What is Statutory Compliance?
An organization must function according to the pre-defined legal framework, which is known as statutory compliance. Statutory compliance for business, in general, is adhering to all the regulations, laws, and policies that are set by the authorities for an organization (in general) to follow. An organization and its employees and will all work in line with the standards and the laws for the industrial bodies and the regulatory office. Any business, irrespective of its stature or size, must abide by the central and state labour laws. These laws ensure the welfare of – the employee, employer, and the organization. Statutory compliances for business, are vast and not easy! The regulatory landscape is everchanging as the regulatory bodies enforce and implement new regulations in quick intervals. Organizations should always stay updated with these changing regulations because non-compliance causes lead to penalties.Importance of Statutory Compliance
Every nation has its own set of state and central labour laws that the organizations or businesses need to comply with. Companies should be updated with the statutory compliances for business related to the labour Acts of their country. It is mandatory for all companies to abide by these rules. Non-compliance can cause several issues, including penalties, fines, legal problems, and more. This is why businesses invest their money, time, and effort to meet the compliances. From minimum wages tax to professional taxes, they need to ensure everything is updated. Businesses may also seek professional help from third-party experts to ensure they are running their business in line with these compliances.Is Statutory Compliance Different for Organizations?
Whether it is a Limited Liability Partnership, Partnership Firm, Public Firm, Private Limited Firm, or any other type of business organization, the statutory compliances for business do not change. All organizations that are hiring employees and paying salaries to them must be compliant with the labour laws. Statutory compliances can be demanding, which is why the companies should be well-acquainted with them and stay updated with all the notices released by the government in terms of labour laws. Businesses must devise an efficient way to stay compliant and reduce any risks of fines, penalties, lawsuits, and similar problems.What is the Financial Impact of Statutory Non-Compliance on Business?
Statutory non-compliance can be dreadful. The financial impact on business comes in the form of penalties that are imposed. Additionally, this impact is amplified with limitation on activities or investigation that causes the business to stop working till they are able to clear their name. A government investigation is intimidating and cost potential legal issues, several hours of work, and fees. Recently, Reserve Bank of India asked fourteen banks, including Bank of Baroda, IndusInd Bank, State Bank of India, and more, to pay penalties for non-compliance. This penalty fee was between Rs. 50 lakh to Rs. 2 crores. Therefore, it is imperative that businesses and organizations stay updated with the statutory compliances for business and its rules and regulations that are set by their state and central government. This helps in evading financial losses.What are the Consequences of Non-Compliance on Business?
Non-compliance of statutory laws set in line for businesses and organizations by the central and state can cause serious problems to the company, including stagnating growth. The following are some common risks of statutory non-compliance:1) Loss of the Company Goodwill
Businesses stay functional and operational because they are known and trusted by their customers. Statutory non-compliance causes loss of trust and integrity. Failing to comply with the legislation stains their reputation because customers start doubting their authenticity.
While the financial penalty is something that can be taken care of, a criminal conviction for non-compliance sets back a business immensely. For instance, some famous companies such as Nestle, Hershey and Mars have recently been sued for non-compliance – they engaged children to work in their plantations in inhumane conditions.
2) Cancellation and Suspension of Operational Licences
Businesses require licenses to run their work and stay afloat with the industry standards. Statutory non-compliance can cause their licenses to be suspended temporarily or revoked permanently.
3) Imposition of Fines
Fines and penalties are the most common consequence of statutory non-compliance. There are many Acts that fall under statutory compliance. The penalty is different for defaulting on a certain Act. Depending on the severity of non-compliance, the government will define the fine that should be imposed on your business. Failing to pay these fines on time tends to accumulate the fine causes heavy financial loss.
4) Loss of Current and Potential Staff
Employees don’t like being associated with companies that don’t meet their compliances. The current staff is likely to leave the business. People don’t like to work with companies that have been prosecuted by the law, have a bad reputation for defaulting the laws set by the government, or are always seen paying fines because of non-compliance. Such companies are unstable and not trusted. They would not want to ruin their resume by being associated with such businesses.
5) Civil and Criminal Liabilities
It is common for non-compliant businesses to be prosecuted under civil and criminal laws depending on the severity of their impeachment. Statutory non-compliance will usually result in the business owners, Board of Directors, CEO’s and/or similar business heads or those responsible for running the company facing a lawsuit.
6) Negative Impact on the Company’s Productivity
Statutory non-compliance may cause the government to take actions that may include cease in production or providing certain services till the errors have been rectified. If the problem(s) are not taken care of soon enough, it may also lead the business to shut down. Having statutory compliances for business in place is mandatory if you want to continue running your business smoothly and for a long time.
Are There Any Challenges that Businesses Face in Keeping Up with Statutory Compliance?
Despite understanding its significance and jeopardies when not being compliant, businesses may be unable to stay compliant because they may face problems in keeping up with statutory compliances. Here are some challenges that may come their way when trying to follow statutory compliances for business:1) Lack of awareness
It is not uncommon for professionals in a business to lack knowledge and expertise in the requirements of statutory compliances. This is especially when a business operates in multiple locations (national or international). They must hire professionals who are adept in the knowledge of statutory compliance to fulfill this task. This ensures smooth functioning of the business.
2) Segmented Compliance
Having different departments to control different functional activities of a business always creates problems. Such companies are usually non-compliant. Outsourcing can be an answer to this challenge.
3) Dynamic Statutory Landscape
One of the major reasons why businesses fail in staying compliant with statutory compliances for business is because they are too busy taking care of their main business that they overlook or forget the compliances. Statutory compliances for businesses are always changing and have a different set of complexities, making it difficult for businesses to keep up.
