A Complete Guide to Statutory Compliance

All business functions in India are controlled by a set of guidelines including payroll. If a business has been actively engaged in payroll work, it would have certainly come across the phrase statutory compliance. Businesses spend a lot of resources, energy, and time to make sure that their payroll is compliant through an appropriate audit.

They often are anxious about confronting legal problems associated with compliance such as hostile employees, unreasonable wage hikes, and pressures from trade unions. Even if a business has no intention of breaking any law, it could face legal setbacks if it doesn’t have a suitable safeguard. This safeguard comes through statutory compliance that ensures businesses avoid the danger of non-compliance. With growing non-compliance risks, it becomes essential for businesses to have statutory compliance.

A Complete Guide to Statutory Compliance
What is Statutory Compliance

What is Statutory Compliance?

Statutory compliance refers to the legal structure within which businesses must work while managing their employees. Each nation has many federal and state labour laws that businesses must follow. Much of a business's endeavour and wealth goes into guaranteeing compliance to these laws which could involve a wide range of matters, such as professional taxes, minimum wage payment to maternity beneficiaries. Consequently, handling statutory compliance demands businesses to be appropriately aware of the numerous labour laws.

These laws ensure the well-being of the business, employer, and employee. Thus, irrespective of its size, all businesses must follow the state and central labour laws. And if any business doesn’t adhere to them, stringent legal action will be carried out against them.

Statutory on Employee Salaries and Benefits

What is Statutory Compliance
1Payment of Bonus Act, 1965
The tradition of giving a bonus in India seems to have begun during the First World War when some textile mills awarded 10% of wages as a war bonus to their employees. The Payment of Bonus Act gives a yearly bonus to workers in some businesses, such as factories and companies that hire over twenty people. Under this act, a bonus is determined according to an employee’s income and the profits earned by the business. Workers who have finished 30 working days and have earned ₹21,000/month or less (basic + DA, excluding other allowances) are entitled to receive the bonus from their individual business.
2Payment of Wages Act, 1936
The Payment of Wages Act guarantees that workers from different industries are compensated on time by having fines for salaries given late by a month. As per this rule, workers must be paid before the 7th of each month for businesses with less than 1000 workers. If a business has over 1000 workers, they must be paid by the 10th of each month. This is not valid for people earning wages of over ₹10000/month. The desired mode of salary disbursements under the act is cheque or cash. Bank transfers are permitted only after permission from employees. The compliance policies and guidelines change from state to state.
3Minimum Wages Act, 1948
The Minimum Wages Act is a key legislation meant to put a stop to the misuse of labour by putting in place a minimum wage rate. The minimum wage differs from state to state or sector to sector as regional governments also have a say in this matter. The common aspects considered before enforcing minimum wages contain the wage period, job type, and cost of living.
4Maternity Benefits Act, 1961
This act shields the occupation of women at the time of their motherhood and gives them full paid time off from work. This act is valid for all businesses with over 10 workers. It’s also a key statutory regulation that businesses must follow. For women to be entitled to the benefit, they should be employed as registered employees in an organization for at least 80 days within the past year. Compensation during the period of leave is centered on the median daily wage for absence. This act will be valid for businesses, together with mines, factories, government establishments, plantations, shops and institutions under the appropriate applicable legislation, or any other organization controlled by the union government.
1Labour Welfare Fund Act, 1965
The Labour Welfare Fund concentrates on the well-being of workers employed in certain industries. It offers services to the labour force to enhance their working environments, deliver social security, and improve their living standards. The statutory payments for Labour Welfare Fund are overseen by specific state agencies. The state labour welfare board establishes the quantity and frequency of the provision, and it varies from state to state. In certain states, the payment is made each year, while in other states, the contributions take place every six months.
2Employees Provident Fund Act, 1952
The Employee Provident Fund and Miscellaneous Act is a public welfare contribution for all workers employed in the country. Under this act, both the worker and the employer pay 12% of the Dearness Allowance (DA) and basic pay to the worker's retirement coffer. Under Section 80C of the Indian Income Tax Act, a worker's payment towards their PF account is considered suitable for tax exemption that leads to a greater take-home wage for workers.
3Employee State Insurance Act, 1948
The Employee State Insurance Act intends to support employees conquer unanticipated situations, such as maternity leave, disability situations linked to the workplace, and medical emergencies. For every paycheck, the company pays 3.25% and the worker adds 0.75%. ESI is compulsory for businesses that have people working in a non-seasonal factory with over 10 workers, but only for people who are paid below ₹21,000 per paycheck. Since ESI is relevant only to people who earn no more than ₹21000, you must constantly verify the appraisal cycle to substantiate that the worker has not exceeded ₹21,000. Once the worker earns more than ₹21,000, the payments towards ESI must continue until the end of the payment cycle. Each cycle lasts six months, from October to March or April to September.
4Payment of Gratuity Act, 1972
Along with EPF, gratuity is a huge contributor to employees’ aid and is an essential statutory regulation for businesses. Gratuity is provided by the company to their workers for the services provided during their employment. A worker is eligible to obtain gratuity only if they have accomplished at least 5 years of service for a company. There is no set proportion specified by law for the sum of gratuity a worker is expected to obtain. The company can make use of a formula-based method where the gratuity amount is contingent on two aspects.
  • Years of service
  • The worker's last drawn salary

Statutory on Social Security

Statutory on Social Security

Statutory on Tax Liabilities

Statutory on Tax Liabilities

TDS (Tax Deducted at Source)

Tax Deducted at Source is a key statutory regulation that all businesses must adhere to. It was launched to accumulate tax from the source of a person's income. TDS is valid on different income types like salaries, commissions, and interests. All employees are taxed at a unique tax rate subject to their pay. With the most recent union budget pronouncements, workers in India can select between two tax regimes.

Importance of Statutory Compliance

Following statutory compliance in hr is mandatory for all organizations, big and small, to keep their businesses protected from any legal action. A thorough understanding of statutory compliance is essential to lower the risk with respect to non-compliance of statutory obligations.

In the competitive world of business today, it is difficult for organizations to handle statutory compliance without a decent payroll management solution. All nations have their own types of compliance obligations, but we will be focusing on the statutory obligations for the Indian payroll system.

There are several statutory obligations for Indian businesses, and they have to devote a substantial amount of time to payroll management to make sure that they comply with all legal guidelines. If businesses do not follow statutory compliances, they could face severe penalties that are often many times more than conforming to the legal regulations.

Each nation has its own set of payroll regulations, and compliance is a must for business owners operating in that nation. Keeping an immaculate compliance history can help businesses in several ways. It can accelerate business growth within the nation as you build trust with the authorities. It also demonstrates that you understand how to take care of your workers well by obeying the labour laws.

During instances of non-compliance, there is much at risk for businesses, such as hefty penalties and a tainted brand name. Consequently, adhering to statutory compliance entails businesses being well-aware of labour regulations where they operate.

If statutory compliance is not properly adhered to, it could lead to the following consequences:

  • A shutdown of the business if a violation goes to an extreme level
  • Revocation of fiscal benefits
  • Penal charges against the directors or officers of the business
  • Negative impact on the business‘s productivity
  • Civil and criminal liabilities
  • Loss of customer loyalty
  • Imposition of fines
  • Loss of faith in the business’s stakeholders and investors
  • Termination and deferment of operational licenses
  • Loss of the business’s integrity, reputation, and goodwill
  • Work stoppage

What are the Benefits of Statutory Compliance?

1

Superior worker retention

If a business adheres to statutory compliance, the workers are assured that they will enjoy a fair, dedicated, and secure working ecosystem in the business. Statutory compliance in HR unit implies that the business will offer an employee-friendly working environment, and the business can settle any issue with respect to employment or labour. A business must conform to all its employment and labour law obligations for inculcating confidence among workers that the business is concerned about their well-being. This will develop a wholesome work setting that will lead to passionate and reassured employees.

2

Greater business prospects

If a business invests in substantial compliance management systems, it can encourage and sustain its goodwill easily. As a result, the business will be in a better bargaining position at the time of negotiations, and it can guarantee business contracts. Businesses that invest in advanced compliance regime can attain more investments for enhancing business prospects and opportunities.

3

Improvement in quality

If a business follows statutory compliance, it will ultimately boost the quality of its services and products. Statutory compliance in hr will allow the business to concentrate on its primary business activities instead of needlessly spending capital and time on paying fines, causing the intensifying of offences, punitive liabilities against its directors, retaining the talented workers or defending the litigation. With statutory compliance, a business can avoid obvious risks that can arise due to non-compliance. It will ensure that the business avoids failures at an early stage, thereby ensuring superior efficiency in business processes.

4

Deterrence of legal consequences

Compliance with essential statutory obligations will aid businesses in preventing the unavoidable consequences of non-compliance such as work stoppages, lawsuits, revocation of licenses, debarment of officers, payment of fines, incarceration of officers and total closure.

5

Enhanced business operations

After a business is effective in observing all relevant statutory compliance obligations, it sets free time and resources for concentrating on its underlying business activities and R&D that ensures better business operations. With safe business operations, the firm attains extraordinary growth in its business.

6

Boosting employee confidence

If a business follows statutory compliance, it substantially enhances its goodwill. Such a firm manages to positively impact employee performance, while non-compliant businesses often fail to demonstrate their dedication to business ethics. Upright and gifted employees are attracted to completely compliant businesses. These businesses can easily improve employee morale, leading to low attrition rates, superior productivity, and overall better business efficiency.

7

Brand loyalty

The primary stakeholders and investors of a business will be satisfied that the business considers hr statutory compliance as a top priority if it establishes effective compliance management procedures to achieve compliance with key statutory requirements. A suitable agreement reveals a business's expertise and awareness about pertinent regulatory obligations along with its commitment to ethical principles.

8

Risk management

All businesses face substantial risks when it comes to finance, strategy, procedure, reputation, compliance, and operation. Healthcare and Finance are particularly regulated sectors, and they normally have to deal with compliance threats that go up when such businesses expand to international shores. A business can avoid a number of legal hassles if it adheres to statutory compliance mandates. Statutory compliance will help businesses avoid and cope with compliance risks.

9

Better public relations

If a business is completely compliant, it will gain from better PR. Statutory compliance reassures the business's employees, customers, investors, and stakeholders that the business will forever stick to ethical business standards.

10

Competitive differentiation

Businesses that follow statutory compliance will offer a competitive edge over rival companies. It will help them produce exceptional outputs and lower compliance-related risks.

Statutory Compliance in India and its Components

Statutory Compliance in India and its Components

Based on the vertical and form of business, there are several labour laws that a business must comply with. For instance, to protect the social security industrial workers, there’s the Shops and Establishments Act and the Factories Act. Here’s a list consisting of all the major labour laws:

  • The Workmen’s Compensation Act, 1923
  • The Trade Unions Act, 1926
  • The Industrial Employment Standing Orders Act, 1946
  • The Industrial Disputes Act, 1946
  • The Payment of Wages Act, 1936
  • The Employees’ State Insurance Act, 1948
  • The Minimum Wages Act, 1948
  • The Factories Act, 1948
  • The Apprentices Act, 1961
  • The Employees Provident Fund & Miscellaneous Provisions Act, 1952
  • The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
  • The Payment of Bonus Act, 1965
  • The Contract Labour (Regulation & Abolition) Act, 1970
  • The Payment of Gratuity Act, 1972
  • The Equal Remuneration Act, 1976
  • Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
  • The Child Labour (Prohibition & Regulation Act), 1986

Frequently Asked Questions

1Is statutory compliance different for different organizations?
Statutory compliance for a partnership firm, private limited company, LLP, or any other sort of business doesn’t change. Each business that employs workers and pays them wages must act as per the common labour laws.
2What are the types of statutory compliance?

The different types of statutory compliance are as follows:

  • Corporate Legal Compliance Services
  • HR Compliance Services
  • Payroll & Tax Compliances
  • Labour Compliance
3What is the need for statutory compliance?
Adhering to statutory compliance is mandatory for all firms to keep their businesses secure from any legal hassle. A detailed understanding of statutory compliance is vital to reduce the risk of non-compliance.
4What constitutes statutory compliance in India?
The pre-defined lawful structure within which any given company must operate. This structure is termed statutory compliance. Essentially, the company must help their employees in a manner that is in accordance with the state and central labour laws.
5Why is statutory compliance important?
Statutory compliance laws guarantee the well-being of the business, employer, and employee. Thus, regardless of its size, all businesses must follow the state and central labour laws.

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