Statutory compliance means following the rules and regulations laid out by the government for the payroll processing of India. For example, TDS regulation. Every organization that has employees who have a salary above a certain range needs to deduct and pay TDS for these employees. Failing to do this may result in non-compliance penalties, fines, and other consequences.
However, the time and money spent on this management are just too much to handle. The additional burden of statutory compliance audit further increases the effort of compliance management.
The ever-changing compliance landscape and employment laws have made it challenging for small organizations and startups to keep up with statutory compliance. Hence, in this article, we will discuss how statutory compliance services in India can help you maintain compliance and conduct an audit.
Understanding The Statutory Compliance Audit
A statutory compliance audit is nothing but reviewing the compliance health of the organization. It assesses how well the whole organizational structure is adhering to the regulations laid out by regulatory authorities. This audit helps in identifying the strength of compliance, security, access controls, policies, and risk management procedures.
Usually, many small and medium organizations hire an external agency for statutory compliance services in India to conduct this activity. This is because statutory compliance audits require proper guidance from experts who understand the rules and regulations.
Whether you are an LLP, partnership firm, or private limited company, you need to hire some employees. When you hire these employees, statutory compliance automatically comes into the picture. Hence, the requirement of statutory compliance doesn’t change for any type of organization.
Statutory compliance audit benefits the organization in multiple ways such as reducing the chances of fines, penalties and lowering the risk of unfair treatment to employees.
Below we have explained some of the regulations that are applied for the employment structure in India. Usually, a statutory compliance audit thoroughly checks adherence to these regulations in an organization.
1. Payment of Wages Act, 1936
This act is developed to offer regular, timely payment of wages to the employees working in private and non-private organizations. This act is valid for both indirect and direct employees of the organization.
Under this act, every organization with 1000 or fewer employees should dispatch wages of the employees before the 7th of every month. Every organization with more number of employees should dispatch the payment on the 10th of every month. This payment should be offered without additional deductions which are not included in the act.
2. The Payment of Bonus Act, 1965
Under this act, the employees of the organization and even factories become liable for the payment bonus. This is applicable for organizations that have 20 or more employees and the bonus of the employees is assessed based on the organizational profits and employee’s salary.
However, it is necessary to note that this act includes employees who have a salary less than or equal to INR 21,000. These employees should have worked in the organization for a minimum of 30 days and the bonus is calculated at 8.33-20% rate.
3. The Minimum Wages Act, 1948
This act defines the minimum wages that should be offered to the employees according to their region, sector, occupation, etc. This minimum wage is decided based on the cost of living of the employee.
There are two methods in which minimum wages are defined:
First is when the government assigns a subcommittee or committee to assess and make recommendations.
Second is when the government releases a notice which may be followed after specific dates as mentioned in the release.
4. Tax Deduction at Source
TDS or tax deduction at source is known to almost anyone who has worked in the industry. TDS is deducted for every employee who is expected to pay Income Tax as per their salary and benefits included in the payroll.
This is calculated and submitted by the employer on a quarterly basis and deducted from the employees’ salary on a monthly basis.
The employees are even asked by the employer to fill self-declaration including factors like savings, rent, etc. to save the tax applied on the salary. This is achieved at the starting of the fiscal year.
5. Maternity Benefit Act, 1961
The maternity benefit Act amendments were passed in the year 2016 and it included the following factors:
- While prenatal leaves have been increased to 8 weeks from 6 weeks, the maternity off is extended to 26 weeks.
- A woman with 2+ children gets 6 weeks of prenatal off and 12 weeks of maternity leaves.
- If a woman adopts a child who is younger than 3 months, she will get 12 weeks of maternity leave in this case as well.
- For the women in civil services, the maternity leave period is 180 days.
It is expected of the employer to include these benefits of maternity in writing and inform the employee of the same at the time of hiring.
6. Employees Provident Fund (PF) and Miscellaneous Provisions Act, 1952
Employee provident fund was originally developed as a method of retirement savings of the individual. Hence, since the starting of employment, the employee is expected to submit PF every month. The employer also contributes some amount to the PF of the employees.
This act is mandatory for any organization having 20+ employees. The PF is calculated based on the dearness allowance and basic pay of the employee. The limit is INR 15,000.
7. Equal Remuneration Act, 1976
This act is effective for every type of organization regardless of the types of operations or services. The act says that every organization should offer equal pay to women and men employees having the same experience and skills. This is achieved by avoiding any discrimination based on the sex of the employee.
Impact of Compliance Audit
1. Risk Assessment
Having a statutory compliance audit or hiring statutory compliance services in India means that you are taking a step towards analyzing your system. This way you can assess the effectiveness of your payroll structure. You can understand whether you are following the above laws and regulations or not. Along with this statutory compliance audit answers, several other questions are answered:
What are inconsistencies in the system?
What are the loopholes?
Are we effectively following payroll laws?
Is the payroll unit up-to-the-mark?
Are the calculations of taxes accurate?
Knowing the answers to these questions help you gain the ability to reduce the risks related to non-compliance. For example, if there is an issue with the TDS structure, it is necessary to find it out early. This will help you mitigate the issue and reduce the risk of penalties, fines, etc.
2. Avoid Non-Compliance
The reason for having compliance as a separate pointer is that it covers several aspects.
You need statutory compliance audit or statutory compliance services in India to analyze if you are making any compliance mistakes. For example, you have offices in 5 states and one across the international borders. Your HR team is responsible for ensuring the employees in every office receive their salaries according to the payroll structure, employment laws, and tax laws of the relevant state. You can’t meddle with this requirement.
A statutory compliance audit can help in finding the loopholes in this structure, which can allow the HR team to remedy the situation before it turns into non-compliance penalties.
3. Regular Review
Apart from every benefit and important feature of the statutory compliance audit, it helps you regularly review your structure. When you regularly keep a check of your accounts, payroll processes, and other related processes, it is easier for you to maintain accuracy. This accuracy improves the efficiency of the whole structure, thus, improving the performance of your payroll department.
There is no doubt in the fact that every organization requires a statutory compliance audit. This is because having an audit helps you maintain compliance, create a proper payroll structure, and regularly reduce the risks and issues of the system.
However, it is necessary to note that it is not always the best option to conduct this statutory compliance audit in-house. This is because external stakeholders can easily ensure that the audit is comprehensively executed and all the loopholes are highlighted, which can be an issue with the in-house audits sometimes.
So, if you have willing to hire statutory compliance services in India, you can reach out to Paysquare for effective services. We have a skilled team and industry experience to complete this statutory compliance audit with efficiency.