Crucial Legal Employee Compliance Needs for Start-Ups in India

Over the past few years, India has emerged as one of the largest nurseries for start-ups in the world. Besides churning out unicorns in the technology segment, India has been at the forefront of creating a robust startup ecosystem in other categories too! It is the “never-say-die” attitude of young Indians that is driving these startups to take baby steps across the country to become unicorns. For any startup, the second most important resource after the business idea is its employees. That is because it is they who will ultimately make it happen for the startup.  Many policies help ensure better hiring quality and higher retention. Some of them are: 

• Providing work-life balance to the employees
• Creating hygienic and safe working conditions for the employees
• Creating a culture that is free from harassment and discrimination.

While these things are essential for any organization to emerge successful, especially for a startup, there are certain statutory aspects too that a startup must deal with to remain on the right side of the law. Hence every HR team of a startup must strive to make sure that they don't just hire and retain the right resource, but also fulfill all the relevant legal compliances too, especially those pertaining to payrolls.   While there are many concessions granted to startups by the government, it expects every startup to be quite sincere when it comes to payroll statutory compliances too. There are 6 crucial compliances that every startup must look at to remain on the right side of the law when it comes to its HR policies.

1. The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
2. The Inter-State Migrant Workmen(Regulation of Employment and Conditions of Service) Act, 1979
3. The Contract Labour (Regulation and Abolition) Act, 1970
4. The Payment of Gratuity Act, 1972
5. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
6. The Employees’ State Insurance Act, 1948

However, of these 6, the last three pertain to payroll compliance. The earlier three may or may not apply to all startups.

The Payment of Gratuity Act, 1972

Gratuity can be considered as a token of appreciation paid by the employer to the employee upon the completion of his/her services. Gratuity needs to be paid only when the employee achieves superannuation or retires from service. Every month, the employer is expected to make a particular payment towards a gratuity account which becomes payable only when an employee fulfills certain conditions. Besides this, there are multiple provisions of this Act that every organization, including a startup, must comply with.

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

This is a contribution made by both the employee as well as the employer. Provident Fund (PF) becomes available to an employee only when he/she achieves retirement. While an employer must create a PF account for every employee earning a basic salary of less than Rs. 15000, it is optional for higher basic salaries. Both, employers as well as employees are required to pay a minimum of 12% of the basic salary as PF contributions. Employees can voluntarily contribute a higher percentage than this.

The Employees’ State Insurance Act, 1948

This Act was created to prevent any financial losses to employees during their employment due to reasons like sickness, work injuries, maternity, etc. It is applicable only for manufacturing setup that employs more than 10 workers at any time. The Act prescribes that every employee needs to contribute 4.75% and an employer 1.75% of their total wages towards creating a corpus. While there are some more conditions to be fulfilled for this Act to become effective, every startup must comply with its provisions. Though the government has relaxed a host of compliances that a startup has to make in the first five years of its life, the financial deductions or contributions made by the employer have to be mentioned in the employee’s payslip. This calls for strict payroll statutory compliance from the employer’s perspective. But therein lies a problem! Many startup companies, their founders, and their employee teams, including the HR team, are fairly young to understand and appreciate the various non-payroll and payroll statutory compliances involved in running their businesses. Sometimes this lack of knowledge or not knowing about the various tools that make such compliances easier may hit the organization very badly. That is where outsourcing of payroll compliance comes into the picture. With tools and technologies developed to understand the nuances of the business and the various payroll statutory compliances to be met, these payroll specialists smoothen out things for a startup thus helping them to focus better on their core competencies. For instance, Paysquare with its years of experience working with startups and established organizations has developed a technologically advanced & robust infrastructure to achieve 100% payroll compliance. We have some of the brightest and most aspirational startups in our client list besides established organizations. Having worked with both varieties of organizations, Paysquare is in a unique position to manage the payroll compliance of even an organization that is making a transition from a startup to becoming a regular established organization. Our ability lies in customizing payroll compliance solutions to suit your specific business requirement. So, if you are a budding startup that has a brilliant idea in its hands, then don’t let payroll statutory compliance hold you back. Just reach out to the payroll compliance expert at Paysquare today and see all your payroll compliance needs being taken care of!