All You Need To Know About Statutory Compliance in India

Statutory Compliance in India

In India, companies spend time and energy to ensure that their payroll system management is compliant with legally that requires laws and regulations. Many companies worry about having to face legal issues related to statutory compliance. Even if an organization does not intend to violate laws still there is a chance of loopholes inside the organization. As the risk of non-compliance is increasing, companies operating in India are updating statutory compliance in HR in India.

What is statutory compliance?

The legally defined framework in which any particular organization must operate. This is referring to in the context of statutory compliance. In addition, the company should conduct employees and employees comply with the various state and federal labor laws.

These laws protect the rights of the employee, employer, and organization. Regardless of size or stature, every organization must adhere to both state and central labor laws. And if they do not, strict legal action can be taken against them.

What is the significance of Statutory Compliance?

Respecting statutory requirements is mandatory for small and large companies to keep their business safe from legal pitfalls. An in-depth understanding of statutory requirements is essential to reduce the risk of non-compliance with statutory regulations.

Each nation has its state and central labor laws, which companies have to follow to meet statutory compliance demands that companies keep up-to-date with all labor regulations of their respective country.

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Statutory compliance can benefit everyone – the employee, the employer, and the company.

For employees, treat them with respect and pay their debts in time. Therefore, it provides that the conditions for employees are fair and well-managed.

The organization and the employer ensure transparency of the rules and regulations to be able to draw upon. In addition, it protects the company from legal action and penalties. In conclusion, it makes for a secure and reliable environment.

Let’s take a look at some most essential statutory obligations:

The Minimum Wages Act, 1948

  • The Minimum wages Act fixes the minimum wage rates for any Indian firm, and each of the Provincial Governments and the Central Government determine these rates.
  • The minimum wage rates are set at the sectoral, occupational, national, and state levels.
  • Establishing the wages in any field, job, or area.
  • This guarantees that laborers, whether they are skilled or not, get paid enough to live through their daily lives.
  • The act, in its essence, stops exploiting workers since legal action is brought against the company if it fails to pay its labor dues.

There are two ways of making or revising the minimum wage:

Method of the Committee

In this way, the government can change minimum wages after establishing committees and subcommittees to make suggestions and conduct inquiries.

Method of notification

In this manner, the Official Gazette publishes proposals of the government for those that are likely to suffer from changes to minimum wage levels. At a particular time examine the recommendations also.

The Payment of Bonus Act, 1965

  • The Payment of Bonus Act provides an annual bonus to employees of a specific establishment, including establishments that employ more than 20 employees. According to the Act, calculate the bonus amount based on the employee’s salary and the profit that the company earns.
  • Employees receiving a salary of Rs 21,000 monthly at or below (basic plus DA not including any other benefits) and who have worked 30 working days during that fiscal year are eligible for the bonus payout.

TDS deduction

  • Tax Deducted at Source (TDS) means Every employer must deduct taxes from the employee’s earnings. The salary components that affect TDS deductions include HRA special allowance, leave allowance for travel, children’s medical allowance, education allowance, and investments.
  • Following the most recent Income tax laws 2020, employees can select between New and Old tax systems. The TDS deduction is contingent upon the decision of an employee.
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Statutory compliance requirements for ESI funds and PF deductions

  • ESI managed by ESIC is available to employees who earn less than 21,000 rupees per month. The scheme provides medical and cash benefits to them and their families. Any establishment or factory that is not seasonal with at least ten employees and is covered by the Employees’ State Insurance Act 1948 is protected under the scheme.
  • PF is a mandatory contribution fund that uses to ensure your future employees upon retirement or their dependents if they die prematurely. The statutory requirements for compliance with PF contributions are as the following:
    • EPF (Employee Provident Fund)
    • EPS (Employee Pension Scheme)
  • Any company with employees who are 20 and over has to be EPFO-compliant.

Professional taxes (PT)

The government of the state is collecting the Professional tax. Every state has its laws concerning professional taxation, but they use the slab-based system. Everyone who earns requires this tax and assesses non-compliance penalties.


Gratuity is the sum paid to employees by their employers when they quit their job after five years of service. The gratuity amount is calculated as the sum of Basic plus DA divided by 26 * no of years of service * 15.

The Shops and Commercial Establishments Act (1953)

  • The law is an act that aims to provide rights and statutory obligations for employers and employees working in establishments and shops that belong to the non-organized sector.
  • It is a call for mandatory registration of the shop or commercial establishment in the first 30 days after work.

Maternity Benefit Act, 1961

  • It is a law that governs women’s work in particular establishments during pregnancy and after childbirth, as well as the payment of maternity and other benefits.
  • Employers notify women in writing and electronically of the maternity benefits available in the Maternity Benefit Act when they are entering the workforce.
  • To ensure the rights of female employees throughout pregnancy and after the birth of their child, Indian law makes it obligatory for all establishments to provide maternity benefits for female employees. Maternity benefit for women in India determines through the Maternity Benefit Act, 1961 which applies to all establishments and shops with more than ten employees. The women working in factories employing ten or more employees receive maternity benefits provided through the Employees’ State Insurance Act 1948.

The Employees’ State Insurance Act, 1948

  • Employees entitling to various benefits under the ESI Act when they are sick, pregnant, or injured on the job. This act covers, Non-seasonal companies with more than ten employees, as well as non-power-using factories and certain other facilities with at least 20 employees.
  • All benefits are available within ESIC medical clinics, hospitals, and medical professionals approved by the ESIC. The maximum monthly wage limit under this act is from Rs. 7500 to Rs. 10000.

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