Checklist for Statutory Payroll Compliance 2024

Statutory compliance

Payroll is an important part of all businesses, both big and small. The payroll system is governed by certain laws, and it is significant that they are followed. These laws can be said to be statutory compliance – staying compliant with all these laws is mandatory.

There are many legal problems associated with not staying compliant with payroll statutory compliance. Not only this, businesses may have to face problems like pressures from trade unions, hostile employees, etc., but if they stay compliant, they do not have to be afraid of external pressures such as hostile employees. Following statutory compliance ensures that the businesses are within the guidelines of the law and do not have to worry about any legal pressures. 

Statutory compliance can be said to be the legal structure that is set by the judiciary system of a nation. All businesses are required to work within these set guidelines while operating their business and their employees. Every country has its own set of compliance – state and central labor laws. A lot of finances and efforts of a given organization go into ensuring that all these compliances are adhered to, including professional taxes, salaries disbursed to employees, employee benefits, and more. Handling these compliances also means that the businesses are aware of all the labor laws and the changes (if any) that are made to them.

These laws guarantee the welfare of the company, the employer, and the employee. As a result, all firms, regardless of size, are required to abide by local, state, and central labor laws. Businesses may have to face many unpleasant consequences, including heavy fines, penalties, lawsuits, etc.

Handling statutory compliance is not an easy task, which is why businesses should consider hiring a payroll agency. A knowledgeable provider of accounting services in India ensures that your business stays compliant and operates smoothly.

Regulatory compliance is quite intricate, and in order to manage it correctly, they face numerous challenges and risks. Understanding the complex nature of non-compliance risks is essential for mitigating potential pitfalls and ensuring adherence to regulatory standards. Some risks of non-compliance include:

RISK OF NON-COMPLIANCE

1. Web of Laws and Regulations

The complexity of regulatory requirements is a significant risk factor for non-compliance. In today’s global business environment, organizations have to face many laws, regulations, and standards that are spread through various jurisdictions. From data privacy to financial reporting, these regulations can overwhelm organizations. It is very challenging to understand and adhere to all applicable requirements.

2. Dynamic Regulatory Environment

The dynamic nature of regulatory environments poses another risk factor for non-compliance. Regulatory frameworks are continuously evolving in response to shifting economic, political, and social landscapes. New laws are introduced, existing ones are amended, and regulatory priorities shift over time. Staying updated with these changes requires organizations to engage in continuous monitoring and adaptation, which can strain resources and capabilities.

3. Jurisdictional Variances

The variance of regulatory requirements across jurisdictions adds complexity to compliance efforts. Multinational organizations operating in multiple countries must navigate many regulations, each with its own unique requirements. This diversity complicates compliance efforts, as organizations must tailor their strategies to each jurisdiction while maintaining consistency across operations.

4. Deciphering Complex Regulations

Uncertainty and understanding challenges in regulatory requirements contribute to compliance risks. Many regulations are written in complex legal language that is interpreted differently by each one. Organizations may struggle to interpret and apply these regulations to their specific circumstances, leading to uncertainty and potential compliance gaps.

EMPLOYEE SALARIES AND BENEFITS

Payment of Wages Act, 1936 – This Act confirms that workers receive their wages on time and in full. It regulates the payment of wages, including the timing, mode of payment, and deductions allowed from wages. Under this Act, wages must be paid before the 7th or 10th day after the end of the wage period, depending on the number of employees. It prohibits unauthorized deductions and limits deductions for fines, damages, or advances to specified percentages of wages.

Minimum Wages Act, 1948 –This act was implemented on March 15, 1948. The Minimum Wages Act establishes minimum wage rates that employers must pay to workers. It aims to prevent the exploitation of labor and ensure that workers receive fair remuneration for their work. Minimum wages vary by state, industry, and type of employment and are periodically revised by the government to reflect changes in living costs and economic conditions. Businesses and organizations should follow the latest updated wage amount that has been provided to the legal authorities.

Payment of Bonus Act, 1965 – This Act mandates the payment of annual bonuses to eligible employees. A company must have 20 or more employees to pay bonuses under the Payment of Bonus Act, 1965. It requires employers to distribute a share of their profits to employees in the form of bonuses. Under this Act, eligible employees are entitled to a minimum bonus of 8.33% of their annual wages or ₹100, whichever is higher. The maximum bonus payable is capped at 20% of the employee’s annual wages.

Maternity Benefits Act, 1961 – The aim of this act is to protect the health and well-being of pregnant women and new mothers in the workforce. It provides for maternity leave, maternity benefits, and other related provisions. Under this Act, eligible employees are entitled to maternity leave of 26 weeks, with 8 weeks of leave before the expected delivery date. Employers are required to pay full wages during the maternity leave period, ensuring that pregnant employees can take time off work without facing financial hardship.

TDS stands for Tax Deducted at Source. It is employed by the Indian government for collecting taxes at the source of income generator. It is a method of ensuring that tax is deducted at the time of payment itself rather than allowing it to be collected at a later stage. TDS applies to different types of income, including salaries, interest earned on fixed deposits, rent, commission, professional fees, and more.

The main objective of TDS is to simplify the collection of taxes and ensure that it is collected in a timely manner. It also reduces tax evasion by ensuring that taxes are deducted at the time income is earned. It helps in the steady collection of revenue for the government and ensures a steady cash flow throughout the financial year.

TDS is deducted by the person or entity making the payment, known as the deductor, at the prescribed rates specified by the Income Tax Department. The deductor is required to deduct tax at the time of payment or credit of income to the payee, whichever is earlier. The deducted amount is then remitted to the government’s account, and a TDS certificate is issued to the deductee as proof of tax deduction.

The rates at which TDS is deducted vary depending on the nature of the income and the provisions of the Income Tax Act. For example, TDS on salaries is deducted as per the individual’s income tax slab rate, while TDS on interest income is deducted at specified rates ranging from 10% to 30%. Additionally, there are thresholds and exemptions provided under the law, below which TDS may not be applicable.

TDS deductions can be claimed as a credit against the taxpayer’s total tax liability when they file their income tax return. If the TDS deducted exceeds the taxpayer’s total tax liability, they can claim a refund of the excess amount.

TDS serves as an effective tool for the government to ensure tax compliance and revenue collection while also providing a convenient method for taxpayers to meet their tax obligations. It promotes transparency and accountability in the tax system, contributing to the efficient administration of the country’s tax laws.

Income SlabsIncome Tax Rates       
FY 2023-24 (AY 2024-25)
Up to Rs 3,00,000Nil
Rs 3,00,000 to Rs 6,00,0005% on income which exceeds Rs 3,00,000 
Rs 6,00,000 to Rs 900,000Rs. 15,000 + 10% on income more than Rs 6,00,000
Rs 9,00,000 to Rs 12,00,000Rs. 45,000 + 15% on income more than Rs 9,00,000
Rs 12,00,000 to Rs 1500,000Rs. 90,000 + 20% on income more than Rs 12,00,000
Above Rs 15,00,000Rs. 150,000 + 30% on income more than Rs 15,00,000
Income SlabsTax Slabs for Senior Citizens (Aged 60 Years But Less Than 80 Years)
NIL
Rs 3 lakh – Rs 5 lakh5%
Rs 5 lakh – Rs 10 lakh20%
> Rs 1030%
Income SlabsIncome Tax Slab for Super Senior Citizens (Aged 80 Years And Above)
NIL
Rs 5 lakh – Rs 10 lakh20%
> Rs 10 lakh30%

Source website – https://cleartax.in/s/income-tax-slabs

Employment laws are rules that protect workers and their rights. They cover things like fair pay, workplace safety, and benefits. These laws are important to make sure everyone is treated fairly at work.

EMPLOYEE SALARIES AND BENEFITS

Employees Provident Fund Act, 1952 – This Act requires employers to contribute to a provident fund scheme for the financial security of their employees. Both the employer and employee pay a certain percentage of the employee’s salary to the provident fund, with the current rate set at 12% of the employee’s basic salary plus dearness allowance. The contributions accumulate over the employee’s tenure and can be withdrawn at retirement, resignation, or in case of certain emergencies.

Employees State Insurance Act, 1948 – This Act offers social security benefits to employees in case of sickness, maternity, disablement, or death due to employment-related injuries. The contribution rate is 0.75% of their wages for employees, and the employer’s contribution is 3.25% of the wages. The contributions fund the Employees’ State Insurance Corporation (ESIC), which provides medical and cash benefits to insured employees and their families.

Labour Welfare Fund Act, 1965 – This Act aims to promote the welfare of laborers by establishing welfare boards that provide financial assistance, medical aid, education, and other benefits. The Act requires employers to contribute a specified percentage of their wage bill to the welfare fund, which varies from state to state. The funds collected are used for the welfare and development of workers and their families.

Payment of Gratuity Act, 1972 – The main aim of this Act is to ensure that employees receive a gratuity payment as recognition for their long-term service upon retirement, resignation, or death. Employers are required to pay a gratuity which is 15 days’ wages for each completed year of service, subject to a maximum limit of ₹20 lakhs. Employees become eligible for gratuity after completing five years of continuous service with the same employer.

Outsource Payroll Statutory Compliance

Navigating statutory compliance can be challenging, given the complexities of employment laws and regulations. Outsourcing this crucial task to an expert payroll agency like PaySquare ensures accuracy and adherence to legal requirements. With our services, businesses can mitigate the risks associated with non-compliance and focus on their core activities with peace of mind.

PaySquare offers comprehensive solutions for payroll and statutory compliance and beyond. With expertise in payroll management and a range of other services, we ensure that organizations can navigate the intricacies of employment laws with ease. By entrusting their compliance needs to us, businesses can emphasize on their core operations, knowing that their payroll and statutory obligations are being efficiently managed by a trusted partner.