Statutory Compliance in HR & Payroll in India – Complete Guide

Every company in India spends a lot of money, effort and time to ensure that
its payroll is compliant through a proper audit. Companies often worry about facing legal
issues that are related to compliance such as aggressive employees, demands of
unreasonable wage, and demands from trade unions. Even if a company doesn’t have any
intention to break laws, it may face legal troubles if it doesn’t have proper protection. This
protection comes in the form of statutory compliance which helps the companies to avoid
the risk of non-compliance. With increasing non-compliance risks, it becomes necessary for
the companies in India to have statutory compliance in HR in India.
What is Statutory Compliance in HR?
Statutory compliance is the most discussed term; Statutory means “related to
statutes,” which is Rules and Regulations. Compliance stands for adherence. Thus Statutory
compliance means “To Follow the rules and regulations.”
Statutory compliance is a legal framework under which the Company must function
all its duties. Firstly, every organization must treat its employees to follow all central & state
labor laws. 
All these laws secure the welfare of the Company, employee, and employer.
Therefore, regardless of its size, every organization needs to follow the central and state
labor laws. And if any organization fails to adhere, strict legal action can be taken against
them.
“Latest Update on Statutory”: Zomato and Swiggy now pay TCS to the Government
Instead of the Restaurant.
Zomato, Swiggy, and all food delivery apps are registered as Tax Collected at Source
(TCS) in GST records. Revenue secretary Tarun Bajaj quoted – ” This move will not impact
the end consumer in any way, as there is no extra tax to be paid. Restaurants previously
paid the Tax, and now it will be paid by the aggregators; this will help protect the revenue
leakage.”
Most frequently used food delivery apps like Zomato and Swiggy will now be liable
to pay 5% Goods and Services Tax (GST) on orders collected from the ultimate consumer,
which in the present regime is paid by the restaurants they pick orders from. Finance
Minister Nirmala Sitharaman stated this in a meeting of the 45th GST Council held in
Lucknow.
This law would come into effect from January 1, 2022, to allow the e-commerce
operators to make the necessary changes in their respected software for the operations.
According to the reports, the revenue leakage due to alleged under-reporting by
food delivery apps was around Rs 2000 Cr in the last two years. This will ensure effective
implementation of GST, and the Government will gain around 5000 Cr – 7000 Cr with the
change in this collection system in the next 4-5 years.
The step was taken because Zomato/Swiggy held no mandatory registration check,
and there were plenty of unregistered restaurants delivering using the Apps. This would
help protect the revenue leak and get the Government to conquer the bribery in the system.
 
The most significant benefits of this Amendment, as discussed in the 45th GST Council
Meeting, are:
1. It will cut down the intermediaries between the Government and the aggregators, which
will lead to less corruption in the process.
2. As there would be only 2 parties involved in this transaction, the Government &
Aggregator, there would be more accountability, transparency, and easy tracking.
3. Transparency in implementation will generate greater revenue by filling all the gaps
prevalent in the system, which led to a lot of revenue leakage.
4. The icing on the cake is, increase the revenue without leading any extra tax burden on the
ultimate customer.
Conclusion:
There was never an issue with the taxation laws in India; the issue was always the
ineffective implementation. Therefore, the implementation of this law will be a stepping
stone and a positive stride towards a more effective and efficient taxation system in which
the Government will get its fair share and ultimately divert those funds towards the
betterment of the nation as a whole.

Importance of Statutory Compliance in Payroll

Every country owns its own set of state and indian labor laws, which every company
needs to follow. To deal with statutory compliance, it requires the companies to be updated
on all labor regulations in their country. In addition, it is mandated for the companies to
follow all the laws and regulations. Non-compliance with these regulations can lead the
Company to face many legal issues, including fines and penalties.
This is the very reason a company puts a tremendous amount of money, time, and
effort into meeting the compliance requirements right from professional tax to minimum
wages Act. To match with all the demanding regulatory environments, every organization
should be well updated and keep an eye on all the regulations in the labor laws.
 
Statutory compliance is something that is beneficial to everyone- Employees, employers,s
and the whole Company.
1. Work stoppage
2. Loss of the company’s integrity, reputation, and goodwill
3. Cancellation and suspension of operational licenses
4. Loss of faith in the company’s stakeholders and investors
5. Imposition of fines
6. Loss of customer loyalty
7. Civil and criminal liabilities
8. Negative impact on the company’s productivity
9. Penal liabilities against the Directors or officers of the company
10. Withdrawal of fiscal benefits
11. A shutdown of the company, if the case goes on an extreme level.
 
Statutory compliance in HR helps a company to manage a demanding regulatory
environment and avoid non-compliance risks.

All the labour and taxation laws of India come under statutory compliance. Every
company in India has to mandatorily obey these laws which change on a National and State
level. If a company is non-compliant with these regulations, it can face legal troubles like
fines, penalties or even complete shutdown. To avoid such risks, a company should spend a
good amount of resources to ensure statutory compliance in HR. Companies must
understand all the labour and taxation laws of India to stay updated about any changes they
need to incorporate in their organizations. The rules keep evolving from time to time, and
the laws are quite dynamic.
The following Labour Acts in India require statutory compliance:
1. The Child Labour (Prohibition & Regulation Act), 1986
2. Inter-State Migrant Workmen( Regulation Of Employment & conditions Of Service ) Act,
1979
3. The Equal Remuneration Act, 1976
4. The Payment Of Gratuity Act, 1972
5. The Contract Labour (Regulation & Abolition) Act, 1970
6. The Payment Of Bonus Act, 1965
7. The Apprentices Act, 1961
8. The Employment Exchanges(Compulsory Notification Of Vacancies) Act, 1959
9. The Employees Provident Fund & Miscellaneous Provisions Act, 1952
10. The Factories Act, 1948
11. The Minimum Wages Act, 1948
12. The Employees’ State Insurance Act, 1948
13. The Industrial Disputes Act, 1946
14. The Industrial Employment Standing Orders Act, 1946
15. The Payment Of Wages Act, 1936
16. The Trade Unions Act, 1926
17. The Workmen’s Compensation Act, 1923
 
Minimum Wages Act, 1948
The Minimum wages Act fixes the minimum wages rates in any Indian company,
where both the Provincial Governments and the Central Government determine these rates.
The minimum wage rates get declared at the occupational, sectoral, state, and national
levels. These wages may get established for any sector, occupation, or region. The cost of
living determines the minimum wage. The minimum wages may get set for different
scheduled employment or various work classes of the same scheduled employment.
Frequency of the salaries ranges from monthly, hourly, or daily. The State Governments and
Central Government notifies the scheduled employment about the revision of minimum
wage rates.
 
The two methods for fixing or revising minimum wages are:
1. Committee method
In this method, the government changes minimum wages after setting up
committees and subcommittees for holding recommendations and inquiries.
2. Notification method
In this method, the Official Gazette publishes proposals of the government regarding
people who are likely to be affected by changes in minimum wages. The recommendations
get taken into consideration at a specified date.
The government fixes or revises the minimum wage of particular scheduled
employment after taking the advice of all the representations and committees into account.
The final decision gets implemented after 3 months from the date of its declaration.
 
Payment of Bonus Act,1965
Payment of Bonus Act,1965 is efficiently made by the Indian Government to make
sure that the employees receive a decent amount of share from the profit made by the
organization, The Payment of Bonus Act provides an annual bonus to every employee
present in the Company. This Act is applicable for all the factories, including 20 or more
employees.
Based on the employee’s salary, performance, and the profits earned by the
Company, the bonus is calculated. The main aim of this enactment to lay down a legal
obligation on the employer to provide for payment of bonus.
 
An Employee earning ₹21,000/- or less, removing other allowances, and who has worked for
more than 30 days with the organization are eligible to claim this bonus.
As per 2015 Amendment, the Ceiling amount of Rs 7000 (max) is known as the salary
to calculate the bonus. And the % for the bonus would be around 8.33% min to max 20%,
under section 10 of the Act.
List of Statutory Compliance in HR
1.  Introduction to Statutories
2. Payment of Wages Act, 1936
3. Minimum Wages Act, 1948
4. The Payment of Bonus Act, 1965
5. Tax Deduction at Source (TDS)
6. Professional Tax
7. Amendments to Maternity Benefit Act, 1961
8. Equal Remuneration Act, 1976
9. Shops & Establishments Act
10.The Employees’ State Insurance Act, 1948 (ESIC)
11. The Payment of Gratuity Act, 1972
12. Employees Provident Fund (PF) and Miscellaneous Provisions Act, 1952
13. Labour Welfare Fund Act, 1965
14. Labour Law Annual Leave and Holidays
15. Labour Law Compensation
16. Labour law Fair Treatment
17. Labour law health and safety
18. Labour Law Trade Union
Need for Statutory Compliance in HR in India
It has become more complicated to do business in India. Companies in India also face
the challenge to go hand in hand with the operational aspect of its core business. All the
companies operating in India have to ensure the following categories of statutory
regulations and mandates:
1) Employment laws
2) Tax laws
3) Labour laws
4) Competition and antitrust laws
5) Environmental regulations
6) Financial and Corporate laws
7) Industry-specific laws
8) Advertising laws
9) Data privacy
10) Intellectual property rights
11) Foreign Exchange laws
 
As per the Companies Act, 2013, Directors should certify in their annual Director’s
Report about how they have devised proper and effective systems for ensuring the
compliance of applicable laws. The report should also clarify if the systems were successful
in operation.
  Thus, all Indian companies need professionals who can bring about statutory
compliance in HR to be compliant with the ever-changing environment of regulations.
Benefits of Statutory Compliance in HR for a Company
A company will save itself from the majority of serious legal troubles if it is statutorily
compliant. This will also lead to the sustained growth of the company, as when the
employees get treated well, they work with more ownership. The following are some of the
benefits of statutory compliances for a company:
1. Improved business opportunities
If a company invests in significant compliance management systems, it can promote
and preserve its goodwill with ease. Due to this, the company can get a higher bargaining
position during negotiations and thus, it can secure the much-needed business contracts.
The companies which invest in advanced compliance regime can attract more investments
for improving opportunities and business prospects.
2. Higher employee retention
If a company has statutory compliance in HR department, the employees have an
assurance that they will get a professional, fair, and safe working environment in the
company. Statutory compliance in HR department indicates that the company will provide a
just and employee-friendly working environment, and the company can resolve any law
issues related to labour or employment. A company must comply with all its labour and
employment law requirements for instilling confidence among their employees that the
company cares about their welfare and well-being. This will blossom a healthy work
environment which will result in enthusiastic and satisfied employees. Such employees are
highly likely to stay with the company, making the rate of employee retention higher.
3. Prevention of legal penalties
Compliance with necessary statutory requirements will help a company to prevent
the inevitable consequences of non-compliance like lawsuits, work stoppages, revocation or
suspension of licenses, disqualification of its officers or directors, payment of penalties,
imprisonment of officers or directors, and complete shutdown.
4. Improvement in quality
If a company adheres to statutory compliance, it will eventually improve the quality
of its products and services. Statutory compliance will enable the company to focus on its
main business activities instead of unnecessarily spending resources and time on paying
penalties, effecting the compounding of offences, penal liabilities against its officers or
directors, retaining the valuable and talented employees or defending the imprisonment or
litigation. With statutory compliance, a company can prevent apparent risks that can
emerge due to non-compliance. It will help the company to detect or avoid failures at the
early stages. All of this will lead to greater efficiency in business operations.
5. Improvement in business operations
After a company is successful in complying with all the applicable statutory
compliance requirements, it frees up resources and time for focusing on its core business
activities and R&D, which paves the path to improved business operations. With secure
business operations, the company achieves fabulous growth in its business.
6. Brand loyalty
The principal investors and stakeholders of a company will get assured that the
company places statutory compliance as one of its top priorities if the company has efficient
compliance management programs and tools for achieving compliance with essential
statutory requirements. The proper agreement reflects a company’s awareness and
expertise regarding relevant regulatory mandates along with its commitment to high ethical
standards. It shows that the company intends to operate its business fairly and
transparently. As a result, the employees, vendors, and customers begin to trust the
company more, and it will eventually strengthen brand equity and loyalty.
7. Boosting employee morale
  If a company observes statutory compliance, it significantly boosts its goodwill and
likeable reputation. Such a company succeeds in positively influencing the performance of
its employees. Non-compliant companies are unable to prove their commitment to proper
business ethics.
Principled and talented employees are highly attracted to fully compliant companies.
These companies can effortlessly boost employee morale which leads to better productivity,
lower attrition rates, and overall improved efficiency of the business.
8. Improved public relations
If a company is fully compliant, it will benefit from better public relations. Statutory
compliance in HR department of a company assures the company’s customers,
employees, stakeholders, and investors that the company will always stick to highly ethical
business practices.
9. Risk management
Every organization faces significant risks related to strategy, finance, operation,
process and reputation, and compliance. Finance and Healthcare are highly regulated
industries, and they usually face compliance risks which tend to increase when such
companies begin their international operations. A company can prevent several legal
troubles if it requisites statutory compliance requirements. Statutory compliance will help
companies to avoid and manage compliance risks.
10. Competitive differentiation
  Statutory compliance in HR department of a company will prove to be a competitive
advantage over rival businesses. It will help the company to produce more excellent outputs
and reduce compliance-related risks too.
Benefits of Statutory Compliance in HR for Employees
  When a company executes statutory compliance in HR, its employees get better
treatment and sufficient benefits. The following are the benefits of statutory compliance in
HR for employees:
1. The Payment of Bonus Act, 1965
Employers provide bonuses to their employees under the Payment of Bonus Act.
Mostly the establishments and factories with 20 or more employees provide the bonus
which gets calculated based on the profits of the establishment and the employee’s salary. If
an employee completes 30 working days and draws ₹21,000 or less per month, he/she is
eligible for the bonus payment in the on-going financial year. The minimum rate of paying a
bonus is 8.33% while the maximum rate is 20%. If any employee gets caught in any
misconduct or fraud, he/she can get disqualified from bonus payments.
2. PF (Provident Funds)
Both Provident Funds and HR compliance are significant parts of each
other. Provident Fund consists of the money saved throughout the working years of an
employee. Provision of the Provident Fund ensures income when the employee retires from
his job. If the employee, unfortunately, meets early death, the PF gets passed on to his/her
family.
3. TDS (Tax Deduction at Source)
When an individual receives a payment, his/her TDS gets deducted under the Income
Tax Act. The CBDT (Central Board of Direct Taxes) manages this deduction. After filing the
TDS return, the income tax department deducts the tax calculated from the income. The
final amount is further refunded. The following are the cases in which TDS is exempted:
1. When the Assessing Officer provides a certificate of exemption
2. When the receiver provides a self-declaration which states that he/she has
mentioned the required investments in FORM 15G/15H
The following  Elements are Also Impact the TDS deductions:
1. Medical allowance
2.Education
3. Investments
4. Travel leave
4. Professional Tax
The State Government levies the professional tax on every person who earns a living
through any medium. This tax, as well as its calculation, vary from state to state. The
professional tax is deducted on the basis of state-declared slab. A few states and union
territories in India do not charge any professional tax. The annual professional tax gets
divided into 12 equals instalments which have to be paid monthly. However, in February,
the professional tax is higher than the other months.
Statutory Compliance is Applicable to
1. The companies in India may take the following steps to ensure statutory compliance in
HR:
2. Educate professionals about applicable statutory, legal, and regulatory compliance
requirements.
3. Identify the suitable business spots whose statutory and legal landscapes are required to
get complied with.
4. Each business location (including international branches) should have statutory
compliance requirements.
5. Compliance responsibilities should get laid to specific departments or personnel.
6. Compliance review should get conducted for identifying gaps in compliance.
Challenges in Statutory Compliances in HR
The companies in India face the following challenges in statutory compliance in HR:
1. Lack of awareness
It is quite common for the professionals in a company to lack expertise and adequate
knowledge in statutory compliance requirements. When such a company has multiple
locations internationally, its compliance risk increases; therefore, a company must have
professionals with proper experience on statutory compliance for a smoother running of the
business.
2. Segmented compliance initiatives
In most companies, several departments control various functional activities of the
business. Such companies can’t ensure effective compliance in their companies.
3. Dynamic statutory landscape
Statutory requirements continuously evolve and emerge with complexities which
makes it difficult for companies to keep up with the dynamic statutory landscape.
Companies who spend enough resources on the requirements statutory compliance
in HR will find the investment worth it as they will get numerous benefits from it along with
the protection against non-compliant issues. Before joining a company, an employee should
also check whether it is statutory compliant or not. All the companies in India must carry out
statutory compliance in HR to ensure that they have a professional and employee-friendly
working environment.