Statutory Compliance of rules and regulations in payroll & HRMS is a grave legal matter for both employees and the organization’s social security. The Indian Government has declared various regulations and acts to process employee payment. Every company is liable to follow these rules to avoid legal consequences. Whether to follow it or not might be a company’s individual decision, but it may have some severe implications.
The word statutory can be defined as ‘enacted by statute’ or ‘regulations’, and compliance means ‘agreement’. Combining Statutory Compliance forms agreement of regulations’ or ‘to follow regulations’.
Statutory compliance adherence provides a great deal of security, starting from employees’ minimum wages to the company’s business existence. Every country develops its own set of rules for organizations to follow, that adds up every year. Organizations put a lot of effort and money to adhere to these laws. However, it is not possible for every organization, especially SMEs, to invest a lot of money in this.
Statutory Compliance in HR is important, as seen from both employee and employer’s perspective. Indian Government provides employee benefit acts like industrial relations, minimum wages, social security, women and child employment, health and safety, and organization benefit acts like provident fund, trade union, ESI, professional tax, etc. We will further check all the details of these acts. These acts can vary from state to state and country to country. In India, these acts sometimes change for every state, but not necessary.
Non-agreement to such laws implicate legal consequences on business existence, that is why business representatives put a considerable amount of money, time, and people to adhere to these laws. Additionally, they also seek laws and finance taxation expert’s advice. To be a statutory compliant company, you must practice an efficient way to minimize these risks and update them with these laws.
Every type of organization, whether private, LLP, partnership-based, which provides a salary to their employees, must stick to these laws to avoid reputation and business threats during any statutory audit.
These regulations are checked during the statutory audit. A Statutory Audit is an inspection mandated by law to ensure the books of accounts presented by organizations are true according to the statutory audit checklist finalized.
1. Ensures minimum wages and equal remuneration to men and women
2. Fair treatment to employee and betterment of industrial relations
3. Help avoids inhuman conditions of work and guarantees workplace health and security
4. Provides social security through compensation and incentives
1. Protection to the organization’s existence
2. Protection against illegal wage demands from trade unions and employees
3. Maintains the organization’s reputation and client engagement
4. No risk of fines and penalties
1. Financial threat and losses
2. Arouses employee conflicts and trust issues
3. A warning to the organization’s existence
4. Client’s trust issues for the organization
Take a look at some of the central government deployed rules for organizations who employee workers. If you find this rules are overwhelming you can consider using factoHR payroll software, which will help you streamline and automate all of the payroll and statutory compliance processes.
Labour laws in India for private companies are the same throughout and don’t change for a specific company.
Rules regarding HR compliance are distributed to specific sectors:
1. Industrial Relations
2. Women Benefits
3. Social & medical security
The industrial disputes act, enacted in 1947, to make provisions for investigating and settling disputes between employee-employee or employee-employer. The main objective of this Act is to ‘maintain peace and harmony in work culture in Indian Establishments.’
This Act applies to the whole Indian nation, including establishments for business, trade, manufacture, and distributions. However, it does not encircle persons in the managerial or administrative field and persons subject to Army, Air force, and Navy.
As the name suggests, the Equal Remuneration Act encloses a gender-based payment equality policy of industrial. It ensures uniform payment to the employees irrespective of men or women to avoid gender bias. It came into the picture because payment given to women was lower than that of men, though the work amount being the same. Non-compliance with this Act can implicate serious fines and penalties.
Provisions under this Act include 1. Not to reduce employees’ salary to adhere to the Act 2. For the same nature and amount of work, no discrimination is allowed for women. 3. During the formation of an advisory committee that works to increase employment opportunities for women, work hours and its nature shall consist of half women members.
The maternity benefit act was passed in 1961. Therefore, an appropriate leave management software helps HR ensure such laws. It also provides them certain months of paid leaves during their maternity to take care of the child. After maternity, she can continue with her job without any disturbance of made leaves.
This Act applies to all establishments like factories, shops, private and Government sectors with ten or more employees. During her maternity, she will be paid based on average daily wages. But to gain this benefit, she must be working for an organization for at least 80 days within the past 12 months.
Further amendments of this Act in 2017, guarantees
1. Increased amount of paid leaves during maternity ‘ leaves are increased from the existing 12 weeks to 26 weeks.
2. Leave for adoption ‘ women can leave for adopting a child below the age of 3 months and the commissioning mothers.
3. Work from home option ‘ women, can now continue her work directly from her home with no leave requirements and is comfortable to her
4. Crèche facility ‘ Crèche facility is available for children where an organization is employing more than 50 employees.
Payment of gratuity act guarantees benefits like gratuity and incentives to the employees working in railways, mines, factories, ports, oilfields, shops, and private sectors.
A certain amount is deducted from monthly wages and further provided after an employee’s retirement, offering monetary help, called gratuity. Gratuity is allowed to an employee who has given continuous service for at least five years for a particular organization. As per section 4(1), gratuity is mandatorily payable for employee death or disablement, even though five years of service is pending. Under section 4(3), the maximum gratuity amount an employee is beneficial for is Rs. 20,00,000, and is liable to tax for gratuity amount more than stated.
According to section1(2), state Jammu and Kashmir are not liable for this Act for plantation or ports. As per section1(3-A), in case the employee rate somehow drops below 10 for an establishment, the employer must not request for reducing gratuity. Under section2(e), this Act doesn’t apply to apprentices or civil service employees under the Central and State government.
Gratuity depends on the years of service and the last drawn salary and is calculated according to the formula
Gratuity = Last drawn salary *number of completed service years * 15/26
According to the above formula, the service year with more than six months will be considered one full year, and less than six years will be regarded as zero years.
For example, a service period of seven years and eight months will be eight years, and a service period of six years and four months will be six years.
Many services involve hard work, risk of losses, critical injuries, or even death.Employees’ compensation act, enacted in 1923, protects an employee or his/her dependents through compensation during any conditions mentioned above.
According to Section 17A, every employee must be well-informed about his compensations at the time of joining by the employer. Failure of such tasks may result in penalties and fines of Rs. 5000 to 50,000 as imposed by Government, under section 18A.
The statutory provident fund act is issued for the social security of the employee. Employees’ Provident Fund Act is liable for any establishment employing more than 20 employees. To make this possible, every employee during his/her employment contributes some amount from their salary to the Provident Fund. Even their employer is also required to contribute to this fund. Companies can also invest in the provident fund solution to manage their employees’ funds. This fund then ensures social security after employees’ termination or retirement. EPF of every corresponding employee must be deducted from his/her salary and filled before the PF return due date, which is the 15th of each month.
Employees’ PF calculation is based on basic salary and DA. Other allowances like HRA, overtime allowance, incentives, etc. are not included under this. The basic wage covered in this is Rs. 15,000 monthly. PF divides into two funds; EPF (Employees’ Provident Fund) & EPS (Employees’ Pension Scheme). Consider the following PF rates declared by the government:
|EPF||12% of Gross||3.67%|
Any failure in this Act may lead to 3 years of imprisonment and a penalty of Rs. 10,000. Apart from EPF, other provident fund meanings and types include
SPF – Statutory Provident Fund
SPF is only meant for employees who are enrolled in Government and Semi-government enterprises.
UPF – Unrecognized Provident Fund
Started by employers or employees in any organization, UPF is not a government-approved scheme.
PPF – Public Provident Fund
Whether an employer or not, PPF scheme that is savings-cum-tax-savings options, is open to every Indian citizen
Employees’ State Insurance act ensures absolute medical security, including sickness, maternity, and injuries for employees working in non-seasonal factories, including power with more than ten employees and non-power and other establishments with more than 20 employees.
The wage limit covered under this Act is Rs. 21,000 per month. This Act applies to all states except Manipur, Sikkim, Arunachal Pradesh, and Mizoram. Benefits can be availed through ESIC online appointment for hospitals, clinics, and practitioners.
Both employee and the employer contributes to the ESI scheme on ESIC payment portal and ESI Percentage contributions made to the same are
|Contribution||% of Gross pay|
TDS or Tax Deducted at Source is a certain amount of money deducted from the employee’s payment as an account of income tax to lower the tax evasion afterward. Employees can file a TDS return for the deducted tax, which they can get refunded.
Let us see the tax liability for employees under the new tax regime for the financial year 2022-23. For individuals aged less than 60 years, applicable tax slabs and tax rates as per existing and new tax regimes are as follows.
|Existing Tax Regime||New Tax Regime u/s 115BAC|
|Income Tax Slabs||Tax Rate||Income Tax Slabs||Tax Rate|
|Up to ₹ 2,50,000||Nil||Up to ₹ 2,50,000||Nil|
|₹ 2,50,001 – ₹ 5,00,000||5% above ₹ 2,50,000||₹ 2,50,001 – ₹ 5,00,000||5% above ₹ 2,50,000|
|₹ 5,00,001 – ₹ 10,00,000||₹ 12,500 + 20% above ₹ 5,00,000||₹ 5,00,001 – ₹ 7,50,000||₹ 12,500 + 10% above ₹ 5,00,000|
|Above ₹ 10,00,000||₹ 1,12,500 + 30% above ₹ 10,00,000||₹ 7,50,001 – ₹ 10,00,000||₹ 37,500 + 15% above ₹ 7,50,000|
|₹ 10,00,001 – ₹ 12,50,000||₹ 75,000 + 20% above ₹ 10,00,000|
|₹ 12,50,001 – ₹ 15,00,000||₹ 1,25,000 + 25% above ₹ 12,50,000|
|Above ₹ 15,00,000||₹ 1,87,500 + 30% above ₹ 15,00,000|
To discover about tax slabs and rates applicable to individuals between the age of 60 to 80 years and above 80 years, click here.
Tax exemption can be availed under two conditions
1. If ensured with a self-declaration that he/she has fulfilled the required investments under form15G/15H
2. If an assessing officer provides certification of validation.
TDS will be certified form generation of specific form every year
1. Form 16 for the employee’s salary.
2. Form 16A for other than salary.
3. Form 16B-TDS on the property sale.
Payment of wages acts guarantees payment of employees on time without any deductions other than stated by the government authority. Though this doesn’t apply for employees having Rs. 24,000 wage per month.
Under section 4, every person responsible for payment of wages must fix the duration for payment, and that should not exceed above a month. Meaning, an employee can be paid daily, weekly, fortnightly, or monthly. Under section 5, for a railway, industry, or other establishments with less than 1000 employees, it must process the payment till the 7th of the subsequent month, which exceeds 10th of the month for establishments with more than 1000 employees.
According to section 5(2), if an employee resigns or is removed, his/her salary must be paid within two days of termination.
Payment of bonus act ensures annual bonuses to be paid for employees in establishments, including factories with more than 20 employees. The yearly bonus is calculated based on the employees’ salary and profit of the establishment. Any employer ensures that the bonus paid must be a minimum of 8.33% and a maximum of 20%. Employees with salary 21,000 Rs. Or less are eligible for a bonus after working for 30 days in an establishment.
Bonus payment must be provided within eight months from the financial year closing. This bonus must only include basic and DA and should exclude other allowances.
For employees caught up in frauds, misconduct, or absenteeism, the establishment is not liable to pay the bonus.
The Minimum Wages Act, enacted in 1948 by the Indian Parliament, states that it provides minimum wages/salary to skilled and unskilled laborers. The Constitution has defined a specific living wage that includes primary livelihood, including health, food, comfort, education, and dignity.
This Act provides for fixing the wage rate for every establishment. Criteria for following under this Act include
1. Working hours for a typical day would consist of 1/2 working hours per day must have one to two break/rest intervals. 1/2 at least one week off to be given to the labor. 1/2 per day wage must not be any less than given overtime rate.
2. For any employee working for a task that includes more than one employments must be given salary based on each task’s working hours.
3. The employer is permitted to maintain records of the payslips and wage structure of a particular employee.
Under the Act, the Government may notify the employer to revise or fix minimum wages. It includes two methods of fixation/revision
1. Committee Method
Government formulates committee and sub-committee that inquires and recommends minimum wages.
2. Notification Method
The Government publishes an official date in the Official Gazette before all advice and recommendations must be collected.
factoHR, a Payroll solution provider, guarantees entirely statutory compliance for payroll, so you don’t need to seek expert advice to adhere to the Government’s latest rules and regulations.
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