Statutory Compliance in HR

Published on: January 20, 2022

Ma Foi provides expert guidance and support to ensure statutorily and payroll compliance in India. Our experienced team offers comprehensive solutions to ensure your HR and payroll processes meet legal and regulatory requirements. Trust Ma Foi to help you navigate the complexities of compliance and avoid legal risks. Contact us today to learn more about our statutory and payroll compliance services.

    When there are no policies to stick to, employees are free to do anything and everything, eventually bringing down problems for businesses and the company. Without a set of rules and regulations, it becomes impossible for an organisation to function smoothly. The same is the case with payrolls. The organisation has to guarantee that the employees receive fair treatment with wages. And this is where statutory compliance comes to the rescue.

    What is Statutory Compliance?

    statutory compliance in hr
    The term "statutory" pertains to rules and regulations, while "compliance" refers to adhering to them. Therefore, statutory compliance can be defined as the act of following and adhering to the rules and regulations established by statutes.

    What is Statutory Compliance in HR?

    statutory compliance in hr
    Statutory compliance in HR pertains to the legal framework that an organization is obligated to follow when managing its employees. In India, all organizations must ensure strict adherence to the diverse labor laws established by both the central and state governments. These laws have been meticulously crafted and implemented, taking into consideration the well-being of employees, employers, as well as the organization.

    Need for Statutory Compliance in HR in India?

    statutory compliance in hr
    Statutory compliance is crucial in HR in India as it ensures that organizations comply with the legal framework and regulations when engaging with their employees. Adhering to these rules and regulations can prevent legal troubles and fines, which can be significant depending on the scale of non-compliance. The need for statutory compliance in HR in India arises due to several reasons:
    • Legal Requirement: Compliance with various laws and regulations related to employment, such as the Employee State Insurance Act, Provident Fund Act, Payment of Gratuity Act, Minimum Wages Act, and others, is mandatory for organizations operating in India. Non-compliance can lead to legal penalties, fines, and reputational damage.
    • Protection of Employees' Rights: Statutory compliance ensures that employees' rights are protected and that they are provided with benefits such as social security, minimum wages, and other entitlements.
    • Maintaining Ethical Standards: Compliance with labor laws and regulations ensures that organizations maintain ethical standards in their HR practices and do not exploit employees.
    • Avoiding Legal Risks: Non-compliance with statutory requirements can expose organizations to legal risks and legal action by employees, labor unions, and regulatory bodies.

    Does it differ among organisations?

    statutory compliance in hr
    Statutory compliance remains the same for organisations of any size, as every enterprise must follow its rules and regulations. It is done to maintain the security of the employee in the company. Here are a few labour acts in India that require a list of company statutory compliance The Workmen's Compensation Act of 1923, The Trade Unions Act of 1926, the Payment Of Wages Act of 1936, the Industrial Employment Standing Orders Act of 1946, and more.

    How has the pandemic affected Statutory Compliance?

    statutory compliance in hr
    The COVID-19 pandemic has greatly affected India's statutory regulations for companies. Here are some ways in which the pandemic has involved it:
    1. Modifications to deadlines: The pandemic has caused multiple statutory compliance dates to change. For instance, July 31, 2020, was the deadline for submitting income tax returns for the fiscal year 2019–20 and later had been extended to November 30, 2020.
    2. Updates to compliance requirements: Changes in compliance standards in some sectors have also been brought on by the epidemic. To lessen the financial strain on businesses during the epidemic, the Employees' Provident Fund Organisation (EPFO) permitted companies to decrease the payment to the EPF from 12% to 10% for May, June, and July 2020.

    Statutory Compliance in HR made easy

    statutory compliance in hr
    The central or state government puts forward a legal structure to regulate business functioning surrounding the payroll, known as statutory compliance. The layout of statutory compliance ranges from ensuring the security of employees' minimum wages to continuing the business. Statutory compliance in HR means the rules and regulations the company must adhere to while dealing with its employees. In simple terms, statutory compliance means agreeing with the terms and rules. Any organisation failing to keep up with these terms face strict legal actions.

    The importance of Statutory Compliance in Payroll

    Statutory Compliance
    The government of India offers many employee welfares acts such as minimum wage, women and child employment acts, and health and safety acts. It also provides company welfare acts like a trade union and provident fund. There are several laws related to payroll as well. It is given to have statutory compliance for an unwrinkled organisational operation. Before creating the company’s own set of compliance, it should have a thorough knowledge of the country’s laws regarding employee benefits. Then, the regulations are monitored during a statutory audit, where the book of accounts presented by the organisation is compared with the audit checklist to note the organisation's honesty. Payroll compliance in India is an essential aspect of ensuring smooth organizational operations. Statutory compliance in payroll covers various aspects, including but not limited to tax regulations, labor laws, and social security regulations. For instance, compliance with tax regulations ensures that employees' taxes are appropriately deducted and deposited with the government. Compliance with labor laws ensures that employees' rights are protected, and they are treated fairly. Compliance with social security regulations ensures that employees receive benefits such as health insurance, pension, and gratuity. Non-Compliance with statutory regulations can lead to penalties, interest, and legal proceedings. For example, non-compliance with tax regulations can result in penalties, interest, and prosecution under the Income Tax Act, 1961. Non-Compliance with labor laws can lead to fines, imprisonment, and civil proceedings. Non-compliance with social security regulations can result in penalties and interest. Payroll Compliance in India is a crucial aspect of statutory compliance for organizations as it helps them comply with legal frameworks and regulations, prevents legal troubles and fines, enhances reputation, and builds trust with employees. Compliance covers various aspects, including tax regulations, labor laws, and social security regulations. Non-compliance can lead to penalties, interest, and legal proceedings.

    Some Acts in India that calls for statutory compliance

    Statutory Compliance in India
    Some of the rules and regulations, more formally acts, that are mandatory to have HR compliance in India to avoid penalties like disqualification and confiscation of license are:
    • Social security acts
    The payment of the Gratuity Act of 1972 - This act ensures incentive and gratuity benefits to employees in various sectors, including government and private sectors. Every month, a specific percentage of an employee’s wage is deducted and is made accessible only after the employee’s retirement, known as gratuity. It only applies to employees who have worked for a certain company for five or more years. Under section 4 (1), the act makes an exception if an employee is disabled or dies. In cases like these, the gratitude is paid, even if the 5-year service to the company was pending. However, employees are not eligible for a gratuity for plantations or ports in Jammu and Kashmir. The civil service employees under the State and Central also do not get the advantage. Gratuity depends on the years of service and the last withdrawn salary. It is calculated using the following technique: Basic + DA/26 x Number of years of service x 15. When an employee serves a company for more than six months, it is rounded off to a whole year, and if it is less than six months, it is considered equivalent to zero.  
    • Employees
    There are two crucial employee benefit acts: The employee’s compensation act of 1923 - the employees’ compensation act safeguards employees or their families by providing financial assistance during critical injuries or death at risk-involving tasks. Section 17(A) states that the employees and employers should be transparent with themselves while assigning these tasks and should mention the risks and compensations involved in accident cases. The Employees’ Provident Fund of 1952 - ensures the employees' social security. Any organisation with more than 20 employees is entitled to the act. In their employment years, the employees hand out a certain amount of their salary to the provident fund. In addition, the organisation invests in provident funds as well. After the employees’ retirement, the Employee Provident Fund offers social security to the employees. This provident fund has two parts: the employees’ provident fund and the employees’ pension scheme. Monetary penalties and interest on the delayed payment are imposed on the employer if they fail to keep up with the act.  
    • Industrial relation
    The minimum wages act of 1948 states that the organisation pays a minimum wage to skilled and unskilled labourers, including the most basic livelihood. The minimum wage is fixed according to the amount of work an employee does, along with other factors like skill, duration of employment, etc. The stipend is revised with time.  
    • Women
    The two important women's benefit acts are the Maternity benefit act of 1961. This act regulates women's employment before and after childbirth and provides maternity benefits such as paid leaves after a child is born. A time-off administration system or a written employee application helps guarantee these regulations. The act ensures that the employee should have no problem rejoining her services after her maternity leave. For all shops, establishments, government or private, with more than ten employees, contracts this act. For this act to be deemed valid, the employee should have worked for at least 80 days in 12 months. Another important act is the Equal Remuneration act of 1976, which ends the gender-biased payment scheme in organisations. Not sticking to the regulations of this act can result in serious fines and penalties to the employer. Men and women should be paid the same for the same nature and amount of work.

    Challenges faced in Statutory Compliances

    Statutory Compliances
    The challenges faced are:
    • Organisations sometimes do not have the expertise to manage compliance solutions.
    • Of the current lockdown conditions, several companies faced losses in different forms. The penalties charged remain unaltered for situations like these.
    • Manual maintenance of more than 100’s compliances in a company is humanely impossible, resulting in several errors.

    Is GST statutory compliance?

    Statutory Compliances
    The Goods and Services Tax (GST) must be paid to the government in India. Due to replacing numerous indirect taxes, including service tax, VAT, import duty, and others, a singular GST tax system has significantly altered how companies function in India. All companies in India with yearly revenue of more than Rs. 40 lakhs and Rs. 20 lakhs (special category states) must comply with the GST. Registered companies must adhere to various GST rules and regulations, submit quarterly GST reports, and keep accurate records of their transactions.

    Benefits of Statutory Compliance for the company

    Statutory Compliance for the company
    1. A company’s stature is maintained when a company invests in compliance management, which ensures more significant investments in the company.
    2. Payroll compliance means attracting professional, skilled, expert employees into your system. In addition, the promise to offer a healthy and safe work environment will result in satisfied employees and, thus, a better brand name. 
    3. HR compliance improves the quality of an organisation’s products and services. When the company’s focus shifts from clearing penalties to its main business activities, it benefits.
    4. The company’s customers, employees, and stockholders are better maintained if compliance is maintained.

    Benefits of Statutory Compliance for Employees

    Statutory Compliance for Employees
    1. An employee receives bonuses based on the profits gained by the organisation. 
    2. Retired employees are eligible for monthly money saved throughout their work period through provident funds.
    3. The professional tax is deducted before giving out the salary to an individual, which varies monthly.

    Key takeaways

    In 2023, statutory compliance remains a critical aspect for organisations navigating the complex landscape of labour laws and regulations. Organisations must stay up to date and ensure compliance as governments introduce new laws and policies to avoid legal ramifications. Ma Foi Business Consulting is a prominent consulting company that provides various HR consulting services, including statutory compliance services. They aid by offering professional advice, evaluation, documentation, training, and auditing. This can assist businesses in completely adhering to all applicable labour laws and regulations, avoiding penalties and legal obligations, and maintaining good relations with their workforce.

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