What is Statutory Compliance in Payroll?| Akrivia HCM

Statutory Compliance – What Does It Mean for HR and Payroll?

What is compliance?

India has a network of laws and statutes that every organisation must comply with. Statutory Compliance means that all actions that an organisation takes must adhere to the provisions set by the law. Therefore, processing employees’ payroll and social security benefits must also comply with the relevant laws. The employer’s treatment of the organisation’s employees should also obey the relevant state and central labour laws. Non-compliance would invite penalties, fines, and legal action against the organisation. Following the tenets of the labour laws is beneficial to the employer, employee, and the organisation.

Why Is Statutory Compliance Important in Payroll?

Statutory compliance is important from both the employer’s and the employee’s perspectives. Many labour are laws created for the employee’s benefit, such as the Industrial Relations Act, Women and Child Safety, social security, minimum benefits, Health and Occupational Safety, etc. Non-compliance with any of the above-mentioned laws means that the Government of India will take action that may threaten the company’s legal existence.

The HR departments and employers have the legal responsibility to ensure legal compliance with these laws. The Government of India conducts statutory audits periodically to ensure and verify such compliance. To maintain their corporate existence and avoid all legal hassles, companies should, as a matter of course, ensure complete compliance.

How Statutory Compliance Benefits Both Employees and Employers?

For the employee

  • Assures minimum wage and equal employment opportunities to men and women
  • Protects employees’ social security through benefits and compensation
  • Fosters better industrial relations and fair treatment of employees
  • Guarantees workplace health and safety and good working conditions

For the employer

  • Prevents:
    • Punitive action, fees, and penalties for non-compliance
    • Financial threats and losses
    • Adverse incidents at work and civil and criminal liability
    • Negative impacts on productivity
    • Withdrawals of fiscal benefits
  • Protects:
    • The organization is against unreasonable/illegal wage hike demands and other demands from trade unions and employees.
    • The organization’s reputation by maintaining employees’ and clients’ trust in it as a fair organization
  • Encourages the management to maintain organizational integrity
  • Mitigates risks and ensures increased awareness about compliance

Statutory Compliance Checklist in HR-2022

list of statutory compliance acts.

The list of important Acts which affect an organization and its HR function is enclosed below:

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

Statutory Compliance Rules and Regulations in India – 2022

Key Provisions of Statutory Compliance in India:

  • Payment of Wages Act 1936: This Act administers the payment of proper wages to both direct and indirect employees. This essentially monitors that all wage payments are timely without any unauthorized deductions. There are some important conditions under the Act:
    • Wage payments are made on the 7th of the month if fewer employees are lower than 1000.
    • Wage payments before the 10th of the month if the number of employees exceeds 1000.
    • The wage period cannot exceed one month.
    • Wage payments can be made in cash only with the employee’s express consent. Otherwise, they must be credited to the employee’s bank account.
    • The fines and penalties for workers who transgress the law are also listed.
  • Minimum Wages Act 1948: State and central government have the authority to set the minimum wages for workers under the ambit of this law.
    • Minimum wages are set by profession, region, and sector.
    • The minimum wage considers the cost of living.
    • It can be set for different scheduled classes for each employee and by the hour, day, or month.
    • Minimum wages are decided by sub-committees and committees or notification method.
  • Payment of Bonus Act 1965: This is the payment of an annual bonus to employees earning less than Rs 21,000 in an establishment and who have completed 30 working days in the financial year. This applies to all organizations with more than 20 employees on their salary payroll and the profits earned by the establishment. The bonus rates may range from 8.33% to 20%. It should be paid within eight months of closing the accounting year.
  • Tax Deduction at Source(TDS): All employees’ salaries are subject to TDS unless they submit a Form 15G/Form 15H that they have made tax-saving investments. The TDS income tax slabs are as follows:
Income Tax Slabs  Old Tax Regime  New Regime 
  Citizens below 60 years  Senior citizens above 60 years  Super senior citizens above 80 years  All categories 
Rs 0–2.5 lakhs  No Tax  No Tax  No Tax  No Tax 
Rs 2.5–3 lakhs  5% rebate under Section 87 a  No Tax  No Tax  5% rebate under Section 87 a 
Rs 3–5 lakhs  5% rebate under Section 87 a  No Tax 
Rs 5–7.5 lakhs  20%  20%  20%  10% 
Rs 7.5–10 lakhs  20%  20%  20%  15% 
Rs 10–12.5 lakhs  30%  30%  30%  20% 
Rs 12.5–15 lakhs  30%  30%  30%  25% 
Rs 15 lakhs and above  30%  30%  30%  30% 

It is the responsibility of HR departments in organizations to make the deductions and make payments to the Income Tax department.

  1. The Maternity Benefits Act of 1961 (amended in 2017): Two acts – the Maternity Benefits Act of 1961 and the Employees State Insurance Corporation (ESIC) Act of 1931 – govern the payment of maternity benefits to pregnant women. This Act applies to women employed by the government in any sector, shops, and commercial establishments where more than ten people are employed.
  2. Employee State Insurance Act 1948: ESIC Act applies to companies that have more than 20 employees and draw a salary exceeding Rs 21,000. The employer and employee pay 4.75% and 1.75%, respectively. Such employees are covered under the ESIC Act. This covers pre-natal and post-natal absence (maternity leave) from work, considered paid medical leave. Wages paid include 26 weeks of payment during such leave. The woman employee should have worked for 80 days during the preceding calendar month to be eligible. Medical records should be provided regarding the birth of their child. If free medical care is not provided to the employee, the employer has to pay Rs. 3,500 as a medical bonus to the employee as stated in the amendment to the Act as of 19.12.2011.
  3. Labour Welfare Fund Act of 1965: This Act applies in 16 Indian states to provide social security to employees. It is determined by the wages, designation, and the total employees working. The application for the Act also differs from the specific Act in each state.
  4. Equal remuneration Act, 1976: The Equal Remuneration Act, 1976 mandates paying equal salaries for the people who work in the same position and share the same responsibilities without discriminating based on gender. This Act was constructed to secure women from bias because they used to get less remuneration, and men used to get more salary than them. Every type of organization must follow this Act.
  5. Shops & Establishments Act 1953: The Shop and Establishment Act controls the employment conditions of workers in shops and other commercial establishments. It covers such issues as weekly and daily working hours, rest periods, overtime rates, holidays and leaves entitlements, compensation for unfair dismissal, etc. An entity must register within 30 days of beginning business, and the company must register under this Act even if it has no employees. The companies must apply for it and submit with fee and required documents. The application process takes 15 days to complete. 
  6. EPF and Miscellaneous Provisions Act, 1952 : The Employees’ Provident Fund Act was issued to ensure social security for employees. The Act applies to any establishment employing more than 20 people, requiring each employee to contribute some portion of their salary to the fund. Additionally, the employer must also contribute. Companies can manage their employees’ funds with the EPF solution. This fund ensures social security after an employee’s termination or retirement by depositing contributions into an account.
  7. The payments of Gratuity Act 1972 : Gratuity is the sum of money provided by the employer to the employees for their productive work when they retire or leave after 15 years of continuous job.  If companies have more than ten employees, they must follow the Payments of Gratuity Act, 1972. The amount of gratuity depends on basic salary, years of work and the days in a month.

The formula of gratuity for 2 conditions are:  

        1. Companies covered under the Act 

        Gratuity amount= (15 x last drawn salary x tenure of working)/26  

       2. Companies not covered under the Act.  

       Gratuity amount= (15 x last drawn salary x tenure of working)/30 

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