Labour Law Compliance in India: A Guide for Business Owners

What does statutory compliance mean for your business?

There is no single-line answer to this question. Labour law compliance purviews many entities: Companies, Workers, and Trade Unions. But one of its primary objectives is to cater to the welfare of your Worker / Labour. Hence it mandates minimum criteria — Wages, Safety, Health, Working Conditions, Social Security Schemes, and so on — that your organisation needs to follow to provide a fair working arrangement to safeguard your employees against exploitation. 

Lack of statutory compliance in the HR operations of your organisation can lead to punitive action against your business; leading to fines, reputational damage, and even closure of business in certain adverse cases. 

Who enforces the compliance laws?

Central and State government impose labour law compliance. These laws apply to all organisations incorporated in India. Labour laws are applicable according to the organisation type. An appropriate selection of these laws will apply to your business.

These laws aren’t limited to filing returns. These also show how much you value your labour force.

Your business needs to operate within the boundaries of the law. An informed business owner knows the list of the applicable labour laws. As the business grows and new employees join, adhering to governance and risk compliance becomes daunting. The labour laws are amended frequently, taking the already daunting task to a higher level.   

Even with all the challenges that compliance brings, a business cannot feign ignorance. As a business owner, it is your responsibility to stay up-to-date with the payroll and statutory compliance laws. 

Why are these laws out there? 

Instead of imposing all these labour laws, shouldn’t the government be concerned with improving the ease of doing business? To understand the rationale behind compliance, let us consider the following quote. 

“What is the best government? 

That which teaches us to govern ourselves.” – Goethe

There is always a divide in the world of Compliance Vs Ethics. The former believes in the “Visible Hand”, which enforces the rules. It is premised on the logic that humans when left alone to their devices would be too ignorant to be compliant. 

These statutory compliance laws bring punishment to the equation and set a case for companies to avoid penalties.

Ethics postulate the innate goodness of human nature: Our ability to self-govern and make the “right” choice. We believe that along with being compliant, organisations should transition to a better ethical state where they can do the right thing without the fear of external factors. But to do the right thing, companies should be aware of their inherent flaws. This self-awareness can be developed by using proper mechanisms.

E.g., We can enable the workforce to report faults on their own. Instead of penalising, we can provide a fair chance for reformation. In a similar way, compliance automation software can flag a risk before it can develop into a compliance issue.  

Here is a list of major statutory acts:

All organisations in India need to abide by these acts: 

• Shops and Commercial Establishments Act (S&E)
• The Employees Provident Funds and Miscellaneous Provision Act, 1952 (EPF)
• The Employees State Insurance Corporation Act, 1948 (ESIC)
• The Professional Tax Act (PT) 1975
• The Labour Welfare Fund Act (LWF) 1965
• The Contract Labour (Regulation & Abolition) Act, 1970 (CLRA)
• The Child Labour (Prohibition & Regulation Act), 1986
• The Minimum Wages Act, 1948
• The Payment of Wages Act, 1936
• The Payment of Bonus Act,1965
• The Maternity Benefit Act,1961
• The Payment of Gratuity Act,1972
• The Equal Remuneration Act,1976
• The Industrial Establishment (N&FH) Act, 1963
• The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959
• Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013
• The Employees Compensation Act, 1923
• The Industrial Employment (Standing Orders) Act, 1946 
• The Industrial Disputes Act, 1947
• The Apprentice Act, 1961
• The Interstate Migrant Workmen (Regulation of Employment and Conditions of Services) Act, 1979
• The Factories Act, 1948
• The Trade Unions Act, 1926

Let’s understand some of the major acts from the list.

Wages 

The Minimum Wages Act, 1948

This act sets the minimum wage that an employee can be paid in India. The wage rate is determined by the type of work, industry and pay levels (State and National). This law ensures labour is compensated fairly according to their skill and other business factors. 

Non-compliance by companies in payroll cases leads to harsh penalties.

There are two ways in which minimum wage is set or revised timely:

• Committee Method: Government changes the minimum wage rate after receiving recommendations from committees and subcommittees.

• Notification Method: Proposals are published in the Gazette that showcases the effect on people due to changes in minimum wages. 

The Payment of Bonus Act, 1965

Organisation that employs more than twenty people is liable to pay annual bonuses to their employees.

TDS deduction 

Under section 192 of the income tax, 1961, an organisation is required to deduct TDS applicable to employees whose salary is greater than the maximum amount exempt from tax. 

Employers must generate Form 24Q and Form 16 regularly to avoid a late fee or interest penalty.

Safety, Health and Working Conditions 

The Employees State Insurance Act, 1948

Organisations with more than twenty workers or permanent factories with more than ten labourers are mandated to provide benefits to workers who fall ill or get injured at the workplace.

Maternity Benefit Act, 1961

This act helps women keep their position for a certain period during pregnancy and after childbirth. Organisations must inform women employees about the Maternity Benefit Act as soon as they start working. 

Statutory compliances for PF deduction

Provident fund deductions are mandatory. PF can be used by employees after their retirement. In case of an unfortunate event, their nominee can avail of the benefit.

There are two components of PF:

• EPF (Employee Provident Fund)
• EPS (Employee Pension Scheme)

Gratuity           

After fulfilling five years of service in any organisation, employees can avail of gratuity benefits.

What are a few common Labour Law compliance breaches?

Any non-compliance in the payment of minimum wages can invite a heavy fine. The case is similar for social security benefits. For a business, non-compliance leads to legal proceedings; which result in fines, imprisonment, cancellation of licence and so on. 

Moreover, statutory non-compliance tarnishes your brand and leads to the loss of new work and talent prospects.

How to manage this mountain-load of work amicably?

This blog covers a list of compliance acts. It is easy to learn about the acts from a list but implementing them in a diverse organisation is challenging. But a statutory compliance management policy aided by technology can address your issues. It helps to keep fines at bay plus keeps your HR team at the top of their game. A compliance automation software preps your business for audits. 

It can assist your team in filing returns for hundreds of employees according to the correct pay bracket, communicating social security benefits, workplace safety guidelines and so on to your employees.

MYND offers an array of compliance automation software solutions that give a competitive edge to your organisation. 

Read also: 5 ways ‘ACT’ helps to create and execute Labour Law compliance for your business