In India, all business functions, including payroll, are governed by a set of guidelines collectively referred to as statutory compliance. Any business actively engaged in payroll operations is likely familiar with this term. Ensuring payroll compliance involves substantial resources, energy, and time, often requiring thorough audits to avoid legal issues.

Businesses frequently worry about the legal challenges associated with non-compliance, such as dealing with hostile employees, managing unreasonable wage demands, and facing pressures from trade unions. Even businesses with no intent to break the law can face legal troubles if they lack proper safeguards. Statutory compliance provides these safeguards, helping businesses steer clear of the risks associated with non-compliance. Given the increasing risks, it is crucial for businesses to maintain statutory compliance.

What is Statutory compliance?

Statutory compliance refers to the legal framework within which businesses must operate while managing their employees. Every nation has its set of state labour laws that businesses must adhere to, ensuring compliance with these laws involves addressing various matters such as professional taxes, minimum wage payments, and maternity benefits. Consequently, businesses must be well-informed about numerous labour laws to handle statutory compliance effectively.

These laws are designed to protect the interests of the business, the employer, and the employees. Regardless of its size, every business must comply with both state and central labour laws. Failure to adhere to these laws can result in severe legal actions against the business.

Read more:(Need and Importance Of Statutory Compliance)

Payment of Bonus Act, 1965

The Payment of Bonus Act mandates that certain businesses, such as factories and companies with more than twenty employees, provide an annual bonus. This bonus is calculated based on the employee’s income and the business’s profits. Employees who have worked for at least 30 days and earn ₹21,000 per month or less (basic + DA, excluding other allowances) are eligible to receive this bonus.

Payment of Wages Act, 1936

The Payment of Wages Act ensures that workers across various industries are paid on time, imposing penalties for delayed salaries. According to this act, employees in businesses with fewer than 1,000 workers must be paid by the 7th of each month. In businesses with over 1,000 workers, salaries must be disbursed by the 10th of each month. This provision does not apply to individuals earning wages exceeding 24,000 per month. While the preferred methods of salary disbursement under this act are cheque or cash, bank transfers are allowed only with the employees’ consent. Compliance policies and guidelines may vary from state to state.

Minimum Wages Act, 1948

The Minimum Wages Act is a crucial piece of legislation aimed at preventing the exploitation of labour by establishing minimum wage rates. These rates vary by state and sector, as regional governments have a say in setting them. Factors considered when determining minimum wages include the wage period, type of employment, and cost of living.

Maternity Benefits Act, 1961

The Maternity Benefits Act protects the employment of women during their maternity period and provides them with fully paid leave. This act applies to all businesses with more than ten employees and is an important statutory regulation for employers to follow. To be eligible for these benefits, women must have been employed as registered employees for at least 80 days in the past year. Compensation during the leave period is based on the average daily wage for the days of absence. This act covers businesses including mines, factories, government establishments, plantations, shops, institutions under relevant legislation, and any organization under the control of the union government.

Statutory on Social Security

Labour Welfare Fund Act, 1965

The Labour Welfare Fund focuses on the well-being of workers in certain industries, aiming to enhance their working environments, provide social security, and improve their living standards. Statutory payments for the Labour Welfare Fund are managed by specific state agencies, with the state labour welfare board determining the amount and frequency of contributions. These contributions vary by state, mandating contributions every Quarter / Half Yearly and Annual Payments.

Employees Provident Fund Act, 1952

The Employees Provident Fund and Miscellaneous Act is a public welfare initiative for all workers in India. Under this act, both employees and employers contribute 12% of

• Basic wages;
• Dearness allowance;
• Retaining allowance; and
• Cash value of any food concession

but does not include the following:

• Cash value of any food concession;
• Dearness allowance, house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable in respect of employment;
• Present made by the employer

Contributions made by employees towards their Provident Fund (PF) account qualify for tax exemptions under Section 80C of the Indian Income Tax Act, resulting in a higher take-home pay for workers.

Payment of Gratuity Act, 1972

Gratuity, alongside the Employees Provident Fund, is a significant statutory benefit provided to employees. It is a lump-sum payment made by employers to employees in recognition of their service. To be eligible for gratuity, an employee must have completed at least five years of service (4 year 240 days in case of 6 working days per week, 4 year 190 days incase of 5 working days per week) with the same employer. The amount of gratuity is not fixed by law but is typically calculated based on the employee’s length of service and their last drawn salary.

Importance of statutory compliance

Adhering to statutory compliance in HR is crucial for all organizations, regardless of their size, to protect their businesses from legal repercussions. A comprehensive understanding of statutory compliance is essential to minimize the risks associated with non-compliance.

In today’s competitive business environment, managing statutory compliance can be challenging without an effective payroll management solution. Each country has its own set of compliance obligations; here, we will focus on the statutory obligations within the Indian payroll system.

Indian businesses face numerous statutory obligations and must dedicate significant time to payroll management to ensure they comply with all legal requirements. Failure to follow these regulations can result in severe penalties, often far exceeding the costs of compliance.

Every nation enforces its own payroll regulations, and business owners must adhere to these laws to operate within that country. Maintaining a flawless compliance record can offer various benefits, including fostering business growth and building trust with regulatory authorities. It also shows that the business values its employees by adhering to labour laws.

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

 Benefits of statutory compliance

Adhering to statutory compliance requirements not only protects a company from legal penalties but also promotes sustainable business growth. Here are some of the key benefits of statutory compliance:

• Safeguarding employee interests: Implementing company policies and regulations in line with government-mandated statutory compliance helps ensure a secure work environment. Additionally, adhering to labour laws and employment regulations guarantees fair and professional treatment of employees.
• Minimizing legal penalties: One of the primary advantages of following statutory compliance is the reduction of legal penalties and lawsuits. By ensuring that all aspects of the statutory compliance checklist are met, a company can maintain smooth and uninterrupted operations.
• Establishing policies: Statutory regulations provide a framework for creating company policies and regulations that align with industry standards. By basing company policies on HR compliance, an organization can ensure long-term business efficiency.
• Improving public relations: A company that consistently follows regulations related to customers, employees, stakeholders, and investors can maintain strong public and customer relationships over time. Compliance helps build trust and a positive reputation.
• Managing business risks: While financial, operational, and strategic risks are inevitable in any organization, statutory compliance helps mitigate these risks. It prevents legislative challenges and provides a safeguard against potential legal issues.

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 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

TalentPro is committed to maintaining the highest standards of statutory compliance in India. By adhering to all relevant laws and regulations, we ensure that our clients remain compliant and risk-free. Our comprehensive services include the meticulous management of payroll, taxation, labor laws, and other statutory requirements. Through continuous monitoring, updates, and expert handling of compliance matters, TalentPro guarantees a seamless and efficient compliance process. We remain dedicated to providing reliable and accurate compliance solutions, safeguarding our clients against potential legal challenges and fostering a culture of compliance excellence.

TalentPro proactively manage HR compliance, mitigate risks, and foster a workplace culture that prioritizes fairness, transparency, and employee well-being.