Payroll Statutory Compliance - Complete HR Guide

By Pal Classes | HR - Santosh Pal

 

1. Statutory Compliance - Introduction

 

Statutory compliance within the realm of HR and Payroll means abiding by the rules and regulations set by the State and Central government. Adhering to statutory compliances is necessary for all companies to keep their businesses safe from legal trouble. If the company fails to comply, then they will have to face heavy penalties which are often heavier than the compliance themselves.

 

Topics Covered:

 

· Provident Fund (PF)

· Employee State Insurance (ESI)

· Professional Tax (PT)

· Tax Deducted at Source (TDS)

 

2. Provident Fund (EPF)

 

Employee Provident Fund (EPF) is a saving fund that aims at providing a lump sum amount at the time of leaving the company or retirement.

 

Contribution Structure:

 

· Employee Contribution: 12% of (Basic + DA)

· Employer Contribution: 12% of (Basic + DA) split into:

  · 8.33% to Employee Pension Scheme (EPS)

  · 3.67% to Employee Provident Fund (EPF)

 

Additional Charges:

 

· PF Admin Charges: 0.5% of total PF contribution

· EDLI Charges: 0.5% on basic monthly wages (maximum up to ₹15,000)

 

Due Date:

 

· PF contribution payment and ECR filing: 15th of next month

 

Supplementary PF:

 

· PF contribution deducted from additional income like arrears, incentives

· Not applicable if employee already contributing maximum ₹1800 in regular PF

 

EPFO Portal Processes:

 

· New Employee Registration: Through REGISTER - INDIVIDUAL or BULK

· KYC Approval: Individual or bulk upload through KYC - Bulk option

· UAN Generation: Generated after registration and KYC approval

· Unlinking Employees: Through Mark Exit tab in profile or bulk upload

· ECR Generation & Filing: Monthly return filing through Payments menu

 

3. Employee State Insurance (ESI)

 

ESI provides case benefits during physical distress due to sickness, temporary or permanent disablement resulting in loss of earning capacity.

 

Contribution Rates:

 

· Employee Share: 0.75% of gross earnings

· Employer Share: 3.25% of gross earnings

· Applicability: Employees with gross salary ≤ ₹21,000

 

Special Notes:

 

· If daily wage ≤ ₹176, only employer contributes

· Medical care available from day one of employment

 

Supplementary ESI:

 

· Filed after monthly contributions

· Can be filed multiple times

· Increases total contribution amount

 

Registration & Compliance:

 

· IP Registration: Through "Register New IP" on ESIC portal

· Monthly Contribution: File monthly contribution through portal

· Half-yearly Return Filing: Due on 11th May and 11th November

· Payment Modes: SBI net banking or other bank net banking

 

4. Professional Tax

 

Professional tax is levied by state governments on individuals earning a living through any medium.

 

Key Features:

 

· Maximum amount: ₹2500 per year

· Slabs vary from state to state

· Some states and UTs don't charge professional tax

· Payment frequency: monthly, half-yearly or yearly based on state policies

 

5. Tax Deducted at Source (TDS)

 

TDS is a tool used by government to collect tax at income generation time to minimize tax evasion.

 

Employer Responsibilities:

 

· Monthly TDS deduction from employees

· Monthly payment to Income Tax Department

· Quarterly TDS return filing

· Annual Form 16 generation

 

Important Due Dates:

 

· TDS Payment: 7th of succeeding month (April TDS by 7th May)

· TDS Return Filing:

  · Q1 (Apr-Jun): 31st July

  · Q2 (Jul-Sep): 31st October

  · Q3 (Oct-Dec): 31st January

  · Q4 (Jan-Mar): 31st May

 

Form 16 Generation Process:

 

1. Login to TRACES portal

2. Check Form 24Q status

3. Select Financial Year and bulk PAN option

4. Validate KYC details

5. Download Part A & Part B

6. Convert to PDF using utilities

7. Merge and digitally sign

 

TDS Investment Options:

 

Section 80C Deductions (up to ₹1,50,000):

 

· Home Loan Principal Repayment

· Life Insurance Premiums

· 5-Year Bank Fixed Deposits

· Equity Linked Savings Schemes (ELSS)

· Provident Funds (PPF, EPF, VPF)

· National Pension Scheme (NPS) - additional ₹50,000

· National Savings Certificate (NSC)

· Sukanya Samriddhi Account

· School/College Education Expenses

· Post Office Time Deposits

 

Other Sections:

 

· Section 80CCC: LIC annuity plans

· Section 80CCD: NPS contributions

· Section 80D: Health insurance (up to ₹1 lakh)

· Section 80E: Education loan interest

· Section 80G: Donations (50% or 100%)

· Section 80TTB: Senior citizen deposit interest (up to ₹50,000)

· Section 24(b): Home loan interest (up to ₹2,00,000)

 

6. Major Payroll Laws

 

A. Payment of Bonus Act, 1965

 

Eligibility:

 

· Basic + DA ≤ ₹21,000

· Bonus range: 8.33% to 20%

 

Calculation:

 

· If Basic + DA < ₹7,000: Calculate on actual amount

· If Basic + DA > ₹7,000 but < ₹21,000: Calculate on ₹7,000

· If Basic + DA > ₹21,000: Not eligible

 

Payment Timeline: Within 8 months of closing books

 

Forms:

 

· Form A: Allocable surplus register

· Form B: Set on and set off register

· Form C: Bonus proof with signatures

· Form D: Annual return

 

B. Payment of Gratuity Act, 1972

 

Eligibility: 5+ years continuous service

 

Applicable to:

 

· Factories, mines, oilfields, plantations, ports

· Railway companies, shops

· Establishments with 10+ employees

 

Calculation Formula: Gratuity = (Last Drawn Salary × 15 ÷ 26) × Years of Service

 

Taxability:

 

· Taxable if amount exceeds ₹20 lakh

· Exempt only on retirement/superannuation

 

Forms:

 

· FORM A: Opening notice

· FORM B: Change notice

· FORM C: Closure notice

· FORM I: Employee application

· FORM L: Payment notice

 

C. Maternity Benefit Act

 

Leave Entitlement:

 

· Total leave: 26 weeks (8 prenatal + 18 postnatal)

· Adoption leave: 12 weeks for newborn (<3 months)

 

Applicability:

 

· Factories, mines, plantations

· Shops/establishments with 10+ employees

· Equestrian/acrobatic performance establishments

 

Benefits:

 

· Paid maternity leave

· Creche facility (50+ female employees)

· Protection from strenuous work

· Work from home options

 

Important Forms:

 

· Form 2A, 13, 13A, 14, 19, 20, 21, 22

 

7. Payroll Due Dates

 

Monthly Due Dates:

 

· 7th: TDS payment (except March)

· 15th: ESI payment, PF payment & filing

 

Annual Due Dates (Jan-Dec):

 

· Jan 31: Maternity Benefit Act return

· Feb 1: Factories Act return

· Feb 15: Minimum Wages Act, Payment of Wages Act, Contract Labourers Act returns

· Nov 30: Payment of Bonus Act return

· Dec 31: Factories Act & Contract Labourer license renewal

 

TDS Quarterly Return Due Dates:

 

· Q1 (Apr-Jun): 31st July

· Q2 (Jul-Sep): 31st October

· Q3 (Oct-Dec): 31st January

· Q4 (Jan-Mar): 31st May

 

8. Penalties & Interest

 

PF Penalties:

 

· Up to 2 months delay: 5% per annum

· 2-4 months delay: 10% per annum

· 4-6 months delay: 15% per annum

· Exceeding 6 months: 25% per annum

 

ESI Penalties:

 

· Delay in payment: 12% per annum

 

Conclusion

Statutory compliance is not just a legal requirement but a fundamental aspect of responsible business management. From employee benefits like PF and gratuity to tax compliance through TDS, each element requires meticulous attention and timely action. This comprehensive guide covers all essential aspects of payroll compliance to help HR professionals maintain legal compliance and avoid penalties while ensuring employee welfare.

 

Compiled by:

Pal Classes | HR - Santosh Pal

Email: santoshpbt@zohomail.in

 

 

Note: This article is for educational purposes only. Please refer to latest government notifications and consult with professionals for specific cases.