How Can Companies Be Statutory Compliant and Avoid Payroll Hassles

As part of the Human Resources team, your company spends a great deal of money, time and effort to ensure payroll compliance through a mandatory audit. When it comes to rules and regulations, every organisation faces a risk of possible legal risks related to compliance – be it fair treatment between employees, unreasonable wage and benefit demands, and aggressive trade unions and employees.

Intentional or unintentional non-compliance is not just unethical but can result in rigorous imprisonment, hefty fines and a permanent place on the list of blacklisted companies. Therefore, payroll hassles and statutory non-compliance must be resolved at the earliest.

Statutory compliance and its benefits

In Human Resources, statutory compliance is defined by the legal structure that each enterprise must align to with regard to their employees. All countries have their set of federal and state labour laws that their companies must follow — such as paying a minimum wage, professional taxes, benefits and perks, increments and maternity leave. The term ‘statutory’ means regulations, while ‘compliance’ means conformity – thus, defining adherence to the standard rules.

Each company must have an in-depth knowledge of the statutory regulations of their country and provide special services to their teams. They can ensure this by streamlining and maintaining procedures, such as processing registers, forms and reports.

The benefits of statutory compliance include:

• Ensure impartial treatment of the company’s employees
• Compliance with a minimum wage rate
• Regulation of work hours
• Avoidance of penalty
• Protection of benefit demands, unreasonable wages and legal trouble

What is payroll and why is it important?

Payroll refers to a register of an organisation’s members and the money that is to be paid. Common challenges, such as calculating Provident Fund (PF), ESI deductions, education/medical/travel allowances, employee benefits and investment declarations within the stipulated time or missing deadlines, can lead to heavy penalties. Most of the business owners find it hard to reduce the complications associated in statutory compliances such as paperwork, tax codes, internal costs, legal fees and administering taxes. Managing payroll hassles is time-consuming, highly confidential and quite stressful – which is why payroll hassles are common when juggling other HR duties of answering queries, processing payroll, handling employee data and submitting reports.

Statutory Compliances For the Indian Payroll

These are the statutory requisites for organisations to observe with respect to their payroll regulation in India:

• Minimum Wage Act, 1986

The Minimum Wage Act, 1986 fixes salary rates as decided under the Central and State Governments for all occupations, sectors and regions determined by the living costs. Separate work classes have different minimum wages rates that could be decided for an hour, day, week or month. The government holds committees to inquire about and recommend streamlining of minimum wages for unskilled and skilled labourers that ensure medical treatment, education and other requirements.

• PF Deduction and ESI Fund

Developed by ESIC (Employees’ State Insurance Corporation), ESI or Employees’ State Insurance is reserved for employees who earn ₹21,000 per month along with medical benefits and cash for their families. Provident Fund (PF) is a mandatory contributory fund for their employees’ future after retirement or death.

• Tax Deduction at Source (TDS)

Employers must deduct a certain amount of tax from their employees’ income, known as Tax Deduction at Source (TDS). These components include travel allowance, Health Reimbursement Management, children’s education, investments and medical allowances. Deductions are carried as per the Income Tax Act, which is regulated by the Central Board of Direct Taxes (CBDT) under the Indian Revenue Services (IRS).

As per the Income Tax Laws 2020, the employee can choose between the old and new tax regimes. The new regime eliminates investment declarations, reduces employee tax liability and gives employees an option to submit their investment proofs. It can be exempted if the employee produces a self-declaration where they have submitted the needed investments in Form 15G/15H or proof of assessment by the Assessing Officer.

• EDLI

Formally known as the Employees’ Deposit Linked Insurance Scheme, EDLI offers assurance benefits (death insurance cover) and Provident Fund to employees who earn below than ₹15,000 in a month. It is the employer’s responsibility to deduct 0.5 per cent from the employee’s salary each month.

• Gratuity

Calculated as Basic salary + DA/26 x number of years in service x 15, the gratuity is an amount offered to employees when they resign after five years of service.

• Professional taxes

Employment or professional taxes are state-based statutory deductions from the employee’s gross income before tax computation.

• Amendment to Maternity Benefit Act, 1961

Passed by the Rajya Sabha in 2016 and the Lok Sabha in 2017, the Amendment to Maternity Benefit Act, 1961 has been increased to twenty-six weeks. For a woman with two children, the maternity leave allowed is of twelve weeks along with six weeks of prenatal leave. A female employee can enjoy a twelve-week adoption leave for a child below three months while a female civil servant can enjoy a one-hundred-and-eighty-day maternity leave for her first two children.

The female employee must have spent at least eighty days in the company before she delivers her children to avail full pay during her maternity leave. She shall receive her twelve weeks of pay along with ₹3500 as a medical bonus.

Automated payroll software is a perfect solution to cope up with the increasing payroll requirements in business such as maintaining accurate calculations, payslip generation, taxes, disbursal and records. It informs organisations about compliance steps to be taken and amendments in tax laws and can be updated regularly to stay ahead of one’s competitors. As it calculates accurate taxes, the organisations can easily avoid hassles with payroll.

BetterPlace’s payroll and compliance solutions, for instance, allow organizations to process employee salaries in accordance with statutory compliances. What’s more, it not only seamlessly records loss of pay data, attendance and leave management information thereby eliminating duplicate and redundant data, but also uses bank APIs integration to accurately calculate, transfer salaries and reflect payment status in real-time. They also provide one-click access to all the comprehensive reports on PF, ESIC, PT challans, employee documents and payslips right from the dashboard.

Cloud-based payroll applications offer a company and its employees the following advantages to ensure a well-managed payroll system:

• Accurate calculation of attendance, leave, travel expense and LWPs (Leave Without Pay)
• Timely creation and distribution of employee salaries and slips
• Compliance with the latest government regulations to calculate payroll
• Communication for automatic payroll updates
• Timely deposition of withheld taxes to avoid compliance risks
• Maintenance of payroll history
• Automatic reminders for deposition and filing of taxes
• Accurate ESI/PF deductions
• Conservation of money, time and efforts
• Secured, scalable, configurable and easy access to dashboards and payroll reports
• No data entry mistakes

Therefore, in order to avoid payroll hassles, payroll processing should be done in a timely and government-approved manner to maintain an efficient system that serves the company, employer and employee alike.