Understanding Payroll Statutory Compliance: Key Considerations for Employers

Understanding Payroll Statutory Compliance: Key Considerations for Employers

The word statutory translates to “of or related to statutes”- rules and regulations, so statutory compliance stands for adhering to rules and regulations. These rules and regulations are a legal framework the government (central and/or state) put in place for all businesses to follow – we are trying to comprehend payroll statutory compliance services.

Here is an Overview of Payroll Statutory Compliance

Significance of Statutory Compliance

All countries have a set of labour laws that businesses need to comply with. For businesses to comply with these laws, they should be updated with the regulations of their country. Non-compliance with these set rules may land the company in legal trouble along with fines and penalties. This is why all operating businesses spend a lot of money and time to meet all the Key components of Payroll Statutory Compliance.

Are Statutory Compliance in HR & Payroll Different for Every Organization?

Whether it is a private limited company, partnership firm, limited liability company, or Public Limited company any other type of company, the payroll related statutory compliances remains the same for all. Any company that hires employees is liable to pay them salaries and comply with all the labour laws set by the government.

What are the Advantages  for organizations  to have an outsourced partner to handle payroll related Compliances

  • Timely payments of respective authorities ensures the company doesn’t have to pay any fines or penalties.
  • Protects all businesses from any unreasonable benefit demands or wages made by trade unions.
  • Prevent the business from getting into any legal troubles
  • Risk of any adverse incidents can be evaded if the business is compliant

What are the Risks an Organization May Face on Being Non-Compliant?

  • Loss of business integrity and reputation
  • Financial losses in the form of penalties and fines
  • Subject to lawsuits
  • Impacts customer loyalty

Statutory on Employee Salary and Benefit

Employees Provident Fund Act, 1952

The Employees Provident Fund Act, 1952, is the main social welfare contribution for employees in India. Both employee and employer need to make a contribution towards this fund. 12% of the basic pay and Dearness Allowance (DA) is contributed towards the retirement fund.

Section 80C of the Indian Income Tax Act states that an employee’s contribution towards their PF account is eligible for tax exemption, which helps the employees to take home more wages. All organizations with 20 or more employees must comply with this Act.

Contribution:

StatutoryEmployerEmployee
Provident Fund (PF)12%3.67%
Employee Pension FundNA8.33%

Employers not complying with this Act face penalties, fines, and sometimes imprisonment.

Employee State Insurance Act, 1948

The Employee State Insurance Act, 1948, helps the employees of an organization to cope with any unfortunate events, including medical emergencies, situations of disability (of the workplace), and maternity leave. For every salary paid, the employer contributes 0.75%, while the employer makes a contribution of 3.25% towards this fund. ESI is compulsory for all employees who are working in a non-seasonal factory that employs more than 10 employees. However, it is valid for only employees who are earning less than Rs. 21,000 (per salary check)

Sine ESI is applicable for employees earning less than Rs. 21,000. The payroll department should regularly check the appraisal cycle to ensure that the employee is below the limit. The contribution towards ESI should be discontinued as soon as the employees’ paycheck surpasses the said amount. Each ESI contribution cycle lasts six months – from April to September or October to March.

Labour Welfare Fund Act, 1965

This Act has been instated to oversee the welfare of the employees working in certain types of industries. It offers facilities to the labourers for their social security, to better their work conditions and improve their living standards.

The statutory contributions for Labour Welfare Fund are managed by individual state authorities. The state labour welfare board states that the amount and frequency of the contribution and may be different for every state. For instance, some states may make the contributions every six months, while in other states, this contribution may be an annual affair.

Statutory on Tax liabilities

TDS (Tax Deducted at Source)

TDS is one of the most significant statutory rules which needs to be adhered to by all organizations. It is basically collecting tax from the individual based on their income. It is applicable to different types of income, including salary, commission and interest.

A different tax rate may be applicable for each employee as it is calculated based on their salary. Currently, two different tax regimes are followed in India – Old Tax Regime and New Tax Regime.

Old Tax Regime

Income Tax SlabTax Rate
Up to ₹2.5LNo tax
₹2.5L to ₹5L5% *
₹5L to ₹10L₹12,500 + 20% of total income exceeding ₹5L
Above ₹10L₹1,12,500 + 30% of total income exceeding ₹10L

New Tax Regime

Income Tax Slab for FY 2020-21New Tax Rate
  
Up to ₹2.5LNo tax
₹2.5L to ₹5L5% *
₹5L to ₹7.5L10%
₹7.5L to ₹10L15%
₹10L to ₹12.5L20%
₹12.5L to ₹15L25%
Above ₹15L30%

As you see, there are many key components of payroll statutory compliance. Managing and adhering to them can be complicated. Therefore, if you are a small or medium business, outsourcing payroll services to a reliable provider is recommended. At PaySquare, we offer trusted statutory compliance services to our clients. Get in touch with us to understand how we can help your business adhere to all the compliances.