A Complete Guide on Statutory Compliance in HR & Payroll in India

Payroll in India constitutes an intricate function with various tasks, responsibilities, and compliance aspects to deal with. Missing out on a single aspect could count as non-compliance and translate to a massive pecuniary fine!

Software-based payroll has simplified and streamlined payroll operations significantly. But payroll yet remains an arduous task. Outsourcing payroll services is a potential solution to tackling payroll complexities. But before we talk about it, let’s look at statutory compliance in HR and payroll in India with this quick guide.

What is Payroll in the Indian Context?

In India, payroll involves a broad array of activities that include but are not limited to the following. The functions may vary or increase with the type of organization and its compliance requirements.

  • Develop payroll policies like leave encashment policy, flexible benefits, etc.
  • Define components in pay slips like basic, variable pay, LTA, and HRA.
  • Ensure accurate actual calculation of gross salary and statutory non-statutory deductions and then derive the net pay value
  • Manage other payroll aspects like meal allowances, conveyance, etc.
  • Process payroll on time and release salaries correctly.
  • Deposit TDS, PF, etc., with the concerned authorities and file returns

Payroll Calculation in India

Payroll processing involves calculating the net pay and making the necessary tax deductions. Thus, net pay is gross income minus gross deduction.

Gross income or salary refers to all types of regular income plus allowances plus any single-time payment or benefit. On the other hand, a gross deduction is all types of regular income plus statutory deductions and any single-time deductions.

Various Salary Components in India

Salary in India comprises various components. Let’s overview each.

  • Gross Salary: Includes basic salary, allowances, overtime pay, bonuses, holiday pay, and other deductions.
  • CTC: The total amount spent on an employee is CTC or cost to the company. It refers to an employee’s complete salary package.
  • Take Home Salary/Net Salary: The amount calculated after deducting TDS and other deductions.
  • Allowances: These are given over and above the basic salary and are mandatory benefits, either fully/partially taxable or wholly exempt from tax. Various allowances include medical, House Rent Allowance (HRA), conveyance, Dearness Allowance (DA), children’s education, etc. 
  • Deductions: Some common deductions in the Indian payroll system include Provident Fund (PF), Professional Tax (PT), National Pension Scheme (NPS), Labour Welfare Fund, and Employees’ State Insurance (ESI).
  • Pre-Requisites: These are fringe or non-cash benefits given to employees at or above a particular level in the hierarchy. It could include rent-free accommodation, a car for personal use, a premium or personal accident policy, etc. The financial value of these pre-requisites is added to the salary, and employees pay tax on them.

Some other components include form 16, incentives, bonuses, reimbursements, pay slips, income tax, ad-hoc pay, gratuity, and employee investment declarations.

Labour Laws in India

In India, payroll professionals have to deal with a multitude of labour laws placed into various categories. Let’s enlist those categories and laws.

1. Social Security

  • The Employees’ State Insurance Act, 1948
  • The Employees Provident Fund Act, 1952
  • The Labour Welfare Fund Act, 1965
  • The Payment of Gratuity Act, 1972

2. Wages

  • The Payment Wages Act, 1936
  • The Minimum Wages Act, 1948
  • The Payment of Bonus Act, 1965
  • The Equal Remuneration Act, 1976

3. Industrial Relations

  • The Trade Unions Act, 1926
  • The Industrial Disputes Act, 1946
  • The Industrial Employment (Standing Orders) Act, 1946
  • The Factories Act, 1948
  • Shops and Establishment Act

4. Women Benefits

  • The Maternity Benefit Act, 1961
  • The Equal Remuneration Act, 1976
  • The Sexual Harassment of Women at Workplace Act, 2013

Benefits of HR and Payroll Statutory Compliance

Of course, the most significant and visible benefit is the prevention of fines and penalties. But the advantages transcend the commercial dimension. Some other benefits of HR and payroll statutory compliance include the following.

  • Enhanced Reputation

Compliance catalyses a better reputation. Of course, no one would congratulate a company or appreciate it for ensuring compliance. But the government will surely reprimand an organisation for non-compliance in the form of penalty, legal implications, etc. However, compliance contributes positively to reputation. Such companies have a better face in the market. Many prospective buyers are keen on factors like compliance and judge a company by them. 

  • Augmented Business Opportunities

A better reputation could translate to increased business opportunities. Companies with a clean slate are usually considered credible, responsible and serious about their business and client proposition. 

  • Higher Employee Retention and Satisfaction

Compliant HR functions and timely and accurate payroll processing foster employees’ trust. Although it doesn’t directly contribute to employee retention, non-compliance could disappoint employees and discourage them from continuing in the company. Thus, compliance can be positive for employee morale and satisfaction in the long run. 

  • Increased Business Focus

With compliance taken care of or handled appropriately, companies can focus on their business and pay more attention to crucial aspects like quality, customer satisfaction, process enhancements, strategy, etc.

Ensure Payroll Compliance Effectively with Payroll Outsourcing Services

Are you a small-, mid-sized business, start-up or global enterprise feeling it challenging to handle payroll? Consider outsourcing your payroll operations. With years of experience and continually evolving expertise in both these areas, Paysquare can prove to be a bankable payroll partner.

So, how does partnering with Paysquare help or benefit you? Paysquare covers a broad area of payroll services, including payroll-related compliance, leave and attendance management, labour law compliance, employee self-service portal, and client-admin self-service portal.

Want to know more about payroll compliance or get a quote? Please write to sales@paysquare.com.