A Guide on Statutory Compliances in India [Updated 2022]

Statutory compliance is imperative for organizations that intend to function within the boundaries of the law. With or without intent, breaking the law can land you and your company in some serious trouble. While you probably aren’t trying to be the next big mafia don, there’s a chance you may have overlooked some statutory compliances, which could lead to some severe consequences.

Unfortunately, claiming ignorance does not protect you from the law. Once a law has been passed, you have access to it. You then must keep yourself in the loop of all regulations and compliances that may affect your business.

Especially in this day and age, with technology and connectivity at our fingertips, there is no reason not to know the law. Your business needs to operate legally and honestly. To do this, you need to first understand what statutory compliance is.

What Is Statutory Compliance?

Statutory compliance can be defined as a predetermined framework within which organizations are supposed to operate. In essence, companies have to adhere to certain norms and rules regarding how they handle their employees and activities related to their employees.

Companies must interact with employees so that they are within the rules and laws of the nation and state they’re operating in. The rules and implementation differ from nation to nation; however, it’s always best to ensure your company is well within the boundaries of the legal framework.

The laws are made to keep employees, employers, and the organization safe and free of any liability. Failing to adhere to these laws can lead to severe legal consequences for all parties involved.

List of Statutory Compliances in India

It’s essential to make yourself familiar with all the relevant statutory compliances. Remember that while these documents are easy enough to track down, you need to ensure you have access to all the updated circulars and revisions made. That part may not be so easy to do on your own.

• Shops and Commercial Establishments Act (S&E)
• The Child Labour (Prohibition & Regulation Act), 1986
• The Professional Tax Act (PT) 1975
• The Employees Provident Funds and Miscellaneous Provision Act – 1952 (EPF)
• The Labour Welfare Fund Act (LWF) 1965
• The Minimum Wages Act, 1948
• The Payment of Wages Act, 1936
• The Payment of Gratuity Act, 1972
• The Employees State Insurance Corporation Act – 1948 (ESIC)
• The Contract Labour (Regulation & Abolition) Act – 1970 (CLRA)
• The Payment of Bonus Act, 1965
• The Equal Remuneration Act, 1976
• The Maternity Benefit Act, 1961
• The Factories Act, 1948
• The Industrial Establishment (N&F) Act, 1963
• The Employment Exchange (Compulsory Notification of Vacancies) Act-1959
• The Interstate Migrant Workmen (Regulation of Employment and Conditions of Services) Act, 1979
• The Employees Compensation Act, 1923
• The Industrial Employment (Standing Orders) Act 1946 – Model Standing Order Only
• The Industrial Disputes Act, 1947
• The Apprentice Act, 1961
• Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013
• The Trade Unions Act, 1926

While all the above-mentioned statutory compliances are essential, they may not all affect your business.

Let’s delve into a few of the major statutory compliances so that you have a better understanding of them.

1. The Employees State Insurance Act, 1948

This provides specific benefits to those that become ill or get injured at the workplace. It also covers maternity benefits. This statutory compliance is essential for businesses that employ more than twenty workers or permanent factories with more than ten laborers.

The claims can be made at all ESIC hospitals, private practitioners, and medical service outlets. This act also ensured that wages were increased from INR 7,500 a month to INR 10,000 a month.

ESI benefits are great for employees, and they also extend to their families in various ways. Make sure you know what benefits your employees are eligible for and that they are fully aware of it.

As an employer, it is your job to make sure your employees get everything they deserve. This also helps build a good relationship between you and your employees. 

2. The Shops and Commercial Establishments Act (1953)

This act ensures that employees and employers alike have the rights and protection required for them to carry out their business. The act was put together to encourage the unorganized sector of the economy to register businesses.

It is a government mandate that any establishment conducting commercial activity registers itself within thirty days of commencing operations.

3. Maternity Benefit Act, 1961

This was created to ensure that women are not required to work and can still retain their positions for a specific period before and after childbirth. This act also ensures that the new mother has some other benefits.

Women must be informed about the leaves and benefits they are eligible for under the Maternity Benefit Act as soon as they start working for an organization. Failure to do this can lead to severe consequences. The information may be passed verbally, but it also has to be passed on to the employees in written form.

Your organization must be part of the effort to protect the rights of female employees during their pregnancy and after the delivery of their child.

4. The Minimum Wages Act, 1948

This sets the bar for the minimum wage that an employee can be paid in India. This goes for all territories that come under Indian law. The State, Provincial and Central Governments set these wage rates.

The wage is based on the occupation, the sector or industry, the state, and national levels. This statutory compliance ensures that labor is paid fairly. Workers receive wages based on their skills and the other criteria for that specific job. This act prevents companies from taking advantage of employees and paying them less than they deserve.

Strict and harsh legal action is taken against anyone who defies these statutes.

There are two ways in which minimum wage is set or revised periodically:

• Committee Method

The government sets up committees and subcommittees, and a decision is made after receiving recommendations from these committees once inquiries have been conducted.

• Notification Method

The notification method is where the proposals are published in the Gazette about those specific job roles and people the minimum wage change will impact.

5. The Payment of Bonus Act, 1965

Establishments that employ more than twenty people are liable to pay annual bonuses to their employees. Bonuses are calculated based on how the organization has performed and in relation to the employees’ remuneration.

Workers who are paid INR 21,000 or less and have worked a full 30 days in the year are eligible for bonus payments.

6. TDS deduction

Employers are also responsible for tax deductions from the income dispensed to employees. The tax is then paid to the government on the employees’ behalf. This is known as TDS, or Tax Deducted at Source.

Investments, special allowances, house rent allowance, travel allowance, leave allowance, education allowance for children, medical allowances are all factors for calculating employees’ deductible tax.

Since the implementation of updated tax regimes in 2020, for the time being, employees have the option of choosing which tax laws they prefer to follow.

It is easy to get carried away as a small organization and ignore TDS and other regulations; however, your prerogative as a business is to grow. When you do grow, these ‘small’ infractions that you made may come back to haunt you. It could also be a situation where you get so used to a poor work culture that you start ignoring the more serious laws and get in severe trouble.

No matter how small your business is, it is advisable to follow all the laws to ensure you are always safe.

7. Statutory compliances for PF deduction

Provident fund deductions are mandatory. These funds are meant to be used by employees after their retirement or in the unfortunate event that they pass away.

It is common for employees to deduct their PF many times during their careers.

PF is a compulsory contributory fund after employee retirement or for their dependents in case of their early death. The statutory compliances related to PF contribution are as follows:

Here are the statutory compliances for Provident Fund:

•         Professional Taxes - PT
•         Employee Provident Fund - EPF
•         Organizations with twenty or more employees are required to be EPFO compliant
•         Employee Pension Scheme - EPS

The State Government where your business operates levies Professional Tax. Every state in India has specific laws that need to be adhered to. This is especially important for companies planning to expand to other states.

All the states follow a slab system. This means that the Professional Tax is different for every bracket of income. Every person who earns an income is required by law to pay Professional Tax. If this is not done, a penalty will be charged.

8. Gratuity           

If an employee leaves after completing five years of service in any organization, they can receive a gratuity from the organization. The calculation for gratuity is straightforward:

{Basic Salary + DA divided by 26 X Number of years of service X 15}

Conclusion

The fact that some of the acts or sets of statutory compliance have been explained does not mean that the others aren’t important. The ones highlighted above are more common ones that everyone is expected to know.

As stated earlier in this blog, these laws are easy to access and read about; however, keeping updated on the circulars and updates to these laws may not be easy. There aren’t too many of these statutory compliances for small organizations that they have to be worried about.

However, as your organization grows, that changes. It becomes increasingly difficult to keep track of hundreds of employees at different income brackets, carrying out varying tasks.

It is advisable to use existing technology and experts that have built a name for themselves in such matters. Not only does it help keep the errors to a minimum, but it also ensures that your HR department is not scurrying about at the end of every month or every time there is an audit to make sure everything is in order.

If you’re looking to stay competitive and ensure that your organization is following statutory compliance, take a look at the services Darwinbox offers.