Business in India is synonymous with the need to understand compliance and be compliant as non-compliance could be a showstopper any time. Whether it is statutory compliance or Labor law compliance, a structured approach towards compliance would result in a better bottom line with sustained growth. Compliance should be viewed as a dynamic item of cost, rather than a passive charge on the profits. A superior operational finesse is needed to achieve this goal.
For any enterprise wanting to become compliant with minimally invasive resources, outsourcing compliance may become the key to success. Whether you are a team of 20 or 500 or more employees, the importance of Labor Law compliance is obvious and outsourcing to the right partner will ensure systematic compliance and back you with insights into Labor Law compliance.
What is Statutory Compliance?
Statutory compliance, in HR, refers to the legal framework within which organizations must operate, in the treatment of their employees.
Every country has several hundreds of federal and state labor laws that companies need to align with. This list is forever being added to.
A lot of your company’s effort and money goes into ensuring compliance to these laws which could deal with a range of issues; from the payment of minimum wages to maternity benefits or professional taxes.
Therefore, dealing with statutory compliance requires for companies to be well versed with the various labor regulations in their country of operation.
What is the Need for Statutory Compliance?
Adhering to statutory compliances is necessary for all big and small companies in the world to keep their businesses safe from the legal trouble. A deep knowledge of statutory compliances is required to minimize the risk associated with the noncompliance of statutory requirements.
In today’s competitive and legal business world, it is very challenging for employers to manage statutory compliances without good payroll management software. Each country has various kinds of compliance requirements. This blog discusses the statutory requirements for Indian payroll system.
There are a number of statutory requirements for Indian companies and companies have to spend a significant amount of time in their payroll management to ensure that they are compliant with the legal regulations. If companies fail to adhere to statutory compliance, they may have to face heavy penalties, which are several times more than complying with legal guidelines.
The Statutory Compliances Required for Indian Payroll
The common statutory requirements that companies have to follow for their payroll management in India are:
- Statutory requirements for Minimum wages
This act provides for fixing minimum rates of wages for skilled and unskilled laborers. It not only guarantees money for bare minimum survival requirements of workers but also takes care of education, medical requirements, and some level of comfort of workers.
The Minimum Wages Act being a state subject, the statutory compliance of a centralized Payroll management is to cater for the payment of minimum wages to an organization’s workers spread out across different states. Payment of ‘Overtime’ wages to workers is also a statutory requirement as per the Factory Act & Payment of Wages Act. It affects sectors like manufacturing & construction.
- PF (Provident Fund)
The Employees’ provident Fund 1952 is enacted to provide a kind of social security to the industrial workers. The Act is applicable for every employee employed in an factory or in connection with the work of a factory or other establishment covered by the schemes other than an excluded employee is entitled are required to become a member of the fund from the date of joining the factory or establishment.
This amount is later paid to the employee after retirement, death or any such cases where the employee is not able to work. Contribution under this scheme:
- Employees: 12% on Basic + DA
- 67% on Basic + DA
- Administrative Charges : 1.10% on Basic +DA 31 Jan 2015
- 33% on Basic + DA
(It is to be noted that the employer shall not contribute above Rs. 15000 /- of the pay of employee per month[AM1] .)
- The Employer contribution of 12% of the salary of employees is to be paid as under:
- 67% to be remitted in Account No.1 (Employees Account)
- 33% to be remitted in Account No.10 towards pension fund
- In addition to 12% of the employer has to remit 1.61% paid as under
- 10% Administrative charges in Account No.2
- 5% EDLI in Account No.21
- 01% Inspection charges in Account No.22
- Legal Formalities To Be Followed:
- Declaration Form no.2 has to fill up by new joiners at the time of joining and submitted to RPFC office.
- Monthly contribution of Employer & Employee Qualification in Challan for previous month has to be submitted in SBI before 15th of every month.
- Return of Employees Qualifying Form no. 5 has to be submitted in RPFC office before 15th of every month.
- Return of Employees Leaving Form no. 10 has to be submitted in RPFC office before 15th of every month.
- Monthly return Form no 12A has to be submitted in RPFC office before 25th of every month.
- Annual return & reconciliation statement Form no 3A & 6A has to be submitted in RPFC office before 30th of April.
- Transfer of PF A/c Form no. 13 has to be fill of new recruit and submitted to RPFC office.
- Final settlement Form no. 19, 10c & 10D has to be fill at the time of leaving the service and submitted in RPFC office.
- ESIC (Employee State Insurance Company):
ESIC is a self-financing security and health insurance scheme for all Indian workers. For employees earning ` 15000 or less per month, the employer contribute 4.75 % and the employee contributes 1.75 % with a total contribution of 6.5 %. The ESIC scheme provides medical benefit for employees and their families. Sickness and maternity benefits for employees. The ESIC scheme also provides dependents benefit for dependents in case of death due to employment injury.
Forms to be used under ESIC Schemes:
- Form No. 1: ESI Declaration form for New Entrants.
- Form No. 1B: Changes in Family declaration
- Form No. 72: Application for Duplicate Card
- Form MRO 266: Application form for change of Name / Year of Birth of insured person Woman
- Form No.6: ESI half yearly return
- ESI Challans: Within 21 days from the case of every Month.
- Form 37: For registering with Local ESI doctor
- Profession Tax:
Profession tax is the tax charged by state government of India. Every Indian earning income in the form of salary or any other profession has to pay profession tax. Profession tax slab differ from state to state in India. However, not all state impose tax. The following states have levied Professional tax – West Bengal, Karnataka, Telangana, Andra Pradesh, Maharashtra, Gujarat, Tamil Nadu, Chhattisgarh, Assam, Kerala, Orissa, Meghalaya, Tripura, Bihar, Jharkhand and Madhya Pradesh. The owner of the business has to furnish a return to the tax department within a specific time in the prescribed format. The return should also include tax payment proof.
Gratuity is a part of salary received by employees form their employers as gratitude for the services performed by the employee in the employment tenure. It is one of the many retirement benefits that employers give employees at the time of leaving the company.
- Every mine, port, oil plantation factory and railway company
- Every shop or establishment – employing 10 or more persons in the previous year.
- To any other establishment – employing 10 or more persons.
Payment of Gratuity
- Continuous service of 5yrs (not necessary in case of death or disablement)
- On termination due to superannuation or retirement
- Resignation, death or disablement due to accident or disease
- In case of death, the amount will be paid to nominee or legal heir
- The Minimum Wages Act 1948
The Minimum Wages Act 1948 sets the limits on how much wages to be paid to the unskilled, semi-skilled, skilled and high skilled labors. The minimum wages is different in different states in India and it keeps on updating every six months depending upon the states policy. Under the minimum wages act, the minimum wages rate differ for different categories, as follows:
- High Skilled
The Minimum wage rate differs from state to state, and it is updated every six month.
Records to be maintained under (sec. 18): The Registers should contain the following particulars
- Particulars of employed persons
- The work performed by them
- The wages paid to them
- The receipts given by them
- The Maternity Benefit Act 1961:
The Maternity benefit act aims to protect the dignity of motherhood and of a new person by providing payment for full and healthy maintenance of the women and her child at the maternity time when she is not working. An Act to regulate the employment of women in certain establishments for certain periods before and after childbirth and to provide for maternity benefit and certain other benefits.
Eligible for Maternity Benefit:
- Must work in the establishment for 80 days in 12 months before her date of Delivery.
- Women earning less than 15,000 will not be eligible for maternity benefit, but may be offered ESI scheme by her employer.
Duties of Employee for Maternity Benefit:
- Ten weeks before the expected delivery date she may ask employer to give her light work.[Produce certificate of pregnancy]
- Should intimate the employer Seven Weeks before her delivery date about the leave period.
- Name the person to whom the payment will be made in case she cannot take herself.
- Payment Of Bonus Act 1965:
The Payment of bonus Act 1965 aims at providing a bonus to employees of certain establishments, as a part of profit or productivity or production and for connection…