Statutory Compliance – The Blueprint to Payroll Compliance in India
When there are no policies to stick to, employees are free to do anything and everything, which eventually rains down problems on business and the company as a whole. Without a set of rules and regulations, it becomes impossible for an organization to function smoothly.
The same is the case with payrolls. The organization has to guarantee that the employees receive fair treatment with wages. And this is where statutory compliance comes to the rescue.
Statutory Compliance in HR made easy
The central or the state government puts forward a legal structure to regulate business functioning surrounding the payroll. It is statutory compliance. In simple terms, statutory compliance means agreeing with the terms and regulations.
The layout of statutory compliance ranges from ensuring the security of minimum wages of employees to the continuation of the business.
Statutory compliance in HR means the set of rules and regulations that the company has to stick to while dealing with its employees. Any organization failing to keep up with these terms face strict legal actions.
The importance of Statutory Compliance in Payroll
The government of India offers many employee welfare 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 organizational operation.
Before creating the company’s own set of compliance, it should have a thorough knowledge of the country’s laws about employee benefits. Then, the regulations are monitored during a statutory audit where the book of accounts presented by the organization is compared with the audit checklist to note the honesty of the organization.
Some Acts in India that calls for statutory compliance
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 is only applicable to employees who have worked for a certain company for 5 or more years.
The act makes an exception under section 4(1) 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 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 banks on the number of 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.
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 social security of the employees. Any organization 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 organization 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 again: 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 – this act states that the organization pays a minimum wage to the skilled and unskilled laborers that include the most basic livelihood. The minimum wage is fixed according to the amount of work an employee does along with other factors like skill, the duration of employment, etc. The wage is revised with time.
The two important women benefit acts are:
Maternity benefit act of 1961 – This act regulates the employment of women 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 application from the employee helps to 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 the span of 12 months.
Equal Remuneration act of 1976 – this act puts an end to the gender-biased payment scheme in organizations. 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
The challenges faced are:
- Organizations sometimes do not have the expertise to manage compliance solutions
- For 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 100s of compliances in a company is humanely impossible, resulting in several errors.
Benefits of Statutory Compliance for the company
- A company’s goodwill is maintained when a company invests in compliance management, which ensures more significant investments in the company.
- 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.
- HR compliance improves the quality of an organization’s products and services. When the company’s focus shifts from clearing penalties to their main business activities, the company is benefitted.
- The company’s customers, employees, and stockholders are better maintained if compliance is maintained.
Benefits of Statutory Compliance for Employees
- An employee receives bonuses based on the profits gained by the organization.
- When employees retire, they are eligible for a monthly sum of money saved throughout their work period in the form of provident funds.
- The professional tax is deducted before giving out the salary to an individual, which varies monthly.
Sustaining an error-free compliance record can benefit the company in legal terms. In addition, creating confidence with the government helps an organization maintain a good brand name and growth within the country and overseas.
That’s the reason why companies put a lot of time and effort into creating compliance that employees should adhere to. These compliances should be updated from time to time to keep up with the laws of the state.