Payroll Compliance in India: Laws & Regulations

Introduction

The concept of Payroll compliance or statutory compliance specifically in India signifies the statutory outline which the companies or organizations must adhere with regard to the treatment of their workers or employees. Most of the company’s money and time goes into safeguarding compliance with these laws. As such adherence to the payment of minimum wages, providing maternity benefits, giving the benefits of provident funds requires an expert team who can give advice on all of these compliance measures. That’s why the organizations which deal with a grievance related to payroll should be well versed with the different labor laws or labor regulations in India.

The Different Labors Laws or Regulations are as follows:

Minimum Wages ACT:

Organization adhering to minimum wages

Minimum Wages come under the Minimum Wages Act, 1948. The minimum wage rates are given by both the Central Government and the State Government. The rates of wages or salaries vary according to the type of employment, type of sector and risk associated with the employee.

According to this act, the employer is responsible for paying prescribed minimum wages positively every month on a timely basis. Wage period may be fixed according to the convenience of the employer on a daily, weekly or monthly basis.

Provident Fund (PF):

Registration of company for Provident Fund

The Provident Fund allows the employees to save some part of their income, which works as to safeguard their survival on retirement. The Provident Fund is a number of funds accumulated through regular and monthly contributions of funds by the employee as well as his or her employee.

According to EPFO (Employee Provident Fund Organization) rules and regulations, any company which has 20 or more employees should register for Provident Fund. If the company fails to comply with EPFO rules and regulations, then it will be charged with heavy penalties.

Employee’s Deposit Linked Insurance Scheme (EDLI):

The EDLI (Employees’ Deposit Linked Insurance Scheme) assures monetary benefit (death insurance cover) to employees along with the benefit of PF. The employees are not required to contribute anything towards EDLI. The employer’s contribution is of 0.5% of the total wages of employees which again is restricted to a maximum amount of Rs. 6500/-. EDLI is applicable to all the firms where the employees are being covered by the EPF Scheme.

Employee’s State Insurance Corporation:

Registration of company for ESIC (Employees’ State Insurance Corporation)

The ESIC social security scheme brings reasonable healthcare services at a reasonable cost to employees as well as their family members. As per the ESIC Act, all the companies consisting of more than 20 employees, whose salary for the month is below Rs.21, 000 are supposed to get registered under the Act.

Now if the organization is likely to be fall under the ESIC Act compliance, its employees CTC is required to be updated including the ESIC employer and employee contribution.

The Gratuity ACT:

Gratuity has to be included in employee CTC (Cost to Company)

 The Gratuity Act, 1972, states that Gratuity is applicable to all the establishments such as Companies, NGOs, hospitals, schools, and colleges with ten or more than ten employees.  As gratuity is a fixed contribution from the side of the company, it is shown as part of the CTC. It is therefore mandatory to include the gratuity in an employee’s CTC.

Tax Deducted at Source and other Professional Taxes:

Necessary deductions (TDS and Professional Taxes)

According to the Income Tax Act, 196, TDS (Tax Deducted at Source) deduction is the means of indirect tax collection. This TDS rule directs the employer to deduct the tax at the prescribed rate before making a full payment of salary or wage to the employee. TDS will cover all the employees whose income is above the minimum prescribed scale of tax exemption. Hence, before the process of payroll, these specified deductions of TDS have to be made.

Professional Tax:

Same as TDS deductions, Professional Tax is also collected from the monthly salaries by the employers. If it has been found that someone is either not collecting professional tax and or not paying it intentionally, the same may be subjected to a penalty. The rate of professional tax may vary from state to state.

Automation of Payroll Compliance v/s Services Outsourcing:

Now a Days there is a number of Softwares are available who claim to make Payroll compliances automated and hassle-free. However Very few are actually able to do, Due to changing Compliance post every now and then, Automation also needs frequent changes. 

On the Other hand Outsourcing Payroll compliance are a much better way to free up the resources to focus on key operations. Although it frees up your team from frequent changes in Payroll law and related procedures. Although it can be slightly costly then Automation, It makes sense when the enterprise is big and have no time to commit for these payroll compliances. Similarly, for startups, it makes sense to outsource it and focus on core areas.

We AKT Associates are leading compliance and consulting firm for Payroll management and compliance outsourcing. You can contact our expert team @ cs@aktassociates.com or call 9699042660 to get a free session with our Payroll expert team to understand whether Payroll automation will work or a Payroll Outsourcing will be much better for your enterprise.