Statutory Compliance – Everything You Need To Know : Introduction
In India, organizations invest time and efforts to rest assured that the company’s payroll is compliant as per the required proper laws and regulations. Legal problems are amongst the major concerns for an organization.
These compliances are not necessarily violated with an intent to do so, most of the time the violation is a result of loopholes that occur within the organization. Non-compliance poses a constant threat to business ventures, which is the reason why keeping up with statutory compliance becomes a necessity.
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What is Statutory Compliance?
Statutory compliance can be understood as a pre-defined legal framework. This legal framework acts as the boundary within which the organizations must function. When the policies, protocols, or activities of an organization fail to stay within the limits of statutory compliance, they end up violating the laws and invite legal trouble.
Statutory compliance presents guidelines that provide a basic discourse with laws that protect the interests of the employees working in an organization. These laws are formulated by Central and State Labour Laws.
They are aimed at maintaining a balance between the employee, the employer, and the organization. Irrespective of the size of the organization, every enterprise is required to abide by these laws.
Benefits of Statutory Compliance
Statutory compliance offers benefits to the major components of an organization i.e. – the employee, the employer, and the organization itself.
Given below are some of these benefits –
Benefits for employees
Statutory Compliance ensures that the employees receive fair treatment and get paid on time. It looks after the work conditions and healthy work environment for employees.
Benefits for the organization and the employer
Statutory Compliance upholds clarity in terms of defined rules and regulations. This allows the organization and the employer to conform to them and save themselves from legal penalties.
Statutory Rules in India
Given below is the list of Statutory Rules that a company must embrace in India –
- Shops and Commercial Establishments Act (S&E)
- The Employees Provident Funds and Miscellaneous Provision Act – 1952 (EPF)
- The Employees State Insurance Corporation Act – 1948 (ESIC)
- The Professional Tax Act (PT) 1975
- The Labour Welfare Fund Act (LWF) 1965
- The Contract Labour (Regulation & Abolition) Act – 1970 (CLRA)
- The Child Labour (Prohibition & Regulation Act), 1986
- The Minimum Wages Act-1948
- The Payment of Wages Act-1936
- The Payment of Bonus Act-1965
- The Maternity Benefit Act-1961
- The Payment of Gratuity Act-1972
- The Equal Remuneration Act-1976
- The Industrial Establishment (N&FH) ACT 1963
- The Employment Exchange ACT-1959
- Sexual Harassment of Women at Workplace ACT, 2013
- The Employees Compensation ACT-1923
- The Industrial Employment ACT 1946
- The Industrial Disputes ACT 1947
- The Apprentice ACT, 1961
- The Interstate Migrant Workmen ACT, 1979
- The Factories ACT, 1948
- The Trade Unions Act, 1926
Significant terms related to Employee Compensation :
TDS deduction
TDS stands for Tax Deducted at Source.
It is reduced by the employer from the employee’s income. Components like HRA, Special allowance, Leave travel allowance, Children’s education allowance, Medical allowance and Investments affect the amount of TDS deducted.
As per the guidelines laid down by the income tax laws 2020, an employee gets the freedom to choose from the old and new tax regimes. Depending on this choice, the tax deduction is made from their income.
What is PF?
PF stands for Provident Fund.
It is a mandatory contributory fund that is collected for the future of the employees after they retire or leave their job. In case of the sudden demise of the employee, the fund is handed over to their family.
The Statutory Compliances associated with PF contribution are:
- EPF (Employee Provident Fund)
- EPS (Employee Pension Scheme)
Any company that has an employee count of twenty or more, requires to be EPFO-compliant.
What is PT?
PT stands for Professional taxes.
Professional Taxes are the taxes that are imposed by the state government. Every state has its own laws for administering the professional tax. The common factor amongst all states is their slab-based system.
Professional tax is mandatory for all individuals who are employed. In case of non-compliance to PT, a penalty is imposed by the state on the non-compliant party.
What is Gratuity?
Gratuity is the term for the amount that is given to employees by an employer when they quit the job. The condition for an employee to expect gratuity is that they must complete five years of service in the company before leaving the job.
To calculate Gratuity one can use the following formula-
Gratuity = (Basic + DA) divided by 26 x Number of years of service x 15
The Minimum Wages Act, 1948
As the name suggests, the Minimum Wages Act aims at standardizing the minimum wage rates in all Indian companies. The minimum wage is determined by both the Provincial Government and the Central Government. These wagers can get established for any sector, occupation, or region.
The Minimum Wages act assures that competent and incompetent laborers are paid enough to meet their basic ends and sustain a livelihood. It majorly acts as legal protection against labor exploitation.
The Shops and Commercial Establishments Act (1953)
The Shops and Commercial Establishment Act intends to bestow rights and statutory commitments to employers and employees. This act is to be conformed by employers and employees who are involved in shops and business ventures that pertain to the unorganized business sector.
This act requires compulsory registration of the commercial venture or shop within 30 days of starting with their work.
Conclusion
Statutory compliance aims at providing protection and ensuring well-being for the employees, the employer, and the organization. In India, these compliances associate with numerous labor and taxation laws mentioned above in the article.
These laws are declared by the State and Centre, and change at the discretion of the same. It is important for business organizations to conform to these laws and protect themselves from legal penalties issued on non-compliance to the same.