Statutory Compliance for Business in India
July 11, 2023 हिंदी में पढ़ेंTable of Contents
- What is Statutory Compliance?
- Why is Statutory Compliance Required?
- List of Acts and Regulations all Organisations Shall Comply With
- Statutory Compliances; Minimum Wages
- Statutory Compliance; Employee State Insurance (ESI) Fund
- Statutory Compliance; Provident Fund (PF) and other Deductions
- TDS or Tax Deducted At Source
- Prevention of Sexual Harassment (POSH) Act Compliance
- Maternity Benefit Act, 1961
- Advantages of Statutory Compliances
- Disadvantages and Risks of Not Complying with Statutory Compliances
- How to Fulfil Statutory Compliance for your Company
- Why do you Need a Lawyer?
- 1. Minimum Wages Act, 1948
- 2. Payments of Wages Act, 1936
- 3. The Payment of Bonus Act, 1965
- 4. Shops And Commercial Establishments Act, 1953
- A. For Companies and Organisations
- B. For Employees
What is Statutory Compliance?
Statutory Compliance is complying with the legal framework and rules and regulations that an organization or company is required to adhere to. In India, each organization is required to function within a set legal framework.
Statutory compliances are necessary as they ensure the welfare of the employees, employers, and the institution as a whole.
These compliances are pre-defined legal requirements that organizations and companies need to fulfill, failing which, strict legal actions can be taken against them.
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Why is Statutory Compliance Required?
Statutory Compliances benefit one and all related to that organization; the employee, the employer, and even the organization on the whole. It is important for the employees as it ensures that the working conditions of employees are satisfactory. It is important for the organization and the employer as it helps in maintaining clarity regarding the rules and regulations and creates a strict compliant system. It also helps the organizations from legal actions against it. It also created a safe and trustworthy workplace. These rules and regulations to be complied with are made in a way to safeguard the interests of the employees and the employers.
Consult: Top Corporate Lawyers in India
List of Acts and Regulations all Organisations Shall Comply With
There are several Statutes and laws that most organizations in India need to comply with. These are:
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The Factories Act, 1948
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The Trade Unions Act, 1926
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The Industrial Disputes ACT 1947
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The Interstate Migrant Workmen (Regulation of Employment and Conditions of Services) ACT, 1979
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The Apprentice ACT, 1961
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The Industrial Employment (Standing Orders) ACT 1946 – Model Standing Order Only
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Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) ACT, 2013
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The Employees Compensation ACT-1923
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The Industrial Establishment (N&FH) ACT 1963
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The Employment Exchange (Compulsory Notification of Vacancies) ACT-1959
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The Payment of Gratuity Act-1972
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The Maternity Benefit Act-1961
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The Payment of Wages Act-1936
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The Minimum Wages Act-1948
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The Payment of Bonus Act-1965
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The Child Labour (Prohibition & Regulation Act), 1986
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The Contract Labour (Regulation & Abolition) Act – 1970 (CLRA)
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The Professional Tax Act (PT) 1975
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The Labour Welfare Fund Act (LWF) 1965
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The Employees State Insurance Corporation Act – 1948 (ESIC)
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The Employees Provident Funds and Miscellaneous Provision Act – 1952 (EPF)
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Shops and Commercial Establishments Act (S&E)
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Statutory Compliances; Minimum Wages
There are some statutes related to wages that organizations have to comply with. These are as follows:
1. Minimum Wages Act, 1948
The Minimum Wages Act 1948 was enacted with the purpose of fixing minimum rates of wages in certain employments. This Act ensures that skilled and unskilled labor is paid enough. The Act also covers the educational and medical requirements of the labor. The Act also helps in preventing exploitation of labor and workers and employees as legal action under the Act can be taken if due salaries/wages are not cleared.
The minimum wages are decided by the State Governments which vary according to the class of employees and also make rules regarding nonpayment of these wages.
If payment is below the minimum wage then it is considered forced labor. There is also a definite payment to be paid for overtime work as per the Factories Act and the Payment of Wages Act.
Consult: Top Corporate Lawyers in India
2. Payments of Wages Act, 1936
The Payment of Wages Act does not apply to employees whose wages are Rs.10,000 or more per month. This Act regulates the payment of wages to direct and indirect employees. It ensures that wages are paid on time and without any deductions, except those stated under the Act. According to it, the payment should be made before the 7th of each English calendar month where the number of workers is less than 1000 and on the 10th day of each English calendar month if they are greater than 10,000.
The Payment of Wages Act regulates the payment of wages to certain classes of persons employed in industries. It is also stated that the payment is to be made in cash, however, cheque payment or crediting of payment in the bank account is allowed only with the consent of the employee in writing.
3. The Payment of Bonus Act, 1965
The Payment of Bonus Act provides that an annual bonus to the employee of certain establishments, including factories and establishments that employ 20 or more people. The Bonus is to be calculated by the employee’s salary and the profits made by the organization. Employees that draw Rs. 21,000 or less in a month and have completed 30 working days in that financial year are eligible for payment of a bonus. The bonuses are to be paid at a min rate of 8.33% and a max rate of 20%. This bonus is required to be paid within 8 months from the date of the closing of the accounting year.
However, the employees can also be disqualified from the bonus if they have been charged with fraud, misconduct, or absenteeism.
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4. Shops And Commercial Establishments Act, 1953
The Shops and Commercial Establishments Act regulates the employment condition of workers in shops and establishments. Work hours, rest intervals overtime work, holidays, termination of services et cetera, or regulated by this Act.
An organization is required to register within 30 days from the date of commencement of the business. For this, an application is to be submitted along with the fee and scanned documents online. The Department should approve the registration within 15 days from the date of the application. The Certificate of Registration can then be downloaded within 30 days of change through an online application. This Registration Certificate is valid for a period of 5 years and is required to be renewed after that.
Statutory Compliance; Employee State Insurance (ESI) Fund
Employee’s State Insurance (ESI) is a social security and health insurance scheme for workers in India. It brings affordable healthcare to not just the employees but also their dependent family members. Employees State Insurance Act manages the ESI Fund. The monthly wage limit of Rs.15,000 has been increased to Rs. 21,000. Thus, only those employees whose wages are up to Rs. 21,000 come are covered under the said Scheme. From July 1, 2019, the rate of contribution has also been reduced from 6.5% to 4% (where the employer’s share is 3.25% and the employee’s share is 0.75%).
Any non-seasonal factory or an establishment that has more than ten or employees and is covered under the Employee’s State Insurance Act, 1948, is also covered under the ESI Fund (Scheme).
Consult: Top Corporate Lawyers in India
Statutory Compliance; Provident Fund (PF) and other Deductions
Employee Provident fund EPF is a fund where in an employee and the employer have to contribute an equal pre-decided amount of money which is 12% of basic salary plus dearness allowance, which can later be leveraged by the employee. The Employee Provident Fund Organisation of India manages the EPF. Any company with more than 20 employees has to be EPFO compliant.
Professional tax is a kind of tax that is levied by the state government. Different states in India have their own laws that govern professional tax, however, most of them follow a slab system. Every individual who earns is required to pay professional tax. A penalty is also imposed if one is non-compliant.
Certain services are rendered by the employee to the organization he or she works at, during the course of employment. Gratuity is an amount or a benefit paid for these services. In most cases it is paid at the time of retirement, however, it can also be paid before that under certain conditions. In case of an accident or death, it can be paid before a period of five years. The Payment of Gratuity Act, 1972 governs the payment of Gratuity.
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TDS or Tax Deducted At Source
TDS is a means of indirect tax according to the Income Tax Act of 1961. Employers are directed to deduct a certain sum or percentage of payment before the full payment or salary is paid to the receiver. TDS rule is applicable only if the receiver or employee falls under the income tax slab. TDS is similar to professional tax and is collected by the employer from the monthly salaries of the employees. If the employer fails to collect or pay these taxes, penalties are charged.
Prevention of Sexual Harassment (POSH) Act Compliance
Every Organisation is required to be POSH Compliant, and every organization that has more than 10 employees is required to constitute an Internal Committee for the same. In case a company defaults in complying with POSH laws, it could attract hefty penalties, imprisonment of directors, and even cancellation of licenses.
An organization is required to draft an organizational policy on the Prevention of Sexual Harassment, also called the POSH Policy. An Internal Committee is also required to be constituted in order to handle complaints regarding sexual harassment for every organization that has more than 10 employees. Awareness is also to be created among employees, through seminars, etc., regarding the rights and responsibilities towards creating a safe working environment. Apart from this, every organization is also required to submit an Annual Report on POSH Compliance.
LawRato.com can help you get POSH Compliant, click here to know more.
Consult: Top Corporate Lawyers in India
Maternity Benefit Act, 1961
The Maternity benefits that are given to women employees who are pregnant are governed by the Maternity Benefit Act, 1961, and the Employee’s State Insurance Corporation (ESIC) Act, 1948. The Maternity Benefit Act regulates the employment of women in establishments for specific periods of time before and after childbirth in order to provide benefits related to maternity.
This Act is applicable to establishments including factories, plantations, mines belonging to the Government, etc., including those establishments where persons are employed for exhibiting equestrian, acrobatic and other performances. It also applies to shops and establishments that fall within the purview of laws for shops and establishments in any State where 10 or more persons are or have been employed within the preceding twelve months.
However, the Act does not apply to those women to whom ESIC is applicable.
Maternity Benefits under the Act include payment to a woman during her pregnancy which she can claim for her pre and postnatal absence from work which shall be considered as paid maternity leave.
Any unlawful discharge or dismissal of such a woman employee and non-payment of benefits by the employer can attract imprisonment and even a fine.
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Advantages of Statutory Compliances
A. For Companies and Organisations
Apart from legal proceedings and serious implications such as penalties, cancellation of licenses et cetera, there are several advantages of statutory compliance for organizations. These are stated below:
1. Preventing legal troubles penalties and fines: if an organization or company makes timely payments, deducts the TDS, professional tax, and the likes, and is fully compliant, it prevents itself from getting into legal trouble including imprisonment, fines, and penalties, cancellation of license et cetera, which could be detrimental to the organization.
2. Attracting talent: when probable employees and job seekers have the knowledge that a particular company or organization treats its employees correctly, pays fairly, does not infringe on labor and employment laws, and is legally compliant, they would sign up for such an organization rather than a company which does not fulfill the above. It also ensures that the environment is safe for the employees.
3. Reputation: when an organization or company is compliant with all the rules and regulations, it ensures that it has a safe working environment and that it is legal. This helps the company build a good reputation also.
4. Transparency: any organization or company that is statutorily compliant attracts more people for the right reasons. Vendors, customers, employees, stakeholders, and even investors can see that such an organization is transparent, ethical, and within the confines of the law.
5. Productivity and Retention: When employees are treated fairly, paid on time, and work in a safe environment, without prejudices, they feel valued and looked after. When a company follows statutory protocols for the welfare and wellbeing of employees, an increase in productivity and retention is guaranteed.
Consult: Top Corporate Lawyers in India
B. For Employees
There are several benefits that employers also get if they work at organizations or companies that are statutorily compliant. Some of the benefits have been stated below:
1. Exemptions and tax returns: employees are entitled to file income tax returns that help them save taxes under the Income Tax Act.
2. EPF: as stated earlier, statutorily compliant companies are to contribute 12% of the employees basic salary towards his or her Provident fund. These funds can be withdrawn by the employee in times of unemployment or after retirement. Thus, a statutorily compliant organization also gives a sense of security to the employee.
3. Professional Tax: statutorily compliant organizations pay professional tax to the government and thus save the employee from the trouble of doing so.
4. Bonus: as per the Payment of Bonus Act, employees can garner a bonus on top of his or her pay/salary. Only a Company or organization that is compliant can ensure this.
5. Fair Treatment: an organization that has complied with the statutory laws, rules, and regulations ensures fair treatment of employees. Payment of Wages Act, Minimum Wages Act, etc. ensures this. Such companies and organizations ensure that employees are paid fairly for the work that they have done and that they will be paid above the minimum wage rate.
6. Safe working environment: an organization that has complied with laws like POSH Act also ensures a safer working environment. A compliant company also prevents employees from working for long hours or in inhumane conditions.
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Disadvantages and Risks of Not Complying with Statutory Compliances
There are several risks and disadvantages involved in not complying with or fulfilling the requirements of statutory compliances. These have been stated below:
1. Penal / Legal Actions against Organisation/Business
2. Financial Loss to Organisation/Business
3. Loss of reputation, goodwill, and Integrity
4. Negative Impact on Customer Loyalty
5. Suspension or cancellations of operational licenses
6. Imprisonment against top management officials of the organization or company
7. Negative impact on the productivity of the company, if the business operations get affected as a consequence of non-compliance.
8. Loss of faith in the company by investors.
Consult: Top Corporate Lawyers in India
How to Fulfil Statutory Compliance for your Company
In order to ensure statutory compliance for your organization, the first step you need to undertake is to understand and acquaint and educate yourself about the applicable legal, regulatory, and statutory compliances and requirements. You must identify the relevant business locations whose legal and statutory landscapes need to be complied with.
It is important to understand your organization, its size, the kind of labor involved, etc. Once this is done, you identify and enlist the statutory compliances, required to be fulfilled by you, both in the domestic as well as the international scenario. Once you have understood what all compliances are required, you must map responsibilities to the departments/ personnel. A compliance review is also a must. This will help you understand any gaps through the preparation of exception reports. After this, you must update and monitor the progress.
It is pertinent to note that you must hire a corporate lawyer and understand all that you need to know and do since statutory compliances are time taking, strenuous and even difficult to understand.
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Why do you Need a Lawyer?
As stated above, it is important to hire a corporate lawyer for statutory compliances in India. These are lengthy procedures and also difficult to comprehend for a non-lawyer. The lawyer will help you identify which compliances are necessary for you and will also carry out the procedures to get several compliances in place. He/she will also keep track of your certificates and the completion of the compliances. Therefore, it is necessary to take the help of a lawyer.
These guides are not legal advice, nor a substitute for a lawyer
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in doubt, please always consult a lawyer.
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