For an organization to function smoothly, it needs to be streamlined, organized and must have proper rules and regulations in place. These regulations extend to every aspect, including how the organization interacts with its employees. This is referred to as statutory compliance. In human resources, statutory compliance relates to the legal framework within which companies must operate in the treatment of their employees.
For dealing with statutory compliance, organizations need to be well-aware of all the existing labour laws. Here is a look at some of rules and regulations in place:
Source: labour.gov.in/sites/default/files/Central%20Labour%20Acts_0.pdf
The intent behind establishing various rules and regulations is to ensure that employees’ interests are safeguarded and they in no way are exploited. This in turn helps establish employee loyalty. Companies failing to adhere to the specified rules and regulations run the risk of facing legal issues, which can lead to them facing heavy implications on the bottom line of the business. Penal actions can be taken against organizations that wilfully fail to oblige to the framed rules and regulations. It can thus be said that companies undertaking a proactive approach to statutory compliance almost always, have an efficient, safer and more trustworthy environment.
The Minimum Wages Act, 1948, is "an Act to provide for fixing minimum rates of wages in certain employments." This Act sets out the minimum wages that must be paid for skilled and unskilled labourers. Not only does it guarantee money for workers’ bare livelihood, it also covers educational and medical requirements. The Minimum Wages Act is administered by both the Central and State Governments. The State Government fixes minimum wage rates for various classes of employees, makes rules and looks over claims relating to non-payment of minimum wages. Payment below the minimum wage rate is regarded as forced labour.
Every employer that pays salary to employees is required to deduct TDS under Section 192 of the Income Tax Act, 1961, when the salary is greater than the maximum amount exempt from tax. Employers need to ensure that Form 24Q and Form 16 are generated in a timely manner. TDS is required to be deducted by the employer before releasing payment to an employee. The amount deducted in the form of TDS needs to be deposited with the government before the 7th of the subsequent month. This is applicable for all months except March, for which the last date is on the 30th of April. In case TDS has not been deposited by the due date, the following penalties will apply - late filing fee (if it has not been filed by the deadline), interest (if it has not been deposited on time) and penalty (if it has not been filed within a year of the due date).
ESI scheme is applicable to all factories and other establishments, as defined in the Employees' State Insurance Act, 1948, with 10 or more persons employed in such establishments. Additionally, persons employed for wages up to Rs. 21,000 a month are only covered under the ESI scheme. Similar to ESI, the Employees Provident Fund (EPF) is also a contributory fund, in which both the employer and employee contribute a certain sum. EPF is a mandatory and contributory fund for Indian organizations under “The Employees’ Provident Fund and Miscellaneous Provisions Act 1952”. The employer’s contribution is 12% of basic wages, plus dearness and retaining allowances. For establishments with below 20 employees, according to the EPFO rules, the contribution rate for the employer is limited to 10%.
Given that professional tax is levied by the state government, the amount varies in different states. Each state has its own laws governing professional tax. However, all the states do follow slab system based on the salary or wage while levying professional tax.
In case of violation of professional tax regulations, penalties follow. Although the actual penalty amount or penal interest depends on the respective state’s legislation, penalty is imposed by all states for failing to register once professional tax legislation comes into effect. There are also penalties for payments not made by the deadline as well as for failing to file the return by the specified due date.
Gratuity is a form of benefit paid by an employer to an employee for services rendered in the organization. Gratuity, however, is only payable to employees who have finished five or more years with the firm.
The employer shall arrange to pay the amount of gratuity within thirty days from the date it is payable to the person. In case the employer fails to pay out the amount within the period specified, the employer will have to incur simple interest on it from the date that gratuity becomes payable at the rate not surpassing which is stipulated by the government.
Employees Deposit Linked Insurance Amendment Scheme or EDLI is applicable to all establishments and factories where the EPF & MP Act, 1952 applies. The EDLI scheme provides the families of employees with income security in the event of the demise of the employee.
Under this scheme, if in any organization group term insurance scheme is not available to the employees, the employer has to contribute 0.5% of monthly basic pay as premium for the life cover. Every employer is responsible for ensuring that the employees are subscribed for the EPF scheme.
Statutory compliance, in human resources, relates to the legal framework within which companies must operate in the treatment of their employees.
Compliance refers to observing and acting in accordance with a rule or regulation.
Compliance audit refers to a comprehensive review of an organization's adherence to a set of regulatory guidelines.
The intent behind undertaking a compliance audit is to determine how well an organization is following applicable policies, rules and regulations.
A compliance auditor ensures that an organization adheres to all the regulations in place that are relevant to the business. At the time of examining transactions, the compliance auditor has to assess whether the item being examined is in accordance with the established standards.
Compliance audit procedure deals with all the steps taken to review business functions. It involves determining whether or not an organization has been able to meet regulatory, contractual or predetermined requirements.
