Statutory compliance is one of many things startup founders find daunting. Being compliant is essential for any business as it protects the company from disgruntled employees and potential lawsuits.
Even the smallest of slip-ups in statutory compliance with the rules mandated by the Government of India can amount to legal troubles for a company and put an end to its growth.
This blog post details everything you need to know about Statutory compliance and also provides a handy checklist that you can save. So, bookmark this page before it gets lost in the sea of information on the internet.
Before we dig deeper, let’s cover the basics of statutory compliance.
Statutory Compliance meaning
The word ‘statutory’ means ‘of rules and regulations, and the term ‘compliance’ means ‘adhering to’.
In the payroll setup, statutory compliance is the legal framework established by the Government for organisations within which Indian companies must work. All organisations, irrespective of their size and stature, must abide by the central and state labour laws failing which strict legal actions can be taken against them.
Importance of Statutory Compliance
Statutory compliance helps employees in the following ways.
Risk of non-compliance
Apart from being important from employee welfare perspective, there are actual risks of not adhering to statutory compliance laws:
- Damage to reputation, brand value and loss of business integrity
- Heavy penalties and fines
- Lawsuits and legal action by disgruntled parties – government agencies, employees or trade unions, or clients, among others
- Impact on customer loyalty of the organisation
- Unnecessary audits
How can you ensure statutory compliance for your organisation?
1. Document all policies & procedures
Mention all the compliances in the employee handbook (digitally). This will ensure proof of all the rules and policies of the company for the benefit of both you as an organisation and your employees.
2. Stay updated on changing Acts and Policies
Compliance does not end at formulating policies and putting an Act in print/digital. Ensure that the Acts your company abides by are updated as per the norms of the Government to avoid being overwhelmed later.
Since staying updated with changing regulations can be tricky, check out software like RazorpayX Payroll that automatically gets updated if any law changes. A major benefit of using software is never being non-compliant, and the entire responsibility of compliance lies with the vendor, taking your headaches away.
[Suggested Read: Upgrade to a Dual Tax Regime Compliant Payroll Software]
3. Conduct compliance audits
Audits and reports can help you understand the compliance trends and practices in the organisation and find out just how compliant employees in your organisation are and how compliant the organisation is towards treating its employees.
4. Train employees
Workshops and training can help you mitigate the communication barrier when it comes to ensuring compliance at the employees’ and managerial end.
Statutory Compliance Checklist
Government rules for statutory compliance
1. Industrial Relations
The Industrial Disputes Act, 1947
Enacted in 1947, the Act extends to worker unions and individual employees employed in any industry across the country. The provisions of this Act are used to settle disputes between employees and their employers or between two employees. The Act, which is used to settle disputes within industrial establishments, aims at maintaining peace and harmony in such establishments in Indian industries.
It is important to note that this Act does not include people in administrative or managerial posts or the Defense forces under its purview.
The Payment of Wages (Amendment) Act, 2017
This Act guarantees the payment of wages to employees by the employer on time without any deductions other than those stated by the Government.
Employers are bound by this Act to provide employees their wages before the 7th of each month if the establishment has less than 1,000 employees or before the 10th of each month if they have more than 1,000 employees.
The Act does not apply to individuals with a monthly salary of Rs 10,000 or more. The Act also states that the payment of wages shall be made to the employee in cash. Should the employee agree in writing, the payment of wages can be made via cheque, DD, or bank transfer.
The Payment of Bonus Act (Amendment), 2007
This Act ensures that all employees get the annual bonus in certain establishments, industries, and factories with more than 20 employees. The amount of bonus is calculated with the profits made by the organisation and the employee’s salary. Employees with a salary of Rs 21,000 or less who are working with the organisation for more than 30 days are eligible for a minimum of 8.33% and a maximum of 20% of bonus.
Minimum Wages Act, 1948
The Act ensures the payment of a minimum wage or salary to both skilled and unskilled workers. Minimum wages are declared at the national, state, district, or occupational level and are determined by the cost of living in a region.
This Act prevents the exploitation of the workforce and mandates the employer to maintain payslips of the wages given to the employee.
3. Social Security
The Payment of Gratuity Rules, 1972
This Act promises gratuity and incentives to the employees working in a particular organisation. The Act applies to all establishments having more than 10 or more employees.
Gratuity is the amount that is deducted from the monthly wages of the employee and provided after the employee completes 5 years in the establishment for the services rendered by them during their employment.
[Suggested Read: Gratuity – Meaning, Formula, Calculation and Taxation Rules]
The Employees Compensation (Amendment) Act, 1923
This Act mandates the employer to inform the employee about his/her compensation before the commencement of employment. They must be informed about the risks, potential losses, and threats to life during employment. Any failure to do so can result in a penalty ranging from Rs 5,000 to Rs 50,000.
[Suggested Read: Salary Breakup – Salary Structure, Format, Calculation & More]
The Employees’ Provident Fund & Miscellaneous Provisions (Amendment) Act, 1952
This Act ensures the social welfare and security of the employee in an establishment and is applicable for establishments with over 20 employees. Both the employee and the employer are required to contribute the same amount to the employee’s provident fund account.
PF is calculated based on the employee’s basic salary and dearness allowance, while food allowance, HRA, bonus, and incentives are not included, and the basic monthly wage is Rs 15,000.
PF is divided into 2 funds: EPF (Employees’ Provident Fund) and EPS (Employees’ Pension Scheme). Following are the PF rates stated by the Government of India:
|Employee’s Contribution||Employer’s Contribution|
|EPF||12% of (Gross – HRA)||3.67%|
|EXEMPTIONS||Not tax-exempt, but eligible for deduction under 80C||Tax exempt|
Any failure of the employer to comply with this Act can lead to a penalty of Rs 10,000 and up to 3 years imprisonment.
The Employees’ State Insurance ESI Act, 1948
The ESI Act ensures several medical benefits to employees in case of sickness, maternity, medical emergencies, and injuries who are employed in non-seasonal factories using power – with 10 or more workers – and factories without power – with 20 or more employees.
All medical benefits are provided to employees who earn up to Rs 15,000 as monthly wages in ESIC hospitals.
The Act is applicable in all states in the country except Manipur, Mizoram, Arunachal Pradesh, and Sikkim, and both the employer and employee are required to contribute to the scheme. The employer and employee percentages are as follows:
|Contribution||% of Gross salary|
Labour Welfare Fund Act, 1965
Labour welfare includes all the facilities for labourers that focus on the welfare of the labourers employed in different industries. The Act ensures that the working conditions of labourers are improved, they get social security benefits, and there is a marked increase in their standard of living.
State authorities enact this while the state labour welfare board determines the amount and frequency of contribution by the employer. For example, some states require an annual contribution by the employer, while some states have a semi-annual contribution requirement.
4. Women’s Benefits
Equal Remuneration Act, 1976
This Act ensures that there is no gender-based parity when it comes to wage payment by the employer, and there is equality in payment of wages to employees irrespective of their gender. Essentially, women must not receive lesser wages than men for the same work due to gender-based discrimination. Any non-compliance with this Act can result in penalties for the employer.
The Act was passed after several women complained of receiving lesser wages than their male counterparts for the same job and is applicable across establishments in the country.
Maternity Benefit Act, 1961
This Act benefits pregnant women employed in establishments across the country. The Act helps them secure jobs by providing certain months of paid leave during maternity to take care of their newborn child. It also ensures that women can come back to their jobs and resume work after maternity leave is over.
They must be working for the organisation for at least 80 days to gain maternity benefits. However, they will only be paid basic wages during this period. The latest amendments to this Act are:
- Prenatal leaves can be applied for up to 8 weeks
- The leave can be claimed when a woman adopts a child under the age of 3 months
- The number of paid leaves has been increased from 12 weeks to 26 weeks
- A provision called ‘work from home’ has also been brought in for women that can be put to use at the end of the 26-week tenure and depend on the nature of work the woman is employed in
- An organisation with more than 50 employees can have a crèche facility for children to enable women to work carefree.
However, women must provide in writing that they will not take up any other employment during the period and provide medical records to prove having delivered a child.
The employer cannot reduce the women’s wages or terminate employment during this period. The employer must reduce the workload 10 weeks before her delivery.
Any deviance from this compliance can lead to women appealing to the responsible authorities, and the employer can be imprisoned for 3-12 months.
Statutory Compliance on tax liabilities
Tax Deducted at Source
Tax Deducted at Source or TDS is a specific percentage of money deducted from the employee’s wage/salary as per the Income Tax Act. This is the most important statutory compliance that employers in India have to adhere to.
Taxes are deducted at the source – from the employee’s wages – and submitted to the Government by the employer. The employee then files a TDS return for the amount of tax deducted from their wage at the source and can get a refund for it as per their tax slab and the tax norms.
Tax liabilities for employees/ individual filers
Employees can claim the benefits of tax exemption upon self-declaration that they have fulfilled the required investments under Form 15G/15H or if an assessing officer validates the exemption.
[Suggested Read: How to Calculate Income Tax on Salary With Example]
Tax liabilities for foreign companies in India
Foreign companies in India are taxed at 40% flat. An additional health and education cess is levied on foreign companies at 4% of the income tax.
If the company’s net income is between Rs 1 crore and Rs 10 crore, an additional cess of 2% of the income tax is also charged. If the net income exceeds Rs 10 crore, the cess becomes 5% of the income tax amount.
Automate Statutory Compliance calculation & filing with RazorpayX Payroll
Since there are innumerable laws and Acts governing companies, the task can become overwhelming for the companies.
RazorpayX Payroll automatically calculates compliances such as PF, PT, TDS, and ESIC and files them for you. All you have to do is sign up.
Other features of RazorpayX Payroll include:
- Automatic salary calculation and disbursement
- Payroll execution in 3 clicks
- Leave and attendance management
- Insightful reports
- Automatic compliance calculation & filings such as PF, PT, TDS