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Statutory Payroll Compliance A Crisp Guide for Indian Companies

Any organisation with employees is already well-versed with payroll distribution. It refers to all the procedures associated with processing the salaries to employees.This includes numerous processes that a company needs to undertake.

But payroll isnt just paying whats due to your employees. The government has set many acts that you must follow to be payroll compliant, otherwise, you can face harsh repercussions.

In this brief guide, were going to explore these acts that Indian companies must take into consideration when processing payroll. Well go briefly into each and what their features are.

Broadly, these acts come under three categories. Together, these create a legal framework that describes how employers must treat their employees. Its compulsory to adhere to these. Its extremely important that experts deal with these acts, as failing to comply can result in penal actions, financial losses to the organisation,damage to its reputation and integrity, and even loss of your customers goodwill and loyalty.

What is Statutory Payroll Compliance?
Statutory means related to rules and regulations, and compliance means to adhere to or follow. Statutory payroll compliance means following (adhering to) rules and regulations related to payroll. In HR, this refers to the legal framework that an organisation must adhere to when dealing with employees. There are different state and central labour laws. A company must be constantly updated on the labour regulations that affect them, at multiple levels. Most seek out the professional services of labour law and taxation law experts.

Why Do We Need Statutory Compliance?
These laws are in place for multiple reasons. First and foremost – they protect the rights of employees and ensure their fair treatment. These make sure that adequate payments are made to employees for the work they ve done and can live happy and wholesome lives. This urges organisations to comply with policies such as minimum wage. It also safeguards employees from being exploited by being forced to work long hours or in poor conditions.

Organisations benefit from complying with these laws, too. They avoid penalties, enjoy protection from unreasonable demands from trade unions, and in general mitigate risk. Following these laws helps companies profit from a motivated workforce. It spurs employees to put in more focus and dedication to their tasks. Plus, with these benefits in place, it is easier to attract the best talent available in the job market.

Lets delve into these acts and learn about them in brief. Keep in mind that these acts can vary from state to state.

Employee Salaries and Benefits


  • Payment of Wages Act: This act ensures that companies pay wages on time. There are penalties for not paying wages for more than a month. This rule states that organisations must pay employees before the 7th of every month if theyre a part of a small organisation with less than 1000 employees. If the organisation has more than 1,000 employees, they must pay wages by the 10th of the month. This is only applicable for those earning Rs.10,000 and less every month. The preferred mode of salary under this act is cash or cheque. If employees consent to bank transfers, that is also possible.
  • Minimum Wage Act: : This is a central legislation that fixes the minimum wage rate for employees. This varies from state to state and sector to sector. Provincial governments have a say in it, too. The minimum wage of a state is dependent on a few factors, such as the cost of living, wage period (whether its hourly, weekly, or monthly), and type of job. This prevents employees from being exploited, remunerates them for the work theyve done, and ensures theyre able to lead dignified lives.
  • Bonus Payment: This act affords annual bonuses to those employed in particular industries, such as factories, and organisations that have more than 20 employees. Calculations consider the employees salary and the organisations profits. Those who have been a part of their organisations for more than a month and have earned Rs. 21,000 or less are eligible for this.
  • Maternity Benefits: This grants full paid absence from work for pregnant women. Its applicable for those who have more than 10 employees in their employment. Female employees are eligible for this if theyve been working in the establishment for at least 80 days within the past year. Calculations depend on the average daily wage on the days she is absent. This applies to factories, plantations, mines, government establishments, and any other establishment that follows the rules of the central government.



Labour Laws for Social Security and Industrial Relations


  • Employee State Insurance Act (ESI): This act helps employees when theyre faced with unforeseen circumstances. These can include medical emergencies or disability situations related to the workplace. Both the employer and employee contribute to this. ESI is mandatory for companies that have more than 10 employees working in a non-seasonal factory. But it is only applicable for those who are earning less than Rs. 21,000 per paycheck. Each contribution cycle is of 6 months, with the employer paying 3.25% and the employee contributing 0.75%. Once the employee crosses Rs. 21,000, theyre no longer applicable for ESI.
  • Employees Provident Fund (PF): : This is probably the biggest social welfare contribution for an employee. Both the employer and the employee contribute 12% of their basic pay and DA to the employees retirement fund. An employees contribution towards their PF is eligible for tax exemption. Companies with more than 20 employees have to comply with PF. If you dont comply with PF, you can be heavily fined or, in worst-case scenarios, face imprisonment.
  • Labour Welfare Fund Act: This act improves the conditions of labourers in certain industries. It aims to provide facilities to labourers that improve their working conditions, provide social security, and increase their overall standard of living. This varies from state to state. Its the state labour welfare board that will decide on the amount and frequency of the contribution. There are 16 Indian states where this is applicable and 21 states where its not. Make sure you find out whether this is applicable in your state.
  • Gratuity:Gratuity and provident fund together create an attractive package for the safety and future welfare of any companys employees. Gratuity itself is one of the most important statutory regulations for a company. Its given by the employer to an employee who has completed a minimum of 5 years in their organisation. As the government hasnt set any percentage for the amount of gratuity for an employee, there are different formulas used by companies. These usually depend on the employees last drawn salary and years of service in the company. Since gratuity is a fixed cost, it must be shown as a part of the employees CTC.


Tax Liabilities


  • Tax Deduction at Source (TDS): TDS is undoubtedly one of the most important regulations to adhere to. Its applicable on various streams of income, including salaries, interest, and commission. The taxation on each individual depends on their earnings. In India, there are two different tax regimes that employees can choose between for TDS. In both regimes, TDS is only calculated when the individual earns more than 2.5 lakhs annually.


This was a brief explanation of statutory payroll compliance. This topic is more complex and its important you get in touch with professionals to guide you through this legal framework.Reach out to us in case you need assistance for your company.

At Core Integra, we offer payroll compliance at Rs. 19 per employee!