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Statutory Compliance in India: A Detailed Overview

What is Statutory Compliance?

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.

Rules and Regulations

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:

The Minimum Wages Act, 1948

The Payment of Wages Act, 1936

The Payment of Bonus Act, 1965

The Equal Remuneration Act, 1976

The Trade Unions Act, 1926

The Industrial Employment (Standing Orders) Act, 1946

The Industrial Disputes Act, 1947

The Weekly Holidays Act, 1942

The Factories Act, 1948

The Plantation Labour Act, 1951

The Mines Act, 1952

The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996

The Motor Transport Workers Act, 1961

The Beedi and Cigar Workers (Conditions of Employment) Act, 1966

The Contract Labour (Regulation and Abolition) Act, 1970.

The Bonded Labour System (Abolition) Act, 1976

The Sales Promotion Employees (Conditions of Service) Act, 1976

The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

The Cine Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981

The Dock Workers (Safety, Health and Welfare) Act, 1986

The Child Labour (Prohibition and Regulation) Act, 1986

The Working Journalists and Other Newspapers Employees (Conditions of Service) and

Miscellaneous Provisions Act, 1955

The Working Journalists (Fixation of rates of Wages) Act, 1958

The Employees’ Compensation Act, 1923

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

The Employees’ State Insurance Act, 1948

The Maternity Benefit Act, 1961

The Payment of Gratuity Act, 1972

The Unorganized Workers’ Social Security Act, 2008

The Building and Other Construction Workers Cess Act, 1996

The Mica Mines Labour Welfare Fund Act, 1946

The Cine Workers Welfare (Cess) Act, 1981

The Cine Workers Welfare Fund Act, 1981

The Limestone and Dolomite Mines Labour Welfare Fund Act, 1972

The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare (Cess) Act, 1976

The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labor Welfare Fund Act, 1976

The Beedi Workers Welfare Cess Act, 1976

The Beedi Workers Welfare Fund Act, 1976

The Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988

The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959

Source: labour.gov.in/sites/default/files/Central%20Labour%20Acts_0.pdf

What is the Need for Statutory Compliance?

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.

Statutory Requirements for Minimum Wages

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.

TDS Deduction

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).

Statutory Compliances for ESI Fund and PF Deduction

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%.

Professional Taxes

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

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.

EDLI

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.

Frequently Asked Questions

What is meant by statutory compliance?

Statutory compliance, in human resources, relates to the legal framework within which companies must operate in the treatment of their employees.

What does compliance mean in law?

Compliance refers to observing and acting in accordance with a rule or regulation.

What is compliance audit?

Compliance audit refers to a comprehensive review of an organization's adherence to a set of regulatory guidelines.

What is the purpose of compliance audit?

The intent behind undertaking a compliance audit is to determine how well an organization is following applicable policies, rules and regulations.

What is the role of compliance auditor?

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.

What is compliance procedure?

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.