Payroll compliances in India

Last Updated at: May 15, 2020
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Small and medium enterprises (SMEs) and small businesses have sought payroll subsidy and have requested Centre/States to take care of ESI/ PF payments for the next six months.

Payroll compliances in India
The outsourced payroll partners will now manage licensing procedures such as employee state insurance, eligible tax registration, and factory licenses that are usually time-consuming and complicated procedures.

 

Payroll compliance or statutory compliance in India refers to the legal framework which companies or organizations must adhere with regard to the treatment of their workers or employees. Most of the company’s money and time goes into safeguarding compliance with these laws. Everything from being compliant to the minimum wages payment to maternity benefits to provident funds needs not only a lot of time but also experts who can give advice on all of these compliance measures. Therefore, the companies dealing with payroll compliances need to be well-versed with the different labour laws or labour regulations in India.

Organization adhering to minimum wages

Minimum Wages come under the Minimum Wages Act, 1948. The minimum wage rates are given by both the Central Government and the State Government. The wage rates vary from the employment, sector, and type of employee.

According to this act, the employer is responsible to pay wages at least every month on a timely basis. Wage period may be fixed according to the convenience of the employer on a daily, weekly or monthly basis.

Stay Legally Compliant

Registration of company for Provident Fund

The Provident Fund allows the employees to save some part of their income. The Provident Fund is an amount of funds accumulated through regular and monthly contributions made by an employee and their employer.

According to EPFO (Employee Provident Fund Organization) rules and regulations, any company which has 20 or more employees should register for Provident Fund. If the company fails to comply with EPFO rules and regulations, then it will be charged with heavy penalties.

Registration of company for ESIC (Employees’ State Insurance Corporation)

The ESIC social security scheme brings reasonable healthcare to employees and their family members. As per the ESIC Act, all the companies consisting of more than 20 employees whose monthly salary falls under Rs.21,000 should register under the Act.

So, if the company falls under the ESIC Act compliance then the Employees CTC needs to be updated including the ESIC employer and employee contribution.

Including Gratuity in employee CTC (Cost to Company)

According to the Payment of the Gratuity Act, 1972, Gratuity is applicable to all the establishments such as NGOs, hospitals and educational institutions with 10 or more employees.  As gratuity is a fixed contribution from the side of the company, it is shown as part of the CTC. Thus, making Gratuity as part of the employees CTC is mandatory.

Necessary deductions (TDS and Professional Taxes)

According to the Income Tax Act, 196, TDS (Tax Deducted at Source) deduction is the means of indirect tax collection. This TDS rule gives the authority to employers to deduct a specific amount of tax before full payment to the employee. TDS rule is applicable to all the employees falling under the Income Tax Slab.

Thus, these required TDS deductions have to be made before the payroll is run. Same as TDS deductions, Professional Tax is also collected from the monthly salaries by the employers. Failure to collect or pay professional taxes will lead to penalties. Professional Tax varies from state to state.

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Payroll compliances in India

6098
The outsourced payroll partners will now manage licensing procedures such as employee state insurance, eligible tax registration, and factory licenses that are usually time-consuming and complicated procedures.

 

Payroll compliance or statutory compliance in India refers to the legal framework which companies or organizations must adhere with regard to the treatment of their workers or employees. Most of the company’s money and time goes into safeguarding compliance with these laws. Everything from being compliant to the minimum wages payment to maternity benefits to provident funds needs not only a lot of time but also experts who can give advice on all of these compliance measures. Therefore, the companies dealing with payroll compliances need to be well-versed with the different labour laws or labour regulations in India.

Organization adhering to minimum wages

Minimum Wages come under the Minimum Wages Act, 1948. The minimum wage rates are given by both the Central Government and the State Government. The wage rates vary from the employment, sector, and type of employee.

According to this act, the employer is responsible to pay wages at least every month on a timely basis. Wage period may be fixed according to the convenience of the employer on a daily, weekly or monthly basis.

Stay Legally Compliant

Registration of company for Provident Fund

The Provident Fund allows the employees to save some part of their income. The Provident Fund is an amount of funds accumulated through regular and monthly contributions made by an employee and their employer.

According to EPFO (Employee Provident Fund Organization) rules and regulations, any company which has 20 or more employees should register for Provident Fund. If the company fails to comply with EPFO rules and regulations, then it will be charged with heavy penalties.

Registration of company for ESIC (Employees’ State Insurance Corporation)

The ESIC social security scheme brings reasonable healthcare to employees and their family members. As per the ESIC Act, all the companies consisting of more than 20 employees whose monthly salary falls under Rs.21,000 should register under the Act.

So, if the company falls under the ESIC Act compliance then the Employees CTC needs to be updated including the ESIC employer and employee contribution.

Including Gratuity in employee CTC (Cost to Company)

According to the Payment of the Gratuity Act, 1972, Gratuity is applicable to all the establishments such as NGOs, hospitals and educational institutions with 10 or more employees.  As gratuity is a fixed contribution from the side of the company, it is shown as part of the CTC. Thus, making Gratuity as part of the employees CTC is mandatory.

Necessary deductions (TDS and Professional Taxes)

According to the Income Tax Act, 196, TDS (Tax Deducted at Source) deduction is the means of indirect tax collection. This TDS rule gives the authority to employers to deduct a specific amount of tax before full payment to the employee. TDS rule is applicable to all the employees falling under the Income Tax Slab.

Thus, these required TDS deductions have to be made before the payroll is run. Same as TDS deductions, Professional Tax is also collected from the monthly salaries by the employers. Failure to collect or pay professional taxes will lead to penalties. Professional Tax varies from state to state.

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