There are different mandates of business operations that the HR of a company has to comply with on behalf of the employee. The consequences of non-compliance may range from high penalties to even imprisonment. We know that ignorance of the law does not prove innocence. Hence, it becomes highly pertinent for the employer to be well aware of employer-related tax compliance.
Statutory compliance in the case of payroll are several. And each has a multitude of sub-compliance to take care of.
Different laws and statutory compliance which need to addressed includes-
- Employees' Provident Fund Act,1952
- Employees' State Insurance Act,1948
- Payment of Gratuity Act,1972
- Labour Welfare Fund Act,1965
- Equal remuneration Act,1976
- Income Tax Act,1961
- Factories Act
How to Address Payroll Tax Compliances?
Over the years, the employer has devised new ways to meet statutory requirements of payroll. One key achievement is that they have been able to integrate the feature in the payroll software helping in statutory compliance management. This software can make the job of an employer a lot easier by automating a lot of processes. These processes were earlier manual and consumed a lot of time on the part of the employer.
As a general practice, HR must collect the basic details of the employees. These details include the PAN card information, Addhar card details. In the case of a foreign citizen, their passport number. Such information helps to identify the identity of the employee.
TDS on salary happens to be a significant compliance area for HR. HR computes an employee's CTC in advance and deducts tax before crediting his account.
- The HR computes the most probable income of the employee for the financial year ended. The accountant or HR then adds and deducts other income and losses.
- After that, the HR makes deductions based on declarations given by the employee. These deductions are as per the limits and sanctions are given in chapter VI A of the income tax act,1961.
- The employer deducts the TDS on salary every month. This is similar to advance tax, paid quarterly.
- After TDS, the HR/accountant remits the TDS amount to the government via their internet banking facility. The HR must make sure that the TDS is paid before the 7th day of the month.
- Before the arrival of 31st May of each financial year, HR must provide to the Employee a TDS certificate (Form 16). Form 16 contains the details of TDS deducted by the HR/Employer.
- Also, HR needs to get the details of investments and exemptions claimed by the employee via form 12BB.
Income from previous employment is submitted via form 12B. The form’s primary purpose is to furnish details of the income earned by the employee from the previous employer. However, providing Form 12B to your new employer is not mandatory.
HR compliance as per the Employees Provident Fund and Miscellaneous provisions Act, 1952.
- The employee and employer contribute around 12% of the employee's salary to the PF fund. The provision of this act is applicable as soon as the industry employs 20 or more persons. This amount provides stability to the employee at the elder age.
- The role of HR is to calculate the PF contribution effectively by following various rules and regulations.
- PF contribution of 12% by the employer must be directly transferred to the PF Account of the employee.
- 12% contributed by the employee breaks between 8.33% and 3.67%. 8.33% goes to the pension scheme and the remaining 3.67% to the PF account.
- There is an additional EDLI contribution of 0.50% and is payable by the employer to the EDLI fund. Administrative charges of 0.01% on total EDLI is also payable by the employer.
Also, there are the following roles and responsibilities of HR. The list of statutory compliances are:
1. File monthly return of PF with EPFO within 15 days of the close of each month.
2. Deliver a list of new employees who joined the establishment during the previous month in Form-10.
3. Upload an annual return in form 6A and form 3A, showing the contribution made by the employee and employer, respectively.
4. Take form 2 from the employees containing the basic details of the employee and his nominees.
5. Undertaking from the employee if they are willing to contribute more than 12% to the PF fund.
Different states levy professional taxes based on the salary structure of the employee. The date of payment and return varies from state to state. If a company operates in different states within the country, then there is a separate statutory requirement for each of the states.
The role of HR is to ensure that different slab wise requirement of each state is taken care of in respect to legal compliance in HR.
Also Read: TDS On Salary Under Section 192
The Payment of Gratuity Act
This Act is applicable when the employer employs more than 10 employees in the preceding financial year. An HR must ensure that the employee's compensation under gratuity is duly accounted for. Different employers may end up paying gratuity amounts higher than mandated by law. But as a matter of law, the employee gets 15 days of salary for each completed year of service.
The important aspects to note here are-
1. The employee gets gratuity only after completing five years of service.
2. Nominees or legal heirs can get the gratuity amount after the employee's death.
3. The employee must be in continuous service of 5 years, subject to some exceptions.
4. It is not applicable for payment made to trainees or apprentices.
5. The maximum payment limit is Rs 3.5 lacs.
For safeguarding the workers’ rights, this act is applicable if 10 or more workers have worked in the preceding financial year. Generally, this is applicable for companies operating in the manufacturing industry. This act also aims to protect children from child labour.
An HR needs to meet the following statutory compliances here:
1. A worker works for not more than two continuous shifts in a day.
2. The worker gets extra wages for overtime, which is twice the normal wage rate.
3. There is a strict restriction for women employment between 10 PM and 5 AM.
Employees State Insurance scheme
This act aims for the benefit to employees in case of sickness, maternity and employment injury. Employer's ESI contribution is 4.75%, while employee's ESI contribution is 1.75% of gross salary.
The HR needs to take care of the following statutory compliance:
1. This act is applicable if 10 or more persons work in the factory in the preceding financial year.
2. The wage limit is Rs 15000 per month.
3. An HR should deposit the amount before the 21st day of the succeeding month.
The Payment of Bonus Act,1965
As per the Bonus Act, employees during the year receive the bonus amount in addition to their existing wages or salary. This bonus is usually linked to the production or working efficiency of the employees or workers.
Failure to comply with this act’s directions and requirements may lead to imprisonment of up to six months, a fine up to Rs.1000, or both. So the HR must meet the needs of the act without any fail.
The HR needs to take care of the following statutory requirements:
1. This act applies to establishments employing 20 or more employees.
2. If an employee gets a minimum salary of Rs 3500 per month and has worked for at least 30 days in the preceding financial year, they are eligible to get a bonus.
3. The minimum bonus which an employee gets even if the company suffers losses during the accounting year or there is no surplus, is 8.33% of the salary or wages of the employee during the accounting year.
4: Bonus should be given in cash or any mode within eight months from the close of the accounting year. Bonus is only payable annually.
5. File annual return bonus paid to employees using Form D.
Equal remuneration Act 1976
This act aims to bridge the gap between men and women in the workforce. The HR must address the requirement and grievances of employees without any fail and, therefore, is a vital statutory compliances in India.
Companies Act, 2013
As per the Companies Act 2013, HR should take the necessary details of the directors. And make sure that it complies with the Act. These details include the declaration of independence in the case of an independent director. Also, forms DIR-8 and MBP-1 are for the director. Remuneration must be paid to the executive director as per section 197 of the Act.
There is a lot of legal compliance which the HR needs to address. This can be done quickly by sitting with the secretarial team of the company. The sitting fees and monthly remuneration paid to the directors must comply with the requirements of the Companies Act. The act has made a maximum cap of Rs One Lakh on the sitting fees. Also, the sitting fees to be paid to Independent and women directors should not be less than what is paid to the executive director. And to ensure independence, the independent director should not get any stock option plan in the company.
The responsibility of HR does not end with the hiring of the employee. There are many more formalities to take care of. Like, preparing monthly employee costs and comparing them with the budget. But these payroll-related compliance are company imposed, and they are not required by the law of the land. Every statutory compliance in HR is done with the view to meet the requirements of the law. These laws aim to protect and preserve the rights of the employee. An employee is a minority in the company and could be mistreated.
This statutory requirement serves a dual purpose. First, evaluation of the company and employees so that no fraudulent activities take place. Secondly, provide the must needed tax revenue to both central and state governments. These statutory compliances vary from state to state within the country. Some of the states like Madhya Pradesh came up with a law to fix 50% of the jobs on a quota basis to local people. So, the position of HR in payroll is dynamic. Being aware of the framework of law is the key here.
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