Statutory provisions governing HR accounts

Statutory Compliance of rules and regulations in HRMS& payroll is a grave legal matter for both employees and the organization’s social security. The Indian Government has declared various regulations and acts to process employee’s payment. Every company is liable to follow these rules to avoid any legal consequences. Though to follow it or not might be a company’s individual decision, but it may have some severe implications.

Statutory Compliance in HR is important, as seen from both employee and employer’s perspective. Indian Government provides employee benefit acts like industrial relations, minimum wages, social security, women and child employment, health and safety, and organization benefit acts like provident fund, trade union, ESI, professional tax, etc. We will further check all the details of these acts. These acts can vary from state to state and country to country. In India, these acts sometimes change for every state, but not necessary.

Non-agreement to such laws implicate legal consequences on business existence, that is why business representatives put a considerable amount of money, time, and people to adhere to these laws. Additionally, they also seek laws and finance taxation expert’s advice. To be a statutory compliant company, you must practice an efficient way to minimize these risks and update them with these laws.

Every type of organization, whether private, LLP, partnership-based, which provides a salary to their employees, must stick to these laws to avoid reputation and business threats during any statutory audit.

These regulations are checked during the statutory audit. A Statutory Audit is an inspection mandated by law to ensure the books of accounts presented by organizations are true according to the statutory audit checklist finalized.

Importance and Advantages of Statutory Compliance

The most important advantage of the list of statutory compliance to employees is that it ensures fair treatment of labour. It prevents employees from being exploited or made to work for unmanly hours or in inhuman conditions. It also ensures that they are paid fairly in proportion to the work that they have done, and that companies comply with the minimum wage rate.

The advantage to organizations is the timely payment of taxes, which avoids a lot of legal trouble like penalties and fines. A set of predefined rules makes it easier for the Government to collect revenue as well as for companies to organize their financials. Statutory compliance is important to prevent legal troubles. Companies can be fined monetarily as well as be tried in a court of law, depending on the scale of non-compliance. The Importance of statutory compliance in hr cannot be overlooked anymore. It needs to be taken far more seriously to reduce the frequency of fines and penalties.

Statutory Benefits Applicable

For Employee’s:

1. Ensures minimum wages and equal remuneration to men and women.
2. Fair treatment to employee and betterment of industrial relations.
3. Help avoids inhuman conditions of work and guarantees workplace health and security.
4. Provides social security through compensation and incentives.

For Employer’s:

1. Protection to the organization’s existence.
2. Protection against illegal wage demands from trade unions and employees.
3. Maintains the organization’s reputation and client engagement.
4. No risk of fines and penalties.

Industrial Relations Guide for Statutory Compliance

The Industrial Disputes Act, 1947

The industrial disputes act, enacted in 1947, to make provisions for investigating and settling disputes between employee-employee or employee-employer. The main objective of this Act is to ‘maintain peace and harmony in work culture in Indian Establishments.’

This Act applies to the whole Indian nation, including establishments for business, trade, manufacture, and distributions. However, it does not encircle persons in the managerial or administrative field and persons subject to Army, Air force, and Navy.

Women Benefits

Equal Remuneration act, 1976

As the name suggests, the Equal Remuneration Act encloses a gender-based payment equality policy of industrial. It ensures uniform payment to the employees irrespective of men or women to avoid gender bias. It came into the picture because payment given to women was lower than that of men, though the work amount being the same. Non-compliance with this Act can implicate serious fines and penalties.

Provisions under this Act include 1. Not to reduce employees’ salary to adhere to the Act 2. For the same nature and amount of work, no discrimination is allowed for women. 3. During the formation of an advisory committee that works to increase employment opportunities for women, work hours and its nature shall consist of half women members.

Maternity Benefit Act, 1961

The maternity benefit act passed in 1961. It helps women protect her employment and provides her certain months of paid leaves during her maternity to take care of her child. After maternity, she can continue with her job without any disturbance of made leaves.

This Act applies to all establishments like factories, shops, private and Government sectors with ten or more employees. During her maternity, she will be paid based on average daily wages. But to gain this benefit, she must be working for an organization for at least 80 days within the past 12 months.

Further amendments of this Act in 2017, guarantees

1. Increased amount of paid leaves during maternity ‘leaves are increased from the existing 12 weeks to 26 weeks.
2. Leave for adoption ‘women can leave for adopting a child below the age of 3 months and the commissioning mothers.
3. Work from home option ‘women, can now continue her work directly from her home with no leave requirements and is comfortable to her.

The Payment of Gratuity Act 1972

Payment of gratuity act guarantees benefits like gratuity and incentives to the employees working in railways, mines, factories, ports, oilfields, shops, and private sectors.

A certain amount is deducted from monthly wages and further provided after an employee’s retirement, offering monetary help, called gratuity. Gratuity is allowed to an employee who has given continuous service for at least five years for a particular organization. As per section 4(1), gratuity is mandatorily payable for employee death or disablement, even though five years of service is pending. Under section 4(3), the maximum gratuity amount an employee is beneficial for is Rs. 20,00,000, and is liable to tax for gratuity amount more than stated.

According to section1(2), state Jammu and Kashmir are not liable for this Act for plantation or ports. As per section1(3-A), in case the employee rate somehow drops below 10 for an establishment, the employer must not request for reducing gratuity. Under section2(e), this Act doesn’t apply to apprentices or civil service employees under the Central and State government.

Gratuity depends on the years of service and the last drawn salary and is calculated according to the formula

Gratuity = Last drawn salary *number of completed service years * 15/26

According to the above formula, the service year with more than six months will be considered one full year, and less than six years will be regarded as zero years.

For example, a service period of seven years and eight months will be eight years, and a service period of six years and four months will be six years.

The Employees’ Compensation (Amendment) Act, 1923

Many services involve hard work, risk of losses, critical injuries, or even death. Employees’ compensation act, enacted in 1923, protects an employee or his/her dependents through compensation during any conditions mentioned above.

According to Section 17A, every employee must be well-informed about his compensations at the time of joining by the employer. Failure of such tasks may result in penalties and fines of Rs. 5000 to 50,000 as imposed by Government, under section 18A.

The Employees’ Provident Fund & Miscellaneous Provisions (Amendment) Act, 1952

The statutory provident fund act is issued for the social security of the employee. Employees’ Provident Fund Act is liable for any establishment employing more than 20 employees. To make this possible, every employee during his/her employment contributes some amount from their salary to the Provident Fund. Even their employer is also required to contribute to this fund. This fund then ensures social security after employees’ termination or retirement. EPF of every corresponding employee must be deducted from his/her salary and filled before the PF return due date, which is the 15th of each month.

Employees’ PF calculation is based on basic salary and DA. Other allowances like HRA, overtime allowance, incentives, etc. are not included under this. The basic wage covered in this is Rs. 15,000 monthly. PF divides into two funds; EPF (Employees’ Provident Fund) & EPS (Employees’ Pension Scheme). Consider the following PF rates declared by the government:

Any failure in this Act may lead to 3 years of imprisonment and a penalty of Rs. 10,000. Apart from EPF, other provident fund meanings and types include

SPF: Statutory Provident Fund

SPF is only meant for employees who are enrolled in Government and Semi-government enterprises.

UPF: Unrecognized Provident Fund

Started by employers or employees in any organization, UPF is not a government-approved scheme.

PPF: Public Provident Fund

Whether an employer or not, PPF scheme that is savings-cum-tax-savings options, is open to every Indian citizen

The Employees’ State Insurance ESI Act, 1948

Employees’ State Insuranceactensures absolute medical security, including sickness, maternity, and injuries for employees working in non-seasonal factories, including power with more than ten employees and non-power and other establishments with more than 20 employees.

The wage limit covered under this Act is Rs. 15,000 per month. This Act applies to all states except Manipur, Sikkim, Arunachal Pradesh, and Mizoram. Benefits can be availed through ESIC online appointment for hospitals, clinics, and practitioners.

Both employee and the employer contributes to the ESI scheme on ESIC payment portal and ESI Percentage contributions made to the same are