What happens if an organization doesn’t abide by the rules?
Organizations that do not meet the compliance have heavy implications on the bottom line of business. Few impacts on business are outlined below
Organizations suffer heavy damages and financial losses. Organizations may slip through the cracks and lose visibility. Organizations may lose their reputation and goodwill.
Is it possible to avoid the risk of non-compliance?
It’s easier than you think
This is where statutory compliance rules come in and play a crucial role in ensuring the smooth functioning of an organization.
Let’s first understand what statutory compliance is.
What is Statutory Compliance?
Statutory compliance refers to the legal framework of rules and regulations within which an organization must function and adhere to in the treatment of their employees.
In simple statutory compliance means abiding the rules and regulations associated with the particular business industry.
“Every organization has a set of principles or rules governing their employees, which they need to be aware of and follow strictly. Similarly, all the business activities have a set of rules and regulations that they have to strictly follow for smooth functioning”
Companies spend a lot of effort, time and money for ensuring compliance with these laws. They can deal with many issues ranging from the payment of minimum wages to professional taxes to EDLI.
The question arises, why statutory compliance is required? What is the importance of statutory compliance?
What is the Need for Statutory Compliance with your Business?
The main purpose behind setting the rules and regulations is to safeguard the interest of employees so they receive fair treatment. They will never be exploited at work and always paid fairly as per the work done. Thus statutory compliance rules help the organization in establishing employee loyalty.
An organization which attaches importance to compliance and meet the compliance requirements enhances the value of the company and help in establishing the company’s credibility. Therefore it is necessary for all the organizations (whether a big or small) to strictly adhere to compliance requirements to keep their businesses safe from legal trouble.
Organizations that do not meet the statutory compliance rules may face the consequence of heavy penalties by legal authorities. Any penal action can be detrimental to the growth and spoil the reputation of the business. Sometimes, it may even lead to the closure of the company. Therefore organizations that undertake a proactive approach to compliance management are always safe, efficient and trustworthy organizations.
After having the insight of statutory compliance rules, it’s very clear that these compliance act as a tool to cut down the costs incurred in paying penalties which would be much higher than actual costs of compliance.
Every country has a separate set of compliance requirements. Businesses have to meet the compliance of the respective geography from where they operate.
Before discussing the statutory requirements for the Indian payroll system lets see what steps an organization should take to ensure compliance.
Steps to Ensure Compliance
Businesses may take the following steps in order to ensure statutory compliance:
- Understand, familiarize and educate professionals about appropriate legal, regulatory and statutory compliance requirements.
- Increase the awareness of the various labor laws of the country from where you operate.
- List out all the statutory compliance requirements at each business location, including the overseas establishments
- Have an organized and systematic approach
- Conduct an audit consistently
- Sit up and take update about the changing requirements on a regular basis
- Need to be up to date and should have visibility of the compliance of their teams at all time
- Identify gaps through the planning of an exemption report
All the above steps will help to avoid the risk associated with non-compliance of statutory requirements and prevent the organization from major setbacks.
Are you there...
OK, now see the rules and regulations for compliance an organization must pursue in India.
The Statutory Compliance for Indian Payroll:
- Minimum wages
- TDS Deduction
- ESI Fund & PF Deduction
- Professional Tax
Statutory Requirements for Minimum Wages
The Minimum Wages Act, 1948 is an act for fixing the minimum wages that must be paid for skilled and unskilled laborers. The fixed wages will not only ensure money for their livelihood but also cover their educational and medical requirements. This act is governed by both central as well as state governments.
Minimum wages are fixed by state governments for various classes of employees. They prepare the rules and overview of the claims relating to non-payment of minimum wages. If payments are done below the fixed minimum wage then it is regarded as forced labor. This act also covers overtime wages to workers which are a statutory requirement and affects the manufacturing and construction industries.
As per the section 192 of the Income Tax Act, 1961, every employer has to deduct TDS before releasing salary to an employee, if the employee’s salary bracket will be more than the exemption limit. Employers also need to ensure to generate Form 24Q and Form 16 on time.
An employer has to deposit the amount deducted in the TDS form with the government prior to the 7th of the subsequent month without fail. This should be done continuously for all months except March, for which the last date is the 30th of April.
If TDS has not been deposited by an employer by the due date, there will be the penalties which are mentioned below:
- Late filing fee (if not filed by the deadline)
- Interest (if not deposited on time) and
- Penalty (If not filed within a year of the due date)
Statutory Compliances for ESI fund and PF Deduction
ESI act, 1948 is an act to protect the interest of workers in contingencies like sickness, maternity, disablement and death due to employment injury resulting in loss of wages or earning. The ESI scheme is maintained by ESIC and financed by the contributions of employers and employees. All the employees whose monthly income does not exceed Rs 21000 are eligible to avail of the benefits under the scheme. Employees whose daily earning is Rs. 176 are exempted from ESIC contribution. However, employers will have to share for these employees.
Similar to ESI, the Employees Provident Fund (EPF) is also a contributory fund in which both employer and employee have to contribute an equal amount of 12% of basic wages, plus dearness, retaining allowance and special allowance. If no. of employees is less than 20 in an organization than as per EPFO rules, the employer contribution is limited to 10%. EFP is mandatory for Indian Organizations under “The Employees Provident Fund and Miscellaneous Provisions Act 1952”.
Professional tax is levied by the state government. The tax amount varies in different states. Each state follows the slab system based on the salary or wage while levying the tax.
If professional tax regulations are violated than penalties are imposed by all states
- For failing to register once professional tax comes into effect.
- For failing to pay by the deadline.
- For failing to file the return by the specified due date.
Gratuity is the amount paid by an employer to employees who have completed five or more years of service with the firm. This is given when an employee leaves the job. An employer has to pay gratuity within thirty days from the date it is payable to the person.
If an employer fails to pay within the specified period then they will have to incur simple interest on it from the date that gratuity becomes applicable as per the rate stipulated by the central government. If an employer refuses to pay gratuity than he shall be punishable with imprisonment for a term not less than six months but may extend to two years.
The EDLI scheme is applicable to all the organizations registered under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. This scheme provides an insurance cover to the registered nominee of an employee in the event of the death of the person insured, during the period of service.
Under this scheme, an employer has to contribute 0.5% of monthly basic pay or a maximum of Rs. 75 per employee per month for the life cover. If there is no other group insurance scheme then-employer contribution is capped at Rs. 15000/- per month. This scheme is a combination of EPF and EPS. How much benefit an employee’s nominee will receive depends upon the last drawn salary of the employee.
What is a Compliance Audit?
A compliance audit is a procedure for evaluating an organization's adherence to a set of regulatory guidelines or laws. This audit is carried out by independent third parties and follows a particular format that is determined based on the compliance regulation being assessed.
What needs to be examined in a compliance audit varies depending on whether an organization is a public or private company.
Compliance audit reports measure if an organization is adhering with state, federal or corporate regulations, rules, and standards. This report helps an organization to reduce the risks in compliance management.
If an organization fails to meet the compliance then it will be penalized by legal authorities.
The number of startup companies is more in India and its growing day by day. But many startup companies are struggling to achieve compliance due to demanding regulatory environment and frequent changes in the compliance laws. In order to resolve these problems hire the best statutory compliance services in India for your organization’s compliance management.
Statutory compliance rules are very important for an organization. Effective management of compliance protect the interest of employees and maintain the reputation and goodwill of an organization as well.
If you are looking for compliance services to be hassle-free and concentrate on core offerings in your Business then contact paysquare which provides the perfect service in statutory compliance in Pune to meet your organization’s requirements.