Understanding Statutory Compliances in Establishment and Employment Laws in India
For an established business to flourish in Indian market, it needs to be organized and streamlined, with proper norms and regulations set in place. Compliance with the statutory requirements of such Acts, Rules and Regulations are important for the business(es) to keep them safe from the legal trouble. This is known as statutory compliance.
This Article will help you to have a Bird’s eye view of what are the various statutory compliances under various Establishment & Employment laws as applicable on the business(es) in India.
Statutory Compliance: Meaning
The word ‘statutory’ means ‘rules and regulations’, and the term ‘compliance’ means ‘adhering to’.
Statutory compliance could be defined as “a predetermined framework within which organizations are supposed to operate. Deep knowledge of statutory compliances helps in minimizing the risk associated with the non-compliance of statutory requirements of various Acts, Rules and Regulations mandated by the Government of India.
Statutory Compliance: Importance
Every country has its own labour laws that Company needs to comply with. In the same way India has its own set of Central and State labour laws. These laws change on a State and Central level, and it is mandatory for Companies to obey them. Non-compliance with these regulations can land a Company into legal trouble such as inspections, show cause notices, penalties, fines, or worse. This is why, Companies spend a good deal of resources for ensuring statutory compliance in India under applicable Establishment and Employment laws and regulations.
It’s important to make yourself familiar with some of the relevant statutory compliances that are applicable on your business, to keep abreast of any changes that need to incorporate since the laws and rules related to Establishment and Employment are prone to frequent amendments and changes.
List of Important Statutory Compliances in India
License and Registration is the permission given by the government to the business owners enabling them to sell their goods and services legally. Generally, applicability of licenses and Registration depends on the location of the business, nature of activity and type of entity. Licenses and Registration are indispensable for every business.
The basic mandatory Licenses and registrations are as follows:-
- Trade License – Trade License comes under the jurisdiction of the State Municipal Corporation of the area where the business is located. The license allows the holder to carry out the trade or business only for which it is issued. Mode of procuring and statutory fees differs from state to state. The license is issued for one year only and needs to be renewed every year. It is issued to the businesses or trades to function by adhering to all statutory compliances and the standards of safety as issued by State Municipal Corporation.
- Shops & Establishment Registration – This Registration is obtained from the State labour office and is applicable on all the shops, establishment and commercial establishments and hence mandatory to be procured by all the businesses. Mode of procuring and statutory fees differs from state to state.
- Import & Export Code – This registration is a pre-requisite for the businesses dealing in export from and import to India. Import and Export Code is issued by the DGFT and is a PAN based registration. Hence only one IEC can be applied and procured against one PAN.
All the IEC holders have to mandatorily update their IEC details once in a year between April to June to avoid de-activation of their IEC number.
- GST Registration – Supply of goods and services in India triggers the requirement to obtaining GST registration, collecting and payment of GST. Upon the approval of registration application, the business is allotted a 15-digit unique number called GSTIN by the Central government.
Any business which is engaged in manufacturing and trading of goods and whose turnover exceeds Rs 40 lakhs in a financial year is required to register under GST. For the service providers the limit is Rs 20 lakh. The Composition scheme under GST law is for small businesses operating in India. Monthly return, Annual return are part of mandatory statutory compliances under GST and GST audit for certain suppliers.
Apart from the Establishment related licenses and registrations, there are Employment related legislations that have been enacted to safeguard and promote the interest of labour covering several aspects such as fair and minimum wages, regular payments, working conditions, holidays, leaves, safety and health, labour welfare, social security, industrial relations, protection of interest of women and child labour etc.
The Minimum Wages Act, 1948- It applies to every employer employing one or more employees. The Act fixes the minimum wages to be earned by the skilled and unskilled labour employed across various sectors, regions and occupations.
The Payment of Wages (Amendment) Act, 2017 – It is applicable to every employee employed in a factory, industry or any other establishment earning wages up to Rs. 24,000/- per month. The Act ensures that employees from various industries are paid on time by having penalties for wages paid late by a month. Every organisation employing less than 1000 employees should pay the wages on or before 7th of the subsequent month and in case of employing more than 1000 employees, wages should be paid on or before 10th of the subsequent month.
Equal Remuneration Act, 1976 –The Act ensures that uniform wages should be paid to the employees irrespective of their genders. Male and female should be paid same remuneration for the same work. Non-compliance with the Act can lead to serious fines and penalties.
The Maternity Benefit (Amendment) Act, 2017- This Act applies to all establishments with ten or more employees. Female employee is allowed to have 26 weeks of paid maternity leave. But to be eligible for this benefit, she must be working for an organization for at least 80 days within the past 12 months.
The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952- The purpose of the Act is to provide social security to the employee. The Act is applicable on 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.
Consider the following PF rates declared by the government:
12% of Gross
The Employee State Insurance Act, 1948 – The Act ensures 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. 21,000 per month.
Both employee and the employer contribute to the ESI scheme on ESIC payment portal and ESI Percentage contributions made to the same are
% of Gross pay
As a part of broad statutory compliances under the Establishment & Employment Related Laws are to maintain various statutory registers and file monthly/ quarterly/half-yearly/annually returns as mandated under the respective laws. Timely renewal of the licenses and registrations is very important as non-renewal often means inspection by the regulator and paying heavy penalties for the non-compliance.
Industry Specific Registrations: These are the registrations that are applicable based on your business activity. E.g. You are operating a restaurant, then you need License under the Food Safety and Standards Act, 2006. Likewise dealing in storage of hazardous chemicals and gases requires permission and license from PESO i.e. Petroleum and Explosives Safety Organization.
Are Statutory Compliances different among different organizations set-up?
No, it does not. Statutory compliance for any type of entity set-up like partnership firm, private limited company, LLP, or any type of company broadly remains the same. Any organization that has employees or workers and they are on the rolls of the organisation must comply with labour laws with regards to monetary compensation, payment of taxes, protection and safety of employees, and fairness of labour.
The Central Government has notified four Labour Codes, namely, the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 on 29th September 2020 but the Centre and State governments are yet to notify the rules under the four Codes along with their effective date.
As stated earlier, these laws are easy to access and read about; however, staying updated on the changes via notifications, circulars and updates to these laws may not be as easy. There are not a lot of statutory compliances for small organizations that may have them worried about.
However, as an organization grows, that changes. Managing your business’s day-to-day activities while also adhering to the various Statutory compliance in India can be extremely stressful. Hence, this is why it is best to partner with SimplySet-up to ensure timely compliance and no imposition of interest or penalty in the most hassle-free manner.