What does Statutory Compliance in India mean?
Statutory compliance is a pre-established set of laws and regulations which every organization must abide by. India has made it mandatory that all organizations must abide all central and state government rules and regulations. However, these regulations may vary according to the type of organization and state except for the central laws. These laws ensure the welfare of both the employer and the employee and play a principal role in creating an organizational culture that is safe, reliable and inclusive.
Advantages of Statutory Compliance
Employee benefits: Government-mandated legislation guarantees all workers receive fair pay without any discrimination, to safeguard the financial well-being of all employees.
Social Security Benefits: Statutory compliance provides social security schemes such as health insurance, provident fund and gratuity among others to provide employees with financial stability and support upon retirement, disability, illness, or other unfortunate circumstances.
Leave Entitlement: Statutory compliance ensures access to various leaves, such as annual leave, sick leave, maternity leave, allowing them to take time off for personal or family reasons without fear of losing their job. According to government regulations, each company must provide a specific number of public holidays to its employees, and no employees should be forced to work during this period. These public holidays, however, can differ depending on the type of establishment.
Appropriate working hours: Statutory compliance imposes limits on working hours, breaks, and overtime pay, which ensures that employees are not overworked and are reimbursed for additional hours.
Smooth business operations: Compliance ensures adherence to rules regarding licenses, permits, certifications, and other relevant papers, which streamlines corporate processes.
Risk mitigation: Compliance aids in reducing the legal and regulatory risks of non-compliance, including reputational harm and operational interruptions.
Helps maintain business reputation: Maintaining legal compliance shows that a company acts morally and responsibly, which improves its standing with stakeholders, clients, employees and the public.
Improved employee satisfaction: Ensuring compliance with labor rules and regulations protects rights of the employees while also ensuring their well-being, promoting a healthy work environment can positively impact employee retention.
What are the major statutory compliance requirements in India?
The major labor laws are classified into four categories, with each category having corresponding laws and regulations. The laws applicable for each organization may differ according to the type of business. The four categories are:
- The Payment of Wages Act- 1936
- The Minimum Wages Act- 1948
- The Payment of Bonus Act- 1965
- The Payment of Gratuity Act-1972
- The Employees Provident Funds and Miscellaneous Provision Act – 1952 (EPF)
- The Employees State Insurance Corporation Act – 1948 (ESIC)
- Labour Welfare Fund Act, 1965
Benefits for women
- The Equal Remuneration Act-1976
- The Maternity Benefit Act-1961
- Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) ACT, 2013
- The Industrial Disputes Act, 1947
- The Industrial Employment (Standing Orders) Act 1946
- The Trade Unions Act, 1926
- Shops and Commercial Establishments Act (S&E)
- The Factories Act, 1948
Major Statutory Compliances: A Detailed Overview
1. The Payment of Wages Act- 1936
The purpose of the Payment of Wages Act is to guarantee timely payment of wages across all industries. While each company has the freedom to select its salary cycle, it must not exceed 31 days in total. According to this Act, the employers are bound to pay the employees within 7 days of the salary cycle if the organization has less than 1,000 employees. In case the organization has more than 1,000 employees, they must be paid before the 10th of each month. This compliance requires the details of each individual employee both monthly and yearly. As manually maintaining such data can be challenging, investing in an HR solution like PayWheel can help maintain the data while ensuring organizational compliance.
2. Minimum Wages Act- 1948
This Act is to ensure that all employees are given fair compensation for their service. These minimum wages are determined by Provincial Governments and the Central Government. This Act guarantees that all workers, both skilled and unskilled, are adequately compensated considering the cost of living. This can differ according to the occupation, sector, state, and national levels. In case of non-compliance, strict legal proceedings shall follow. The wages can be fixed or revised by the Central or State government every year.
3. The Payment of Bonus Act- 1965
The Payment of Bonus Act is applicable to all organizations such as Factories and businesses which have more than 20 employees. However, the establishment must be profitable to be able to provide a bonus to its employees. All employees whose salary (basic+DA) is less than 21,000 and have completed 30 working days in that financial year are eligible for the bonus payment. The maximum bonus payment can be up to INR 7,000.
4. The Payment of Gratuity Act-1972
According to the Payment of Gratuity Act, a particular amount is paid by the employer to an employee who leaves the organization after 5 years of continuous service known as the gratuity. It is the sum paid by an employer to an employee in exchange for services rendered to the company. If the employee is deceased after one year, the sum goes to the nominee.
5. The Employees Provident Funds and Miscellaneous Provision Act – 1952 (EPF)
This Act assures basic social welfare and security for all employees. It is applicable to all establishments with more than 20 employees. It is mandatory for all employees whose salary is (Basic+DA) below INR 15000 to register on the PF scheme. For those whose salary (Basic+DA) is above INR 15000 has an option to opt-out of this scheme. The PF is divided into two categories, EPF (Employee Provident Fund) and EPS (Employee Pension Scheme). The EPF is aimed towards retirement and EPS is a pension scheme. Here both the employer and the employer must contribute equal amounts to the scheme, that is 12% of (Basic+DA). From this 8.33% of the employer contribution goes towards the Employee Pension Scheme.
6. The Employees State Insurance Corporation Act – 1948 (ESIC)
The Employees State Insurance Corporation Act is applicable to any factory or establishment with more than 10 employees and is protected by the Employee State Insurance Act of 1948. All employees under the salary slab of Rs 21,000 or less per month are eligible for ESI, which provides cash and medical benefits to them and their families. This scheme shall cover the medical expenses and the subsequent loss of pay during any medical emergency.
7. Labour Welfare Fund Act, 1965
The Labour Welfare Fund Act aims to secure the general welfare of employees across various industries. It ensures that all employees receive social security payments, to improve the working conditions and the general quality of life. This Act comes under the supervision of the State Authorities. However, it is the State Labour Welfare Board that determines and regulates the amount and time frame of employer contributions which can be annual or semi-annual.
8. The Equal Remuneration Act-1976
The Equal Remuneration Act ensures that there is no gender bias in workspaces especially in case of women across all sectors of the society. This Act assures equal remuneration for equal work for all employees irrespective of their gender. Violation of this Act can result in legal consequences.
9. The Maternity Benefit Act-1961
This Act assures job security for women during the period of their pregnancy. It helps women to retain their professional position after childbirth with additional benefits during the period. The individual must have continuous service of at least 80 days in an organization in order to be eligible for this benefit. Every organization is bound to inform all women employees about the Maternity Benefit Act and the eligible leaves and benefits in written form. This Act is applicable to all establishments with 10 or more employees. This Act provides various benefits such as fully paid leave up to 26 weeks (about 6 months) and flexible work arrangements.
10. Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) ACT, 2013
This Act was enacted to prevent sexual harassment in the workplace and to promote a safe and secure environment for women. According to the POSH Act 2013 any organization with more than 10 employees must have an Internal Complaints Committees (ICCs) in organizations to handle any such complaints regarding sexual harassment. It is also mandated that more than half of total members should be women in the committee. An internal committee must consist of four members:
- A presiding officer must be a woman employed at a senior level.
- Two employees from the organization who are committed to the cause for women or with adequate experience in social work or have legal aspects.
- An external member from an NGO or someone who is well-versed in legal formalities and cases.
11. The Industrial Disputes Act, 1947
The Industrial Disputes Act is applicable to worker unions and individual workman across all sectors, except for administrative/ managerial positions and armed forces. The major motive is to retain peace and harmony in workspaces and to settle disputes by establishing a method and procedure for investigating and resolving industrial disputes through conciliation, arbitration, and adjudication.
12. Shop and Establishment Act
While the general provision of this Act remains same in all states, the rules differ according to each state. The Shop and Establishment Act is governed by the Labour Departments of the individual states. Under the Act, registrations are issued by the individual states. The Act seeks to regulate the payment of wages, working hours, leave, holidays, terms of service, and other work conditions of employees employed in shops and commercial establishments.
Professional Tax (PT)
A professional tax is a state government tax levied on all individuals who generate income through employment and is not limited to salaried employees. Each state has its unique professional tax legislation, but they all use a slab-based structure. In the event of noncompliance, there will be a penalty levied on the individual.
Tax Deducted at Source (TDS)
TDS was established with the objective of deducting tax from the source of income. According to the Income Tax Act, a specific amount according to the tax slab will be deducted from an employee’s wage/salary as the TDS. The employer estimates the total tax for a year and deducts the tax in monthly installments as per the tax slab and remits it to the Income Tax Department (ITD). The employee can subsequently file an Income tax return for tax deducted from their salary at the source and can be eligible for a refund based on their tax slab and tax regulations.
To conclude, adhering to statutory rules in India is essential for all businesses to ensure legal compliance and avoid penalties. Professional legal guidance may also help navigate the intricate compliance framework. Investing in HRMS software like PayWheel can ensure legal compliance by implementing a standard compliance procedure through automated attendance tracking, leave management, payroll, and tax calculations. It can help generate reports for statutory compliance and timely reminders for regulatory filings, avoiding penalties and legal consequences.