Statutory compliance in payroll

A significant amount of time, effort, and money is spent by an organization to ensure that payroll is compliant through a statutory audit. Every company has faced a frightening number of potential legal issues about compliance, ranging from employee’s fair treatment of labor to protecting the company from unreasonable wage or benefit demands from trade unions or aggressive employees. However, while it may never be a firm’s intention to violate these laws, without the necessary safeguards, it may easily slip under the radar.

What is statutory compliance?

Statutory compliance refers to the legal framework that an organization must adhere to while dealing with its employees. It includes responsibilities that ensure a company is secure from government penal actions, financial losses, and brand defamation while staying fair & just to its employees. To ensure a company is compliant with the dynamic /ever-changing laws of the state, they require a dedicated statutory compliance team.

Why is statutory compliance important?

As previously stated, statutory compliance is a set of rules governing taxation and labor laws in India. These laws differ depending on whether we are talking about state laws, national laws, or laws that apply to union territories (which come under the central government). These laws must be followed by all businesses. Failure to follow these policies may result in fines, penalties, and even other, more serious legal actions. It’s no surprise that businesses of all sizes work so hard to stay compliant.

As a result, all human resource professionals must be well-versed in Indian tax and labor laws. Furthermore, they must remain up to date whenever the statutory compliance policies change.

Need for statutory compliance

Statutory compliance prevents employee exploitation on many levels, from fair labor treatment to timely and accurate payroll. It eliminates excessive overtime, unruly working hours, and working in inhumane conditions. Statutory compliance also ensures that no employee is paid less than the minimum wage.

Failure to follow the rules and regulations may result in financial penalties or even a trial. Businesses, particularly those in the human resources department, cannot afford to ignore statutory compliance. Many companies offer statutory compliance management services, as well as a deeper understanding of the regulatory environment, and specialized services to organizations. They automate the entire process, from the day-to-day maintenance of prescribed forms and registers to the filing of reports and documents.

Advantages of statutory compliance

Ensures that employees are treated fairly.
Ensure that they are fairly compensated for their efforts and that their employer adheres to the minimum wage rate.
Prevents employees from working inhumane hours or under inhumane conditions.
Avoids unnecessary penalties
Defends the organization against unreasonable wage or benefit demands
As the company is fully compliant, it avoids legal issues.

Labor laws of India

Payment of Wages Act, 1936

The Payment of Wages Act 1936 governs the payment of wages to direct and indirect employees in India. The act requires that wages be paid on time and without any deductions other than those authorized by the Act. According to this act, payments should be made before the 7th of each month if the number of workers is less than 1000, and before the 10th if there are more than 1000 workers. Payment must be made in currency notes or coins, according to the act. Cheque payment or credit to a bank account is permitted with the employee’s written consent. (Section 6)

It imposes fines for (Section 8), absence from duty (Section 9), damages or loss (Section 10); a deduction for services provided by the employer (Section 11); recovery of advances and loans (Section 12, 13), and payment to cooperative societies and insurance companies (Section 13).

Minimum Wages Act, 1948

Minimum wage rates in India are set by the Minimum Wage Act of 1948 and are determined by both the Central and Provincial governments. Minimum wage rates can be established and declared at the national, state, sectoral, and occupational levels for any region, occupation, or sector. The minimum wage is determined by taking into account the cost of living.

When determining the minimum wage rate, it is possible to set it for different work classes within the same scheduled employment or different scheduled employments. It can also be set by hour, day, month, or any other period.

Both the Central and State Governments may notify scheduled employments and fix/revise minimum wage rates for these scheduled employments under the Minimum Wages Act.

The Payment of Bonus Act, 1965

Employees in certain establishments, such as factories and establishments employing 20 or more people, are eligible for an annual bonus under the Bonus Payment Act. According to the Act, the bonus is determined by the employee’s salary and the establishment’s profits. The bonus should be paid at a minimum of 8.33 percent and a maximum of 20 percent. It must be paid within 8 months of the end of the fiscal year. Employees who are dismissed due to fraud, misconduct, or absenteeism may be disqualified from receiving bonus payments. Before disqualifying the bonus payment, the employer must ensure that the procedures of domestic inquiry, proper documentation, and employee acceptance of the misconduct are all followed as per the standing orders.

Amendments to Maternity Benefit Act, 1961

MBA was enacted – to regulate employing women in certain establishments during specific periods before and after childbirth, as well as to provide for maternity benefits and other benefits. MBA applies to all government-owned establishments such as factories, plantations, and mines. -To any establishment where people are employed to perform equestrian, acrobatic, and other feats.

Any shop or establishment that is subject to the laws governing shops and establishments in any state and employs or has employed ten or more people in the previous twelve months.

To women who are unable to claim ESIC benefits because their monthly income exceeds INR 3000/-.

This law does not apply to women who are covered by ESIC.

What are the Maternity Benefits?

It pays benefits that a woman can claim during her pregnancy for her prenatal and postnatal absence from work, which will be considered paid maternity leave. This benefit can be claimed by a woman who has worked for at least 80 days in the previous twelve months from her expected date of delivery.

If a woman dies during childbirth or the period immediately following childbirth and the child survives, the surviving child is entitled to full maternity benefits for the duration of the deceased woman’s life. As a result, the employer is required to pay the full maternity benefit.

In case of a child’s death during or after delivery, the benefit must be calculated up to and including the child’s death date.

If the employer does not provide free medical care, the employer must pay the claimant INR 3,500/-. This is effective as of December 19, 2011.

Tax Deduction at Source (TDS)

Individual payments are subject to TDS deduction per the Income Tax Act. It is overseen by the Central Board of Direct Taxes (CBDT), which is part of the Indian Revenue Services (IRS).

When an assessee receives his income, the person who pays him (the deductor) deducts TDS, which is then submitted to the income tax department.

In the following cases, TDS is not required: If the receiver signs a self-declaration in FORM 15G/15H stating that he has made the necessary investments, or if the receiver declares that he does not intend on making such investments.

Equal Remuneration Act, 1976

The Equal Remuneration Act of 1976 provides for equal remuneration for men and women workers performing the same work and prohibits sex discrimination against women in employment, recruitment, and matters connected with or incidental to that. This Act applies to almost every type of establishment.

Shops & Establishments Act

The purpose of the Shop and Establishment Act is to regulate the working conditions of employees in shops and establishments. This includes working hours, rest periods, overtime, holidays, and service terminations, among other things.

Registration must be completed within 30 days of the start of business. Even if no employees are present, the entity must be registered under this act.

An application must be submitted online, along with the fee and scanned documents. The registration is approved by the department within 15 days of successful document submission. The registration certificate is available for download from the portal.

A registration certificate is valid for five years and must be renewed thereafter.

On or before January 31st of the following year, the annual return should be filed online in Form U.

The Employees’ State Insurance Act, 1948

In the case of sickness, maternity, or workplace injury, employees are entitled to certain benefits under the ESI Act. Non-seasonal factories that use power and employ more than ten people, as well as non-power factories and certain other establishments that employ 20 or more people, are covered by the act. All benefits are provided by ESIC hospitals, clinics, and approved independent medical practitioners. Under this act, the monthly wage ceiling has been raised from Rs. 7500 to Rs. 10000.

In case of confinement, miscarriage, or related illness, the act provides women with periodic payments. This only applies to women who are insured. They can also claim maternity benefits worth approximately 70% of their salary.

Employees Provident Fund (PF) and Miscellaneous Provisions Act, 1952

To provide for an employee’s social welfare, the Employee Provident Fund (PF) and Miscellaneous Provisions Act of 1952 was enacted. When a person begins working, they are expected to make monthly contributions to their PF funds. Furthermore, the employer is required to contribute to the employee retirement fund.

This act applies to any factory or establishment that directly or through a contract employs 20 or more people.

The PF contribution is based on the basic wage and the dearness allowance. Food allowance, house rent allowance, overtime allowance, bonus, commission, and so on are not included.

This Act covers a monthly wage limit of Rs.15,000/-.

The employer contribution is calculated at 3.67 percent of the government-set general wage. Employees, like employers, should contribute equally.

The Payment of Gratuity Act, 1972

The Payment of Gratuity Act applies to any shop or establishment where ten or more people are or were employed on any day in the previous year.

The act does not specify a percentage for the amount of gratuity to which an employee is entitled. Employers can use the formula-based approach or even pay more.

Gratuity is determined by two factors:

Last drawn salary
Years of work service

The Payment of Gratuity Act of 1972 divides non-government employees into two categories to calculate the amount of gratuity payable:

Employees who are covered by the Act
Employees who are not covered by the Act

Labor Welfare Fund Act, 1965

Labor welfare refers to all of the services offered to employees to improve their working conditions, provide social security, and raise their standard of living. The Labor Welfare Fund Act, passed by several state legislatures, is solely concerned with the welfare of workers.

Employers, employees, and, in some states, the government all contribute to the Labor Welfare Fund. Each state and union territory has its own (State) Labor Welfare Fund Act and (State) Labor Welfare Fund Rule.

How Does Labor Welfare Fund Help Labourers?

Raising living standards
Providing better working conditions
Providing social security

Applicability of the Labor welfare fund

This fund applies to specific establishments based on the total number of employees, wages earned, and employee designation. All of the parameters are specified in the relevant state legislation.

You don’t need an employment agency, you need a dedicated and responsive statutory compliant team to ensure you are always on the right side of the law – Let’s work together.

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You don’t need an employment agency, you need a dedicated and responsive statutory compliant team to ensure you are always on the right side of the law – Let’s work together.

Conclusion

Statutory compliance is not required solely to avoid fines and legal consequences. Statutory compliance is also essential for keeping your company in good standing with the government, employees, candidates, and clients. Being statutory compliant provides you with a slew of benefits that will assist you in making a long-term impact in the market. You have the added advantage of being one step ahead of your competitors.