Statutory Compliances in Indian Payroll Management System

What is Statutory Compliance?

Statutory compliance in HR refers to the legal framework within which organizations must operate while dealing with their employees.

Every country has several hundreds of federal and state labour laws that companies need to align with. This list is forever being added to.

A lot of your company’s effort and money goes into ensuring compliance to these laws which could deal with a range of issues; from the payment of minimum wages to maternity benefits or professional taxes.

Therefore, dealing with statutory compliance requires for companies to be well-versed with the various labor regulations in their country of operation.

What is the Need for Statutory Compliance?

Adhering to statutory compliances is necessary for all big and small companies in the world to keep their businesses safe from the legal trouble. A deep knowledge of statutory compliances is required to minimize the risk associated with the noncompliance of statutory requirements.

In today’s competitive and legal business world, it is very challenging for employers to manage statutory compliances without a good payroll management software. Each country has various kinds of compliance requirements. This blog discusses the statutory requirements for Indian payroll system.

There are a number of statutory requirements for Indian companies and companies have to spend a significant amount of time in their payroll management to ensure that they are compliant with the legal regulations. If companies fail to adhere to statutory compliances, they may have to face heavy penalties which are several times more than complying with legal guidelines.

The Statutory Compliances Required for Indian Payroll

The common Statutory requirements that companies have to follow for their payroll management in India are:

Statutory requirements for Minimum wages

This act provides for fixing minimum rates of wages for skilled and unskilled laborers. It not only guarantees money for bare minimum survival requirements of workers but also takes care of education, medical requirements, and some level of comfort of workers.

The Minimum Wages Act being a state subject, the statutory compliance of a centralized Payroll management is to cater for the payment of minimum wages to an organization’s workers spread out across different states. Empxtrack Payroll has the provision to map this complex requirement.

Payment of ‘Overtime’ wages to workers is also a statutory requirement as per the Factory Act & Payment of Wages Act. It affects sectors like manufacturing & construction.

TDS deduction

Each employer is responsible to deduct tax from employee income, which is referred to as Tax deducted at Source (TDS). The salary components that impact TDS deduction are HRA, Special allowance, Leave travel allowance, Children education allowance, Medical allowance, Investments.

According to the latest income tax laws 2020, an employee has the leverage to choose from Old and New tax regimes. The TDS deduction depends upon the choice an employee makes.

The new tax regime reduces tax liability from an employee. The need to declare investments is eliminated and employees need not to submit investment proofs.

Statutory compliances for ESI fund and PF deduction

ESI maintained by ESIC is applicable to employees earning Rs 21,000 or less per month to provide the cash and medical benefits to them and their families.

PF is a compulsory contributory fund for the future of employees after their retirement or for their dependents in case of their early death.

Professional taxes

Professional tax or employment tax is a state-based tax. It is one of the statutory deductions from the gross income before computing the tax.

Gratuity

Gratuity is the amount given to employees by an employer when they leave the job after completing five years in service. Gratuity is calculated as Basic + DA divided by 26 * No of years of service *15.

EDLI

The EDLI (Employees’ Deposit Linked Insurance Scheme) provides assurance benefit (death insurance cover) to employees along with PF benefit. It is applicable to all employees with a basic salary below Rs 15000 per month.

The employees do not contribute anything towards EDLI. As per the latest rules, an employer is responsible to contribute 0.5% of the basic salary or a maximum of Rs. 75 per employee per month rupees. If the basic salary of an employee is above Rs 15000 per month, the maximum capping to avail the benefit is Rs 6,00,000.

The Empxtrack Payroll Software takes care of all the above given compliance requirements and statutory deductions required in India. It allows you to manage your PF and ESI preferences, manage professional tax, select the salary heads applicable to you, manage TDS through investment declarations and automatically calculate salaries after TDS deduction while processing payroll. In addition, it allows you to capture Challans and generate form 16 and form 24Q to manage all your statutory compliances with ease and efficiency.