GoBetter Blog

Statutory Compliance for HR


April 2, 2021

All organisations, irrespective of their size and stature need to abide by certain rules and regulations. Failing which strict legal actions can be taken against them. These laws ensure the welfare of – the employee, employer, and the organisation. A lot of time, money, and effort goes into compliance with the extensive list of laws. And you cannot afford to go wrong with it.

Let us dive into the details –

What is statutory compliance?

There’s a pre-defined legal framework within which any given organisation must function. This framework is termed as statutory compliance. Basically, the organisation must treat its employees in a way that is in adherence to various central and state labour laws.

But why does it matter?

Statutory compliance is beneficial to all – employee, employer and the organisation.
For employees – it makes sure that they receive fair treatment and get their dues on time. It also ensures that the working conditions for the employees is satisfactory and well managed.
As for the organisation and the employer – it maintains clarity of rules and regulations to fall back on. It also saves the organisation from penalties and legal actions. And in turn, creates a trustworthy and safe environment.

Here’s a list of rules the organisation must adhere to –

Note that all the organisations in India need to abide by this.

  • Shops and Commercial Establishments Act (S&E)
  • The Employees Provident Funds and Miscellaneous Provision Act – 1952 (EPF)
  • The Employees State Insurance Corporation Act – 1948 (ESIC)
  • The Professional Tax Act (PT) 1975
  • The Labour Welfare Fund Act (LWF) 1965
  • The Contract Labour (Regulation & Abolition) Act – 1970 (CLRA)
  • The Child Labour (Prohibition & Regulation Act), 1986
  • The Minimum Wages Act-1948
  • The Payment of Wages Act-1936
  • The Payment of Bonus Act-1965
  • The Maternity Benefit Act-1961
  • The Payment of Gratuity Act-1972
  • The Equal Remuneration Act-1976
  • The Industrial Establishment (N&FH) ACT 1963
  • The Employment Exchange (Compulsory Notification of Vacancies) ACT-1959
  • Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) ACT, 2013
  • The Employees Compensation ACT-1923
  • The Industrial Employment (Standing Orders) ACT 1946 – Model Standing Order Only
  • The Industrial Disputes ACT 1947
  • The Apprentice ACT, 1961
  • The Interstate Migrant Workmen (Regulation of Employment and Conditions of Services) ACT, 1979
  • The Factories ACT, 1948
  • The Trade Unions Act, 1926

In this article, we’ll discuss the major statutory requirements.

Statutory requirements for minimum wages

1. The Minimum Wages Act, 1948

  • This is “An Act to provide for fixing minimum rates of wages in certain employments.”
  • This ensures that the skilled and unskilled laborers are paid enough to go through their livelihood. And also covers their educational and medical requirements. The act at its core prevents exploitation of workers as legal actions are taken against the firm if it doesn’t clear its labour’s dues.
  • The state government fixes minimum wage rates – varying according to the class of employees. and makes rules relating to non -payment. Payment below the minimum wage is regarded as forced labour, and there’s a definite payment of overtime that must be made. The latter is a statutory requirement as per the factory act and payment of wages act.

2. The Shops and Commercial Establishments Act (1953)

  • It is an act that aims to give rights as well as statutory obligations to employers and employees who work in shops and establishments, which belong to the unorganised sector.
  • The act intends to enhance the employment conditions in establishments such as shops, restaurants, theatres, hotels, centres of public entertainment, and other commercial establishments.
  • It helps in setting the hours of work for each day and each week.
  • It promotes mandatory registration of the commercial establishment or shop within 30 days of starting work.

TDS deduction –

Every employer that has salaried employees under him is required to deduct TDS (tax deduction at source) under section 192 of the income tax, 1961.
This is applicable to employees whose salary is greater than the maximum amount exempt from tax. TDS is required to be deducted by the employer before releasing the employee’s salary.
This amount is then deposited with the government before the 7th of every month.

In case the employer fails to deposit the TDS, the following penalties will apply –

  • If it has not been filed by the deadline – a late filing fee is charged.
  • If it has not been deposited on time – interest is charged.
  • And if it is not filed within a year of the due date- a penalty is charged.

Employers, therefore, must generate Form 24Q and Form 16 timely.

Statutory Compliances for ESI Fund

ESI (employees’ state insurance) is a social security and health insurance scheme for Indian workers. The fund is managed by ESIC (Employees State Insurance Act) and comes under the umbrella of ESI act, 1948.
ESIC has raised the monthly wage limit to 21000 from the existing 15000. That means only those who are employed for wages up to 21000 a month are covered under the scheme.
Also, the rate of contribution was reduced from 6.5% to 4% ( employer’s share 3.25% and employee’s share 0.75%) effective from 1 July 2019.

Eligibility criteria for ESI Fund
Any non-seasonal factory or establishment that consists of 10 or more employees and that is covered under the Employees’ State Insurance Act, 1948 is covered under the scheme.

Statutory Compliances for PF Deduction

  • Coming to Employee Provident Fund (EPF), it is a fund wherein the employee and the employer have to contribute an equal predecided amount of money (12% of basic salary plus dearness allowance in most cases) which can later be leveraged by the employee. It is managed by the Employee Provident Fund Organisation of India (EPFO).
    The statutory compliances related to PF contribution are as follows:
    1. The contributions are separated into 2 funds:
    EPF (Employee Provident Fund)
    EPS (Employee Pension Scheme)
    2. Any company with employees of 20 or more has to be EPFO-compliant.

Professional Tax

Professional tax is levied by the state government. Each state has its own laws governing professional tax but all of them follow a slab based system. This tax is a mandate for every individual who earns. A Penalty is imposed in case of non -compliance.


During the course of employment, the employee renders certain services to the organisation. Gratuity is a benefit paid for those services. It is usually paid at the time of retirement but can also be paid before that if certain conditions are fulfilled. The employee becomes eligible to receive gratuity only after 5 years of employment. However, in the case of death or accident that results in disability, it can be paid before 5 years.

It falls under the purview of the Payment of Gratuity Act, 1972.

If the organization is covered under the act, the following formula is used to calculate gratuity – (15 X last drawn salary X tenure of working) divided by 26.

Revising Minimum Wages

As per the Minimum Wages Act 1948 the Central Government of India along with the State Governments fix the wage rates. Whenever there is a revision of the rates, the authorities notify the working classes, sectors, and regions that are affected by the change.

Let’s take a look at the two ways in which these revisions are implemented by the authorities.

A) Revisions through a Notification

The first way in which minimum wage rates can change is through an announcement. The government first releases a proposal that signals the revisions in minimum wages and the working classes or communities that are impacted by it.

This proposal is declared via an Official Gazette; however, the changes are not permanent as the official announcement gives various committees and employment classes to come forward and put forth their recommendations regarding the revisions.

Once this phase is over, the final wage rates are either fixed or revised and implemented. Only 3 months are provided — post the official declaration — for any correction or revision based on recommendations. Once this time lapses, the order is implemented.

B) Revisions made by Committees

The other way is through committees and subcommittees that are set up by the government. These bodies can hold inquiries regarding the fixing or revision of wage rates and also chime in with their recommendations. Once this phase is over, the government finally implements the revision.

How Companies Can Proffer from Statutory Compliance in HR?

For a company, statutory non-compliance can only result in legal proceedings that can have serious implications such as fines, imprisonment, cancellation of licence and so on. By complying, not only can a company avoid all the legal hassles, but also witness spike in employee productivity, which, in turn, will improve business growth as employees are taken care of by the management.

That’s not where the benefits of compliance end. Here are some other fruits of a company being statutorily compliant.

a) Attracting talent

When job seekers know that your company has a pedigree of treating employees correctly, paying them fairly, and never infringing on labour and employment laws, they’ll want to sign up. As mentioned earlier, by statutorily complying, employee productivity, the work environment will only get a boost which will equip employees with the necessary tools to further themselves.

With such a reputation, your company will be able to attract talent and reduce attrition.

b) Transparency is key

Any company that is statutorily compliant draws many eyeballs for all the right reasons. Your vendors, customers, investors, stakeholders, and employees will realise that you are completely transparent and that you take it upon yourself to have contingencies in place to handle statutory compliances without risking legal proceedings and liabilities.

Any business should operate ethically and within the confines of law and order; it’s what will improve their reputation in the long run.

c) Excellent prospects

Being statutorily compliant means adhering to government laws and regulations. A company can leverage this aspect to have the upper hand in any business negotiations. Moreover, business contracts and new prospects will come their way.

d) Keeping fines at bay

Non-compliance can result in a sea of problems, such as imprisonment, fines, cancellation of licence, and shut down of the business. But if a company adheres, it can divert focus towards other important aspects such as employee retention, operations, expansion and so on. With all the risks and liabilities out of the way, resources are feed up which the companies can utilise for business growth.

e) Productivity and retention

Employees need to feel valued. They need to be treated fairly, paid on time, and looked after. When your company follows the statutory protocols for the welfare and wellbeing of its employees, an increase in productivity and employee retention is a given.

How Employees Can Proffer from Statutory Compliance in HR?

It’s not as if work environment, career growth, fair treatment are the only good things that go an employee’s way if his/her employer is statutorily compliant. Here are the other benefits:

a) Professional Tax

Statutory compliant employers also save employees the trouble of depositing Professional Tax with the government.

b) Tax Returns and Exemptions

Under The IT Act, employees are also entitled to file Income Tax Returns that helps them save taxes. Moreover, while filing the returns employees, with the help of their statutorily compliant employer, can proffer from tax exemptions.

c) EPF (Employee Provident Fund)

Statutorily compliant companies must also mandatorily contribute 12% of the employee’s basic salary toward his/her provident fund. Out of this 12%, 8.33% is contributed towards the EPS (Employee Pension Scheme). These funds can be withdrawn by the employee in times of unemployment or after retirement.

d) The ‘’Bonus’’ for employees

Employees can garner a bonus on top of his/her pay as per the Payment of Bonus Act, 1965. Although it applies for certain establishments with 20 or more employees, your employer (as per the Act) is obligated to pay a bonus o the basis of the company’s profits, production, productivity.

An employee drawing INR 21,000 or less qualifies for the bonus which can be anywhere between 8.33-20% of the salary.

Conclusion – Noncompliance of these laws results in legal and social damage to the employee and the employer and the organization. The best one can do is be aware and religiously adhere to the rules and regulations.

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