By now, it is certain that employees form the core of any organisation. Thus, to protect this core, the Government of India has developed a legal framework to safeguard its interests. Under these regulatory laws, businesses must, at all times, adhere to the statutory payroll compliances in India.
For starters, a business must initiate timely salary payments, deduct tax payments, offer maternity benefits to women employees, contribute towards the Provident Fund, and so on and so forth. If the business does not adhere to these laws at any point in time, they are liable to pay hefty penalties.
Hence, to avoid paying any penalties, an employer must have a thorough understanding of the existing laws and the recent updates.
Different acts that entail the payroll compliance laws
The Minimum Wages Act, 1948
Under The Minimum Wages Act, an organisation must set a minimum wage requirement in order to prevent any kind of exploitation of the workers & help maintain social justice.
This is primarily for businesses that rely on unorganised labour for their day-to-day activities.
The Payment Of Wages Act, 1936
If any organisation wrongfully deducts an amount of money from the employee’s salary and/or delays their payment, they are protected under the Payment of Wages Act.
The Act also states that in an organisation of fewer than 1000 employees, the payment of wages must be made prior to the seventh of every month, whereas, in the case of more than 1000, it should be paid by the 10th.
Fines, absence from work, damage to company property etc., are a few exceptions under this Act.
The Equal Remuneration Act, 1976
For both men and women to stand on an equal footing, the laws safeguard the interests of women employees under The Equal Remuneration Act.
As the name suggests, it demands “equal pay for equal work” for both the sexes and ensures no discrimination whatsoever.
Labour Welfare Fund Act, 1965
As a part of labour law compliance in India, an organisation is liable to offer monetary help and/or necessary assistance plus benefits to its employees in need.
It works like this - under the Labour Welfare Fund Act, a state/employer funds services like housing, infant welfare, vocational training, education etc.
The state government regulates this Act, so you will be required to check the specific details on their respective portals.
Maternity Benefit Act, 1961
In a nutshell, under the Maternity Benefit Act, 1961, female employees of an organisation in their absence from work during their maternity period are entitled to full wages in order for them to take care of their child.
Having said that, the woman employee must be a part of the organisation for a minimum of 80 days in the last 12 months to be eligible for benefits under the Maternity Benefit Act.
The Payment of Bonus Act, 1965
Under the Payment of Bonus Act, 1965, an organisation consisting of 20 or more employees is liable to pay their employees an added bonus amount in respect of profits/production/productivity that the business had in the last financial year.
This bonus is also inclusive of the productivity bonus amount and can vary between 8.33% to 20% of the salary of the employee.
The Payment of Gratuity Act, 1972
To begin with, gratuity is defined as an amount of money that is paid to the employee in regard to his service after completing five years in an organisation.
However, it is up to the discretion of the employer whether or not to include the gratuity component in the salary of an employee.
If the employer decides to, then it can be done keeping into consideration the last revised salary and total years of service.
The Employees’ State Insurance Act, 1948
In case of any medical emergency, the employees are covered under insurance which is provided by the employer.
The Employee’s State Insurance Act came into existence to provide health benefits to employees and their dependents and also offer relief in times of sickness or disablement of any kind.
As per the latest update, it is mandatory for employers to provide insurance coverage to employees earning less than Rs 21,000 per month.
The Employees Provident Fund & Miscellaneous Provisions Act, 1952
Under the Employees Provident Fund & Miscellaneous Provisions Act, 1952, the employer as well as the employee must contribute 12% of the basic salary. Not only is this contribution covered under Section 80 C, which means it is exempted from tax payment, but it also serves as the retirement fund for the employees.
This deduction is mandatory for businesses having more than 20 employees, and if not adhered to, they can be subjected to severe penalties.
Tax Deduction at Source (TDS)
Under Section 192 of the Income Tax Act, tax has to be deducted mandatorily by the employer on the salary payments of the employees.
For the organisation to deduct tax, they need to obtain a tax deduction and collection Account Number (TAN) from the Income Tax Department and then register as a deductor on the TRACES website.
The amount is deducted based on the salary of the employee and the dynamic income tax slab rates applicable in the specific financial year.
The employer must consider several factors such as bonuses, reimbursements, changes in tax-saving declarations, etc. while calculating the tax manually not to hamper the accuracy of the monthly TDS calculations. Hence, it is crucial for businesses to pay TDS on time to stay compliant.
So, what’s next?
All this information can certainly be overwhelming, especially when it comes down to doing everything manually via multiple spreadsheets. Especially when, if statutory compliance in India is not followed, businesses can possibly pay a high price even for the slightest of mistakes.
Hence, to make the entire process seamless and less cumbersome, we’ve built RazorpayX Payroll - a tool that keeps track of the dynamic laws and calculates the salaries of employees while keeping into consideration the payment of statutory deductions and handles disbursements too.
This process is automated end-to-end and eliminates the involvement of the HR, Payroll and Finance teams altogether.
What’s more, it also functions as a self-serve portal where the employees can file for their reimbursements, downloads their payslips and manages their leaves that too on slack.
So, sit back and let this auto-pilot fly your business turbulence-free, request a demo here.