Your organization spends a lot of time, effort, and money to ensure that your payroll compliance is met through a statutory audit. Every company is subject to a range of legal issues related to compliance. These include the fair treatment of employees and protecting the company against unreasonable wage or benefit demands by trade unions or aggressive workers. Although it is unlikely that a company intends to violate these laws, without the proper protection it could easily slip through.
How can you avoid non-compliance?Let’s start by understanding what statutory compliance means and the different compliances that are required for the Indian payroll.
What is Statutory Compliance?The term statutory refers to “of or related” to statutes, rules, and regulations. Compliance is adhering to rules and regulations. Statutory Compliance is the adherence to rules and regulations. The legal framework an organization must follow when dealing with employees is called Statutory Compliance in Human Resources.
Why is it so important?Each country has its own set state and central labor laws, which companies must comply with. Companies must be informed about all labor regulations in their country to ensure they comply with statutory compliance. Companies are required to follow them. Companies can face penalties and fines if they fail to comply with these regulations. Every company spends significant time, money, and effort to comply with all requirements. The company seeks the advice of experts in taxation and labour law to help with this task. Every company must be familiar with all labor laws and regulations to ensure they can manage the complex regulatory environment. They must devise efficient ways to minimize risk and maintain compliance.
Notification of Statutory ComplianceIt has become more complex to do business and has made it difficult for businesses to keep up with all aspects of their operations. As mentioned earlier, organizations seek the assistance of statutory compliance specialists whose primary focus is to ensure that they comply with ever-changing regulations. Many companies offer services in statutory compliance management. They have a better understanding of the regulatory environment and can provide specialized services for organizations. They simplify the entire process, from the daily maintenance of prescribed forms and registers to the filing together with reports.
Does it make a difference for an organization?The law does not change for a partnership, private limited, LLP, or another type of company. All organizations that employ employees and pay salaries must adhere to labor laws.
Benefits of Statutory ComplianceEmployees have the advantage of following the law.
Fair treatment of employeesMake sure they get paid fairly for the work that they did and that their company follows the minimum wage rate. Employees are prevented from working long hours or inhumane conditions Organizations have the advantage of being in compliance with the law You can avoid fines or penalties by making timely payments Protects the organization against unreasonable wage and benefit demands by trade unions Legal troubles are prevented by the company being fully compliant Reduces risk and raises awareness about compliance Compliance reduces the risk of an adverse event
Non-compliance is a riskA company that does not comply with rules and regulations will be held responsible. Penalties and financial losses for the organization Business integrity and reputation loss Customers loyalty will be severely affected
1936 Payment of Wages ActThe 1936 Payment of Wages Act regulates the payment of wages to employees, both direct and indirect. This act guarantees that wages are paid on time and without deductions other than those allowed by the Act. The act requires that the payment be made by the 7th day of each month in which the no. If the number of workers is less than 1000, then the payment should be made on the 10th day. The 1936 Payment of Wages Act regulates the payment of wages to employees, both direct and indirect. It regulates wages for certain types of workers in the industry. This is an important regulation. The Act guarantees that wages will be paid on time without any deductions other than those permitted by the Act. The wage period must not exceed one month. Employees whose wages exceed Rs. 10000 per month or more. The Act also stipulates that workers can not cancel any rights conferred on them by the Act.
Minimum Wages Act, 1948.Minimum wages in India are set by the Minimum wages Act of 1948. This Act is a joint decision of the Central Government and the Provincial governments. Any region, occupation or sector can have minimum wages. They may be declared at all levels: national, state, and sectoral. The cost of living is used to determine the minimum wage. The minimum wage rate can be fixed for different work classes or for different jobs. You can also fix it by the hour, day, month, or any other wage period. The Minimum Wages Act allows both the Central Government and the State Governments to notify scheduled employment and set/revise minimum wage rates for these employments.
There are two ways to fix/revise minimum wages.The committee method allows the government to set up subcommittees and committees to investigate and make recommendations regarding the fixing or changing of minimum wages. The notification method allows government proposals to be published in the Official Gazette. It is for those who are most likely to be affected. It also specifies a date (not more than two months after the notification), when the proposals will be considered. After considering all representations received before the deadline, the government fixes/revises/fixes the minimum wage for the relevant scheduled employment. This comes into effect three months after its issue.
1965 Payment of Bonus Act.The Payment of Bonus Act gives an annual bonus to employees in certain establishments, including factories and establishments that employ 20 or more people. The Act calculates the bonus based on the employee’s salary as well as the profits of the establishment. The bonus payment is available to employees who earn Rs21000 or less per month (basic +DA, exempting other allowances) during the financial year. Salary and wages do not include DA for the bonus payment and basic. The rest of the allowances, such as overtime, HRA, and other benefits, are excluded. All other allowances (e.g., overtime, HRA) are exempt from salary or wages. The minimum rate for a bonus should be 8.33%, and the maximum rate should be 20%. It must be paid within eight months of the end of the accounting year. If an employee is dismissed for fraud, misconduct, absenteeism, or other reasons, they can be excluded from receiving bonus payments. Before disqualifying the bonus payment, the employer must ensure that the procedure of domestic inquiry, documentation, and employee acceptance of misconduct are followed.
Tax Deduction at the Source (TDS).TDS is deducted as per the Income Tax Act from individual payments. It is managed under the Indian Tax department (IRS) by the Central Board of Direct Taxes. TDS requires that an assessee receive his payment or income. The person (deductor), who paid the assessee, will make a TDS deduction and submit it to the income tax department. The TDS return is filed by the assessee. After the deduction of tax from income, the final amount if any excess TDS will then be refunded.
TDS is exempted from the following two cases:.If the receiver makes a self-declaration stating that he has made the required investments in Form 15G/15H.
Tax deductions.Normal tax rates for individuals & HUF. The average tax rate applicable to a resident person will depend on his age. Non-resident individuals will pay the same tax rates regardless of their age. An individual can be classified in the following manner to determine the tax slab applicable.
TDS certificates will be issued as follows:For those who are receiving the salary, use Form 16. For people who receive income from any source, use Form 16A. TDS Form 16B- Sale of immovable property. Late filing of TDS returns is subject to a late filing fee (Rs. 200 per day, or the TDS amount payable, whichever is less).
1961 Amendments to the Maternity Benefit Act.Maternity benefits for pregnant women employed (” Claimant”) can be governed by Maternity Benefit Act (1961 (” MBA”) or the Employees’ State Insurance Corporation Act (1948 (” ESIC”)).
MBA law is passed.To regulate women’s employment in certain establishments during certain times before and after childbirth. To provide maternity benefits and other benefits.
How is the MBA applicable?All establishments that include plants, factories, or mines owned by the Government are eligible for MBA. -To all establishments where people are employed to exhibit equestrian, aerial and other performances. Every shop and establishment that is subject to the laws governing shops and establishments in any State, where ten or more people are employed or were employed during the previous twelve months. This law does not apply to women to whom the ESIC applies.
What is the Maternity Benefits?It is the benefit of payment that a pregnant woman can claim during her pre- and post-natal absences from work. This will be considered paid maternity leave. The average daily wage is equal to three months of her absence. The maternity leave includes her pre-natal and post-natal periods that immediately precede her delivery. The woman can claim this benefit if she has worked no less than 80 days within the 12 months preceding her due date. This includes women who are employed on a casual or muster-roll basis and receive daily wages. This benefit does not apply to women who have immigrated to Assam or were pregnant during such immigration. If a woman dies during childbirth or in the immediate period following childbirth, she is entitled to full maternity benefits for the entire period to the surviving children. The employer is responsible for paying the entire maternity benefit. The benefit must be calculated up to the date of death, regardless of whether the child dies at delivery or on any other day. The claimant must follow the procedure. Notify her employer in writing of the leave period and benefits to be used as directed by the establishment. (If the notice is not possible before delivery, the claimant may notify the employer at the latest. Failure to notify the employer will not affect the claimant’s right to the benefits). Declare that she will not accept any other job during this period. As proof of the birth, provide medical records.
Do’s and dont’s for employers.The claimant shall not be engaged in strenuous work. Instead, the employer will only engage him in light work for a period of ten weeks prior to the expected delivery date. During such absence/leave, the employer shall not engage the claimant in any heavy work. For reasons other than her absence, reduce the daily wage of the claimant or allocate less stressful work. For the reason she is absent, dismiss or discharge the claimant. Notify her of any dismissal notice that will expire during her absence. The employer may do all of the above, and can also withhold maternity benefits in the case of gross misconduct by the claimant. Such notice of discharge/dismissal shall be served on the claimant giving reasons. The claimant has sixty days to appeal to the relevant authorities from the date of receiving such notice. Unlawful discharge, dismissal, or non-payment by the employer of benefits can result in imprisonment of not less than three months or up to one year or a fine of not less than INR 2000/- to INR 5000/ – or both.
2017 Amendment to MBA with enhanced benefits- An view.The nature of the leave taken by the claimant. Pregnancy and Delivery Leave no more than six weeks before delivery. The pre-natal leave can be increased from twelve to 26 weeks. However, it must not exceed eight weeks before delivery. Miscarriage or medical termination of pregnancy. The benefits are the same and can be claimed for up to six weeks with maternity benefits immediately after miscarriage or termination. Tubectomy Operation. The benefits are the same and can be claimed for up to two weeks with maternity benefits immediately after the date of surgery. Pregnancy, birth, and post-mature delivery. The benefits are the same and can be claimed for up to four weeks with maternity benefits. Nursing breaks. The claimant’s rights to rest and nurse their child until they reach the age of fifteen months can be extended to allow them to take two breaks. Adoptive mothers. Children under three months of age. You can take 12 weeks off with benefits. Surrogate mother or mother. The child’s handing over a date or any other prescribed date. You can take 12 weeks off with benefits. Creche Facility. A business with 50 or more employees, or 30 women employees, whichever is less. Creche is located within 500 m of the office. Allow four visits during work hours.
Homework option.After twenty-six weeks, the claimant and employer can agree to the terms. Inform women employees about the benefits. The employer must inform women employees about the benefits that are available starting at the date of their appointment. Learn more about The Maternity Benefit Act 1961, 2017 Amendment to MBA with enhanced benefits.
Equal Remuneration Act 1976.The 1976 Equal Remuneration Act provides equal remuneration for men and women working in the same field. It also prohibits discrimination on the grounds of sex against women who are engaged in employment, recruitment, or for any other matters related to it. The Act is applicable to almost every type of establishment.
Shops & Establishments Act.The Shop and Establishment Act regulates the employment conditions of workers in shops and establishments. This covers work hours, rest periods, overtime, holidays, and termination of service. Within 30 days of the business’s commencement, registration must be completed. Even if there are no employees, the entity must be registered under this act. The application must be submitted online along with the payment and the scanned documents. The department will approve the registration within 15 days after the successful submission of the documents. You can download the registration certificate from this portal. The registration certificate is valid for five years. It should be renewed every five years. If there is a change of address or status, the partners must notify the department via an online application within 30 days. The number of employees employed by the entity determines the registration fee. An additional fee must be paid online if there is an increase of headcount, pay, or any other reason. You should file the annual return online using Form U before 31 January in the following year.
1948 Employees’ State Insurance Act.Employees are entitled to certain benefits under the ESI Act in cases of sickness, maternity, and injury. This act applies to all non-seasonal factories that use power and have more than 10 employees. It also applies to factories that do not use power and certain other establishments with 20 or more employees. All benefits are available in ESIC hospitals, clinics, and independent doctors. This Act has increased the wage ceiling from Rs. 7500 to Rs. 10000 per month. Period payments are provided to women for miscarriage, confinement or other related illnesses. This applies only to women who are insured. They may also be eligible for maternity benefits equal to about 70% of their income.
Employees Provident Fund (PF), and Miscellaneous Provisions Law, 1952.The Employee Provident Fund (PF) and Miscellaneous Provisions Law, 1952 are created to provide social welfare for employees. One is expected to contribute to the PF funds each month when one starts employment. Employers are also expected to contribute towards their employee retirement fund. This act covers any factory or establishment employing 20 or more people directly or by contract. The PF contribution is based on basic wages and dearness allowance. It doesn’t include food allowance, House Rent allowance, overtime allowance, bonus, commission, etc. This Act covers a maximum of Rs.15,000/ month. The employer contribution is calculated as 3.67% of the wage, in accordance with the Central government. The employee must also contribute the same amount as the employer. Contribution. @12%., PF Admin charges: 3.67%. Employee Pension Fund. @8.33%. For defaulting employer can be fined. This can lead to imprisonment for 3 years or a fine up to Rs. 10,000/-. For establishments with less than 20 employees, the voluntary contribution is covered by the Employee Provident and Miscellaneous Provision Acts 1952.
1972 Payment of Gratuity Act.Every shop or establishment where 10 or more people are employed or were employed during the previous 12 months is subject to the Payment of Gratuity Law. The act does not set a percentage for gratuity amounts. Employers can choose to use the formula-based approach, or pay more. Gratuity is dependent on 2 factors. Last drawn salary. Many years of service. The Payment of Gratuity Act 1972 divides non-governmental employees into two groups to calculate the gratuity payable. Employers covered by the Act. Employers not covered by the Act. Calculation of gratuity. Employees covered by the Act. Below is the formula that calculates gratuity. This formula uses the 15-day average of the last drawn salary for each year of service or portion thereof, that exceeds six months. The formula: (15 X Last Drawn Salary X Tenure to Work) divided by 26. Last Drawn Salary = Basic Salary, Dearness Allowance, and Commissions on Sales.
Employees not covered by the Act.Employers are allowed to pay gratuity to their employees regardless of whether the company is covered by the Act. For each year, the amount of gratuity that an employee is entitled to can be calculated using half of his salary. The Formula:. ( 15X Last Drawn Salary, X Tenure to Work) divided by 30. Last Drawn Salary = Basic Salary, Dearness Allowance, and Commissions on Sales. According to the portal of government pensioners, retirement gratuity works like this: One-fourth of a month’s basic pay plus dearness allowance are drawn before retirement for six consecutive months of qualifying service. The gratuity payable in the event of the death of an employee is based on their service. The maximum benefit is Rs 20 lakh.
Labour Welfare Fund Act, 1965.The term Labour Welfare refers to all services that are available to workers to improve their working conditions, increase their standard of living, and provide social security. The Labour Welfare Fund Act is a law that focuses on welfare for workers in several states. It was enacted by several state legislatures. You can read all about it here. The Labour Welfare Fund is a contribution by an Employer, Employee or in certain states by the Government. For different states and Union Territories, separate (State-State Labour Welfare Fund Act) and (State-State Labour Welfare Fund Rule) are created.
What Does the Labour Welfare Fund Do for Laborers?Labour Welfare Fund (LWF), provides support for laborers in many ways. Improved Standard of Living. Provide nutritious food and education facilities for employees’ children, medical facilities for the private and public sectors workers and their families, and housing facilities at concessional rates and schemes. Offers better work conditions. Worker and employee accommodation, such as transport, reading rooms, libraries and vocational training programs. Excursions and tours. Recreational facilities at work. Social Security. Arranging medical treatment, programs for certain industries, and sub-occupations for women, the unemployed, etc. The State Labour Welfare Board determines the amount, rate, and frequency of contributions. The State Labour Welfare Board may make the contribution every month, once every six months (half-yearly), or once a year (annually). It will then be remitted to the appropriate Labour Welfare Fund Board in the prescribed form before the due date.
Labour Welfare Fund ApplicationThe fund can be payable by certain establishments depending on the number of employees, wages earned, and employee designation. All parameters are set out in the applicable State Legislation. For Karnataka, its’ is applicable for 50 and above employees.
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