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
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
- 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
- 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
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
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.
Sign up to our newsletter.
Get the latest articles on all things data delivered straight to your inbox.