisation must treat its employees in a way that is in adherence to various central and state labour laws.

These laws ensure the welfare of – the employee, employer, and the organisation. All organisations, irrespective of their size and stature need to abide by central and state labour laws failing which strict legal actions can be taken against them.

What is the importance of Statutory Compliance?

Adhering to statutory compliances is necessary for all big and small business set ups to keep their businesses safe from the legal trouble. Deep knowledge of statutory compliances is required to minimize the risk associated with the non-compliance of statutory requirements.

Every country has its own set of state and central labour laws that companies need to adhere with. Dealing with statutory compliance requires companies to be updated on all the labour regulations in their country.

Statutory compliance is beneficial to all – employee, employer and the organisation.

For employees – it makes sure that they receive fair treatment and get their dues on time. It also ensures that the working conditions for the employees are satisfactory and well managed.

As for the organisation and the employer – it maintains clarity of rules and regulations to fall back on. It also saves the organisation from penalties and legal actions. And in turn, creates a trustworthy and safe environment.

In today’s competitive and legal business world, it is very challenging for employers to manage statutory compliances without a proper HR Payroll System in India.

Here is the list of Statutory Rules in India which a company must adhere to

• Shops and Commercial Establishments Act (S&E)

• The Employees Provident Funds and Miscellaneous Provision Act – 1952 (EPF)

• 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 – Model Standing Order Only

• 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

Let us look at the major statutory requirements:

The Minimum Wages Act, 1948

• The Minimum wages Act fixes the minimum wage rates in any Indian company, where both the Provincial Governments and the Central Government determine these rates.
• The minimum wage rates get declared at the occupational, sectoral, state, and national levels.
• These wages may get established for any sector, occupation, or region.
• This ensures that the skilled and unskilled laborers are paid enough to go through their livelihood.
• The act at its core prevents exploitation of workers as legal actions are taken against the firm if it doesn’t clear its labor’s dues.

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

In this method, the Official Gazette publishes proposals of the government regarding people who are likely to be affected by changes in minimum wages. The recommendations get taken into consideration at a specified date.

The Payment of Bonus Act, 1965

• The Payment of Bonus Act provides an annual bonus to the employee in a certain establishment- including factories and establishments employing 20 or more persons. Under the Act, the bonus is calculated by the employee’s salary and the profits of the establishment.
• Employees drawing ₹21,000 per month or less (basic + DA, excluding other allowances) and 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

• ESI maintained by ESIC is applicable to employees earning Rs 21,000 or less per month to provide the cash and medical benefits to them 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 the scheme.
• PF is a compulsory contributory fund for the future of employees after their retirement or for their dependents in case of their early death. The statutory compliances related to PF contribution are as follows:
  • • EPF (Employee Provident Fund)
    • EPS (Employee Pension Scheme)
• Any company with employees of 20 or more must be EPFO-compliant.

PT (Professional taxes)

Professional tax is levied by the state government. Each state has its own laws governing professional tax but all of them follow a slab-based system. This tax is a mandate for every individual who earns. A Penalty is imposed in case of non -compliance.

Gratuity

Gratuity is the amount given to employees by an employer when they leave the job after completing five years in service. Gratuity is calculated as Basic + DA divided by 26 * No of years of service *15.

The Shops and Commercial Establishments Act (1953)

• 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.
• It promotes mandatory registration of the commercial establishment or shop within 30 days of starting work.

Maternity Benefit Act, 1961

• Is An Act to regulate the employment of women in certain establishments for certain periods before and after childbirth and to provide for maternity benefit and certain other benefits.
• Employers are required to inform women in writing, electronically about the maternity benefits available under the Maternity Benefit Act upon their joining the workforce.
• In order to protect the rights of women employees during pregnancy and after childbirth, Indian law makes it mandatory for most establishments to offer maternity benefits to women employees. Maternity benefit in India is mainly governed by the Maternity Benefit Act, 1961 that applies to all 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 wage ceiling under this act has been enhanced from Rs. 7500 to Rs. 10000 per month.

FAQs: 

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 a 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.