Payroll Management

Payroll Compliances in India

Payroll compliance or statutory compliance in India refers to the legal framework to which companies or organisations must adhere with regard to the treatment of their workers or employees. These companies often invest a hefty sum in statutory compliance activities such as company audits. Therefore, it is important to get things right the first time and stick to compliance promptly.

Any business in India must follow a given set of rules and regulations. In a business, even before the client, the employees come first. Without them, neither the business nor its clients will exist in the first place. While several legislations govern the regulations concerning the welfare of the employees, those that administer the payroll services of the employees are the most basic and crucial guidelines that must be adhered to. 

Payroll compliance or statutory compliance in India refers to the legal framework to which companies or organizations must adhere with regard to the treatment of their workers or employees. Several organizations put most of their time and effort into payroll compliance. Organizations face several legal hurdles, such as unreasonable demands for wages, coercion from trade unions, actions of aggressive employees, etc. Statutory compliances, therefore, ensure that both the employee and the employer are protected, and both get to exercise their rights and live peacefully in unison. Businesses, by and large, do not intend to break the payroll compliance measures, but without a stringent protocol, it might, sadly, slip through the fingers, thus inviting trouble.  

Importance of Payroll Compliance

India has a well-established set of state and central labor laws that companies need to comply with. To be conformable with statutory compliance, companies must be updated on all existing labor regulations and adhere to the same. Failing to do so can push the company into legal battles and huge penalties. This is why most of the company’s money and time goes into safeguarding compliance with these laws. This includes but is not limited to paying minimum wages, rendering maternity benefits, and provident funds to the employees. Therefore, companies dealing with payroll compliances need to be well-versed in India’s different labour laws or regulations.

Some of the Payroll Regulations Are Elucidated Below

Payment of Wages Act, 1936

The legislation ensures that employees of various establishments are duly paid their wages on time. According to this Act, the employer is responsible for paying wages at least every month on a timely basis. The wages can be paid daily, weekly, or monthly basis at the convenience of the employer. The wages can be paid by cash or cheque, and with the employees’ consent, they can also be paid through bank transfers. The minimum wage rates are decided and laid by both the Central Government and the State Government. The wage rates also vary across the employment sectors and types of employees.

Minimum Wages Act, 1948

This Central Act was formulated to avert labour exploitation by fixing a minimum wage rate. However, the minimum wage varies from state to state or sector to sector since the provincial government also has the power to interfere in this. The Act defines minimum wage as the cost of living in the respective state. Therefore, the minimum wage is decided considering different and same schedule employment, and wages can be fixed daily or hourly.

Payment of Bonus Act, 1965

The payment of bonuses in India dates decades back to when the First World War was started. Workers in certain textile mills were awarded 10% of their wages as a war bonus ever since factories and organisations with more than 20 employees provided an annual bonus. As per the provisions of the Payment of Bonus Act, 1965, the bonus is computed based on the employee’s remuneration and the company’s or the organisation’s profit. Employees who have worked for not less than 30 days are eligible to receive bonuses from their employers.

Maternity Benefits Act, 1961

The Act intends to provide security for women employees by issuing full paid leave from work during their period of delivery and child care. Organisations with more than ten employees must award maternity benefits to their employees. To be eligible for maternity benefits, the employee must have worked in the establishment for at least 80 days in the last 12 months. The Act applies to factories, mines, plantations, and other shops and establishments dictated by the Central Government.

Employee State Insurance (ESI) Act, 1948

The Act was formulated to enable employees to tackle unforeseen circumstances, including but not limited to medical emergencies, maternity leave, or accidents in the workplace. The employer and the employee contribute 3.25% and 0.75%, respectively, to the employee’s insurance account. Non-seasonal factories with more than ten employees must implement ESI in their establishments for those employees that earn less than ₹21,000 per paycheck. If the company falls under the esi registration Act compliance, the Employee’s CTC must be updated, including the ESIC employer and employee contribution.

Employees Provident Fund (EPF) Act, 1952

The Act provides provisions for the social welfare of employees. Both the employee and employer contribute 12% of basic pay and dearness allowance (DA) towards EPF. The money thus contributed claims an exception under Section 80C of the Indian Income Tax Act. Those establishments with 20 or more employees have to adhere to the provisions of this Act.

Labour Welfare Act

The Act applies to employees enrolled in industries that operate on specific conditions. The Act’s provisions dictate the dos and don’t to improve the working conditions of the employees. The Act also aims to provide social security and leverage the employees’ standard of living. Individual state authorities govern the statutory conditions of the Act, and hence the amount and frequency of the contribution vary across the states.

Payment of Gratuity Act, 1972

As per the Act, Gratuity is paid in all the establishments such as NGOs, hospitals, and educational institutions with ten or more employees. As gratuity is a fixed component of the employee’s salary, it is shown as part of the CTC. Thus, making gratuity a part of the employee’s CTC is mandatory.

Tax Deducted at Source (TDS)

According to the Income Tax Act, 196, TDS (Tax Deducted at Source) deduction is a form of indirect tax collection. TDS enables employers to deduct a specific tax amount before paying the employee’s full salary. TDS rule applies to all employees falling under the Income Tax Slab. It might be too tiring for organizations to keep in line with the stringent compliances enlisted above. The best way to keep these on track is to outsource the management of these measures to the right hands. At Vakilsearch, our legal experts can check and help your business be compliant with such statutory provisions. Though the list of legislations looks exhaustive, an adept legal advisor can surely handle this with due care, thus ensuring your business stays safe and sound.     

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