This article enlightens its readers with what statutory compliance is and how one can avoid payroll issues. It signifies the importance of statutory compliance, mentions various laws that business entities must follow, and what companies should do to maintain compliance. The article also talks about various payroll issues that can arise due to non-compliance and provides practical solutions to mitigate risks. Lastly, information about various important laws and regulations related to statutory compliance is explained in detail.
How Can Companies Stay Statutory Compliant while Avoiding Payroll Issues?
Payroll is not as straightforward as paying a company’s employee. It evolves by maintaining the financial records of each employee, including salaries, bonuses, allowances, tax deductions, leaves taken, insurance deductions, etc.
The entire process is time-consuming, error-prone, and expensive. A company spends a lot of time, money, and effort to mitigate payroll issues.
Understanding your customers is a well-recognized business practice; however knowing your employees is often overlooked. Employees are your company's most valuable asset. Knowing them well, keeping them engaged and happy determines the long-term success of your company.
They are the ones who are in direct contact with your customers; hence you need to ensure fair treatment and connect well with your employees to provide the best customer experience that you aim for.
Every organization needs to adhere to specific norms and regulations while dealing with its employees. They need to protect their company from facing legal issues that may arise due to non-compliance. This protection is known as statutory compliance.
Definition of Statutory Compliance
Statutory compliance means adhering to a requisite legal framework within which a company must function while dealing with its employees. Basically, organizations must treat their employees in compliance with State and National laws.
The Importance of Statutory Compliance
Statutory compliance in HR requires staying updated with all the labor regulations of the country. Presently, many organizations seek companies that provide statutory compliance services to increase productivity.
If a company in India fails to comply with central or state labor laws, it can lead to stagnant growth and heavy penalties. Research states that the cost of non-compliance is 2.71 times greater than the cost of compliance.
The company’s reputation takes a hit, stakeholders lose their faith in the company, and it can even result in cancellation or suspension of operational license. Every company must obey these laws to avoid facing any legal challenges.
Business entities must comply with the following set of laws in India,
- Tax laws
- Labour laws
- Employment laws
- Advertising laws
- Financial and Corporate laws
- Environmental regulations
- Data Privacy
- Intellectual property rights
- Competition and antitrust laws
- Industry-specific laws
- Foreign exchange laws
These laws are dynamic, and they change at the National and State level. Hence, it is crucial to understand amendments and abide by them. Having in-depth knowledge of these laws can help avoid the risk of non-compliance and protect your company's growth.
How do you Maintain Statutory Compliance?
The following points must be kept in mind to ensure effective and timely statutory compliance in your organization,
- Follow ethical practices
- Expert supervision and support during audits
- Unrestricted access to local and regional expertise
- Adherence to laws and regulations by gaining knowledge about timelines
- Updated documents and data in centralized locations
Common Issues in Processing Payroll:
There are various challenges faced while processing payroll. It is rightly said, “Prevention is better than cure”. Understanding and acknowledging these payroll issues can reduce risk and easily prevent them. Let’s look at a few common payroll issues and solutions to avoid them,
1. Inadequate Payroll Solutions
Using outdated payroll solutions can cause miscalculations, delay in payments, and harm the work environment. According to a survey conducted, 29% of respondents mentioned that they use payroll solutions that are more than 10 years old.
Many companies still rely on processing payroll manually, which has high chances of error. Organizations should consider investing in payroll software that mitigates errors, delays, and compliance risks. Payroll solutions complete tax filings, keep up with tax codes, track changes, so you don’t need to.
Another common issue is when employees hit overtime without intending to do so. The Fair Labor Standards Act states that organizations need to pay premium wages to employees who work over 40 hours per workweek.
Overtime can lead to serious problems if not handled properly. Investing in time-tracking software so that HR can keep track of overtime hours is necessary. Hence, payroll software must be considered to achieve accurate record-keeping of each and every data.
2. Overshooting Deadlines
Processing payroll is complex, and if it gets delayed due to holidays, events, leaves of employees, etc., your schedule goes off track. This leads to unhappy employees and can even lead to legal issues.
Hiring a payroll outsourcing company and using payroll software can make this process much smoother. Therefore, you will never overshoot a deadline and sustain a positive workplace environment.
Even an honest mistake can accelerate quickly if not managed on time. Especially with payroll, the mistakes are more public, and they need to be addressed.
HR professionals need to ensure that they communicate policy changes, clear any areas of confusion and ensure open communication of factors involving paychecks. They need to educate employees regarding important matters such as tax withholdings so that everyone is on a common page.
4. Prone to Errors
HR professionals need to maintain a huge amount of data, including attendance, leaves, overtime, reimbursements, etc. Without sophisticated payroll software, one is bound to make errors. Most professionals use Excel sheets to record and maintain data, which needs expert handling. Even a minor mistake in employee’s salaries can have repercussions.
5. Multi-state/country Employees
If you are working with employees located in different states or countries, payroll complications amplify. The tax code differs for every state and nation. Complying with state and federal laws of every location is a challenge for HR professionals.
They should be well-versed with the rules and regulations of different states and countries. It is humanly impossible to be aware of so many laws; hence hiring a payroll outsourcing company or software can be very beneficial.
Many companies are drifting from traditional workplaces, and complying with the laws of your employee’s location is extremely crucial. Failure to do so can lead to many legal complications.
What are the Major Statutory Compliance Requirements?
The Minimum Wages Act, 1948
Under this act, minimum wages for employees are determined by the Central and Provincial governments. The wages depend upon which region, occupation, and sector the employee belongs to. It ensures that skilled and unskilled workers are paid at least the minimum wages to keep their homes running. It protects people from exploitation.
There are two methods of revision minimum wages:
1) Committee Method- In this method, the Government sets up committees and subcommittees to discuss inquiries and recommendations for revising minimum wages.
2) Notification Method- Under the notification method, the Government proposal gets published in Official Gazette specifying the people getting affected by the change along with a specific date.
Tax Deduction at Source (TDS)
Under TDS, when an employee gets their income, the employer must deduct tax and submit it to the income tax department. Leave travel allowance, special allowance, children’s education allowance, medical allowance, investments are various salary components that impact TDS deduction.
TDS is exempted if the receiver provides a self-declaration stated that the employee had made investments in FORM 15G/15H. Or if he provides a certificate of the exemption provided by the assessing officer.
The Payment of Bonus Act, 1965
The payment of Bonus Act provides annual bonuses to establishments employing more than 20 people. The bonus is calculated by the employee’s salary and the profits of the establishment. The bonus should be paid at the rate of 8.33% and a maximum rate of 20% within 8 months from the close of the accounting year.
Employees drawing Rs 21,000 monthly and have completed 30 days in a financial year are eligible for the bonus payment.
Every state has different laws governing professional taxes, which are levied following a slab-based system. Professional taxes are mandatory for every individual who earns, and a penalty is imposed in case of non-compliance.
When an employee leaves their job after five years in service, a specific amount is given to them, known as gratuity. This amount is calculated as Basic+DA divided by 26*No of years of service*15.
Maternity Benefit Act, 1961
Maternity Benefit Act governs the employment of pregnant women before and after childbirth. It provides certain privileges and benefits to these employees.
It is applicable to all establishments employing 10 or more people. Women who work in factories are provided maternity benefits under the Employees’ State Insurance Act, 1948.
Following are the benefits provided under MBA,
1) Pregnant women employees can claim paid leaves, prenatal and postnatal.
2) This benefit can be claimed by women who have worked for 80 days, twelve months before the date of delivery.
3) In the event of the death of the woman, full maternity benefits can be claimed, which are provided to the surviving child.
4) In the event of death of the child, the benefits are calculated till such period including the date of death of the infant.
The Employees’ State Insurance Act, 1948
Under this Act, certain benefits are provided to employees in case of sickness, maternity, or injury. It applies to non-seasonal factories with power and employing more than 10 employees. It also applies to non-power using factories employing more than 20 employees.
The wages under this act are Rs 10,000 per month. These benefits are offered in ESIC hospitals, clinics, and approved medical practitioners.
Paysquare is a leading outsourcing company that can cater to all your statutory compliance requirements. You can handle all your payroll responsibilities to the company and focus on your companies core responsibilities. The brand provides the best customer experience and has no geographical limitations. Get in touch with the company and find out more about all the services offered by them.