All you Need to Know about Statutory Compliance - ADCA

11 Aug,2023

What is Statutory Compliance?

Every organization must comply with the laws and statutes of India. Non-compliance to this framework can lead to penalties and other legal implications. Payroll and statutory compliance with prerequisite regulations and norms ensure that an organization faces no legal implications and avoids disqualifications, confiscation of licenses, fines, lawsuits, etc.

The word statutory means of or related to statutes and compliance means adherence. Therefore, Statutory Compliance means adhering to rules and regulations laid down by the government. These regulations ensure the efficient functioning of the company and the welfare of employers and employees.

HR departments and employers must ensure legal payroll statutory compliance with these laws including conducting statutory audits periodically.

While the government wants organizations to follow statutory compliances, it also helps organizations to maintain their corporate existence and avoid all legal hassles.

Importance of Statutory Compliance

Every country has its own set of legal frameworks and maintaining a spotless compliance record can benefit businesses in multiple ways. It can facilitate business expansion within the country, save you from legal penalties, and also help in sustainable business growth. Lets look into some of the major benefits of statutory compliance in payroll:

  • - Safeguarding employee interest: Setting company policies and regulations to ensure a secure work environment for employees is crucial to any business. Besides, it is also essential for fair and professional treatment of employees at the workplace.

  • - Minimize legal penalties: If compliances are being followed, businesses can ensure smooth and continuous working while minimizing legal penalties and lawsuits.

  • - Managing Business Risks: A business that invests in substantial compliance management systems sustains goodwill. They stand a better bargaining position at the time of negotiations. Further, it avoids failures at early stages, thus ensuring superior efficiency in business processes.

  • - Increased efficiency: Organisations that are non-compliant fail to demonstrate dedication to business ethics. On the other hand, organizations with statutory compliance in HR can easily improve employee morale, and superior productivity, leading to low attrition rates, and increased business efficiency.

  • - Better PR: Statutory compliance reassures the businesss employees, investors, stakeholders, and customers.

Constituents of Statutory Compliance in India

Depending upon the industry and type of business, there are many laws, rules and regulations that an organization must comply with. Here is a statutory compliance checklist mandated by the Government of India. The list of these important Acts that affect an organization and its HR function is enclosed below:

  • - The Minimum Wages Act, 1948: It is central legislation designed to prevent the exploitation of labor by fixing a minimum wage rate. Cost of living, wage period, and type of job are the most common factors considered before fixing minimum wages.

  • - The Payment of Bonus Act, 1965: It provides an annual bonus to employees of certain establishments, calculated based on an employees salary and profits of an organization.

  • - The Payment of Wages Act 1936: It ensures that employees from organizations with less than 1000 employees are paid on time (before the 7th of every month) by having penalties for wages paid late by a month. However, it does not apply to people earning a monthly salary of Rs 10,000.

  • - The Apprentices Act, 1961: It was enacted to regulate and promote the program of training of apprentices in the industry to meet the requirements of skilled manpower.

  • - The Contract Labour Regulation and Abolition Act, 1970: This Act regulates the employment of contract labor in certain establishments to provide for its abolition in certain circumstances.

  • - The Child Labour Regulation and Abolition Act, 1986: The act prohibits the engagement of children in certain employments and regulates the conditions of work of children.

  • - The Industrial Disputes Act, 1946: The act regulates the concerned trade unions and individual workmen employed following Indian labor law.

  • - The Industrial Employment Standing Orders Act, 1946: The Act applies to every industrial establishment wherein one hundred or more workmen are employed.

  • - The Equal Remuneration Act, 1976: The Act provides for the payment of equal remuneration to men and women workers and prevents discrimination.

  • - The Factories Act, 1948: The Act sets safety standards for workers employed in factories manufacturing goods, including weaving cloth, dyeing and finishing textiles etc.

  • - The Employment Exchange (Compulsory Notification of Vacancies Act), 1959: The Act provides compulsory notification of vacancies to the employment exchanges.

  • - The Trade Unions Act, 1926: The Act provides registration of trade unions and in certain respects defines laws relating to registered trade unions.

  • - The Workmens Compensation Act, 1923: The Act provides for the payment by certain classes of employers to their workmen of compensation for injury by accident.

  • - Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

  • - The Employees State Insurance Act 1946: This act aims to help employees overcome medical emergencies at the workplace. ESI is obligatory for employers who have more than 10 employees. For each paycheck, the employer contributes 3.25%.

  • - The Employees Provident Fund and Miscellaneous Provisions Act, 1952: It is one of the biggest social welfare contributions wherein employer and employee together contribute 12% of basic pay and DA to the employees retirement chest.

  • - The Payment of Gratuity Act, 1972: Gratuity is given by the employer to an employee for services rendered by him during employment. It is calculated as 15* last drawn salary* tenure of working/26.

Statutory compliance can make or break an organizations reputation. There are tons of rules and regulations involved that must be adhered to perfectly.


What are the statutory compliance in the manufacturing industry?

Manufacturing companies must comply with the provisions of the Companies Act 2013, Goods and Services Tax registration and compliance, Income Tax Act, Labour Laws, and Intellectual Property Laws including the Patents Act, Trademarks Act, and Copyrights Act.

Factories employing 10 or more workers must comply with the Factory Act and factories using 20 workers or more must obtain a license from the Chief Inspector of Factories.

Besides these statutory compliances in India, manufacturing units must comply with environmental laws including the Water (Prevention and Control of Pollution) Act 1974, the Air (Prevention and Control of Pollution) Act 1981, and the Hazardous Waste Management Rules 2016.

How to do a statutory compliance audit?

The statutory audit procedure is diverse and comprises of necessary steps:

  • 1. Obtaining an Understanding of the Entity wherein the auditor examines industrial standards and regulation criteria. Questionnaires, checklists, and surveys help to know its operating environment.

  • 2. In the second step, the auditor can learn about the company entitys operations control by reading industry publications and the previous years audit report.

  • 3. Professionals conducting regulatory audits and operational measures for fraud or error prevention evaluate business procedures in the third step. Here employees participate in the process and understand operating controls that are being carried out correctly.

  • 4. The fourth step involves a review of account balances to ensure financial reports are error-free.

  • 5. Lastly, the auditor will conduct tests of accounts and balances on the account balances of a bank or hedge fund to ensure that audited statutory financial statements are comprehensive and correct.

What are statutory compliance deductions?

Payroll statutory compliance deductions such as provident fund, TDS, ESI, and labor welfare fund are withdrawn during processing. The organizations are legally obligated to pay these deductions to the relevant authorities and evade non-compliance.

Is TDS a statutory compliance?

According to Section 192 of the Income Tax Act, every employer who is paying a salary income to his employee is required to deduct TDS from the salary income if it exceeds the basic exemption limit. Surely, TDS deduction is compulsory and it is crucial to understand the rate of such deduction and how it happens.

What is 2 statutory deductions?

Statutory deductions like Income Tax, Provident Fund, National Pension Scheme, Labour Welfare Fund, and Professional Tax are standard deductions that the employer deducts from an employees gross pay.

Latest Blogs

Latest Blogs

Have Any Question? We Can Help You..

Call Us +91 80-2572 4815