Understanding Statutory Compliance in Payroll
15 minutes read

Understanding Statutory Compliance in Payroll

Hello, and welcome. In this blog, we will discuss statutory compliance, its advantages, and a brief look into the major compliances you have to follow. Here is what we will be discussing in this post:



What is statutory compliance?

In India, statutory compliance is laid down by the Government of India for companies to follow. These laws differ at national and state levels. And the unlawfulness of these stipulated regulations leads to legal problems, where you have to pay penalties and fines. It becomes necessary for the companies to have statutory compliance in HR. 
Compliance refers to a legal framework for the companies to adhere to in order to provide welfare for the employees.  Some Acts are – Minimum wages act, Employee Provident Fund (EPF), Employee State Insurance (ESI), and Professional Tax (PT). We look at these and more in the upcoming sections.

Why is statutory compliance important?

To adhere to statutory compliance is significant for employers and employees because of various laws and regulations. If the companies follow the law then then they can avoid facing legal issues, penalties and fines. That’s the reason companies need to pay attention to compliance. And also, it’s necessary to understand the different laws governing a workplace. . Laws are dynamic and keep changing from time to time. Recently, we can observe that, due to the pandemic, many new rules are being regulated by the government. In this blog, we give you a brief introduction to this topic.
Many of the laws are explained in their own blogs, feel free to follow the links to read more about them.

What are the advantages of statutory compliance? 

Advantages of statutory compliance for employees are –

  • Prevent the employees from undesired working hours, exploitations, or harassment.
  • Ensure that they pay for the work of employees that they have done and that the companies adhere to the minimum wages rate.
  •  Ensure that the employees are getting fair treatment in the workplace or not.

Advantages of statutory compliance for companies are – 

  • Avoid legal issues
  • Pre-determined rules could make it easier for the government to collect revenues and taxes.
  • We should be aware of compliance, which can reduce the risk. With statutory compliance, there is less risk of prejudicial incidents.
  • Preserving the companies from unreasonable compensation from the court of law.

List of statutory requirements for the company –

There is a list of statutory compliance that every Indian company follows.
As the company grows in size, a vast range of PF, PT, Leave, Attendance, TDS, ESI, Labour regulations, and other statutory compliance follow.
For Payroll purposes, some of these laws are more applicable than others. And we will be discussing payroll statutory compliance in much more detail in the next section.

List of statutory Compliance

Important Payroll Statutory Compliance

Minimum wages act, 1948 –

The Minimum Wages Act, of 1948 was set up to ensure that fixed minimum wages were payable for different sections of the working classes. Expenses for the medical, educational, and basic living needs of the workers are taken into account while fixing the minimum rateMinimum wages are set at both State and Central levels. In private companies, minimum wages are fixed based on working hours, classification, and place of work.

Employee state insurance (ESI) Act, 1948

This act is a type of social security scheme for the employees and their families. Which aims to provide medical benefits on account of injuries, disability, or sickness for both insurer and their dependents as well as maternity benefits for women. It is applicable for all employees earning Rs.21,000 or less per month as wages. The employer contributes 3.25%, and the employee contributes 0.75% of the total share of 4%. This act is also applicable to non-seasonal workers.

Employees’ Provident Fund Act (EPF), 1952

Provident Fund or PF is a type of social security benefit wherein the benefits are paid in a lump-sum amount at the time of retirement.
In India, it refers to as the Employees’ Provident Fund or EPF and is administered by the Employees’ Provident Fund Organization (EPFO).
Under the EPF scheme, both employers and employees contribute towards the PF.  This contribution from both the employer and the employee will deposit in the EPF account. Both Domestic and International workers can benefit from this scheme.
As the PF Act,  both employers and employees will have to contribute 12% towards the EPF fund. The whole 12% of employees will go into PF whereas only 3.67% of the employer’s share goes into PF and the rest goes into pension scheme up to a limit of ₹1250.

Professional tax (PT) Act, 1975

Profession tax is a type of tax that we pay to the state government. And it is deducted based on your income slab. This tax slab differs for different states. Handled by the payroll manager or payroll system of a company it is. 

Tax deducted at Source – 

Tax deducted at source (TDS) is a direct income tax. It is a mode of collecting tax from various sources of income such as salary, interest income, rental tax, commission, and others by the government. This comes under the income tax act, 1961.
Under TDS, the person who is making the payment is responsible for deducting the tax and depositing the same with the government. These people are known as Deductor. Generally, Companies act as Deductors since they have to deduct TDS from their employees

The Payment Bonus Act, 1965

Payment of Bonus Act, 1965 is a statutory bonus payment that is payable to the employee by the employer whose Basic + DA is equal to or less than 21,000/-.  And the minimum bonus will pay between 8.33% to 20%, as already decided by the company. This act will pay the employee within 8 months from the closing books of the accounting year. 
Payment of gratuity act, 1972, was established so that companies pay the one-time gratuity to the employee at the time of retirement.
 This act will apply to railway employees, factories, coal mining, companies, and shops but, it can also be adopted in any private or public company. It is applicable to employees. Who have completed their 5 years in one company, if they retire or resign.
The formula for calculation of gratuity is:-
Gratuity = (Last Drawn Salary × 15÷26) × No. of Years of Service.

Maternity Benefits Act, 1961

The maternity benefits act refers to the legal frameworks of female employees’ rights. That includes compensation , pay, and certain privileges for pregnant employees from the employer.
This applies to every sector of the female employee, including mines, factories, plantations, and establishments engaged in the exhibition of equestrian, acrobatic, and other performances, irrespective of the number of employees.

As per the latest amendments of the Maternity Benefit Act 2017, maternity leave is increased from 12 weeks to 26 weeks. The pre-natal leave is extended from earlier 6 weeks to 8 weeks and 18 weeks post-childbirth.
To know more about the details of maternity benefits act and special maternity benefits, you can go through our blog.

Equal Remuneration Act, 1976 –

This act provides the payment of equal remuneration to female and male employees for the same work at the same workplace and prevents from the gender discrimination in the case of recruitment, wages, female employment and other cases.

Shop and Establishment Act –

It regulates the employment conditions of workers in shops and establishments, which includes working hours, overtime, leaves, service, terminations, intervals and others.
For this, an employer needs to get registered under this act, and registration needs to be done within 30 days from the date of commencement of business. The registration certificate will be valid for 5 years after that certificate needs to be renewed.

Labour Welfare Fund Act, 1965

The Labour welfare fund act refers to all facilities and benefits of the labourers in order to provide them with social security, improvement in the standard of living and improved working conditions. Labour welfare funds vary for different states & union territories and are contributed by both the employer and employee.

Some more important compliance is –

  • The Payment of Wages Act, 1936
  • The Industrial Disputes Act, 1946
  • The Apprentices Act, 1961
  • The Contract Labour Act, 1970
  • The Industrial Employment Standing Order Act, 1946
  • The Workmen’s Compensation Act, 1923
  • The Trade Union Act, 1926
  • The Factories Act, 1948
  • Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
  • The Child Labour (Prohibition & Regulation Act), 1986.
This is the end of our discussion on statutory compliance. Let’s know your other questions and opinions on this topic. Mention below the comment box.
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