There are several business and human aspects when it comes to operating a company. Governments want to ensure that the businesses in the country conduct their operations lawfully and treat their employees fairly. So they need to establish some ground rules; that’s where the statutory compliance plays a role.
The legal framework ensures that companies adhere to these rules to ensure employee welfare and the proper payment of taxes. If an organisation fails to comply with the statutory requirements, it may attract hefty fines as well as legal action against it.
While organisations want to stay compliant with the tax requirement and treat their employees well, it can be a little confusing to keep up with all the regulatory requirements that frequently change. That is where a dedicated HR management software comes into the picture. In this blog, we will give you an overview of what compliance is and various aspects of it.
What is Statutory Compliance?
It is important to understand the meaning of statutory compliance first. Statutory compliance refers to the legal framework established by various state and government bodies that all businesses need to follow.
The statutory compliance ensures lawful business practices and employee welfare at large. It includes various aspects of employee welfare such as right compensation, working hours, employee safety, future security and more.
What is Statutory Compliance in HR?
Similar to payroll, employee management is also governed by multiple statutory rules and regulations. Companies are required to adhere to various laws such as the Factories Act (1948), Payment of Wages Act (1936), Labour Code on Wages (2019), Code on Social Security (2020), Occupational Safety, Health and Working Conditions Code (2020), and others, to ensure fair and adequate wages and benefits to all employees. Statutory compliance in HR refers to adhering to these rules and regulations.
What is Statutory Compliance in Payroll?
Statutory compliance in payroll refers to the regulations that need to be followed while managing employee compensation and benefits. In India, it ensures businesses adhere to labour laws such as the Provident Fund (PF), Employees’ State Insurance (ESI), Professional Tax (PT), Income Tax (TDS), and the Minimum Wages Act. Hence, modern organizations deploy a dedicated payroll solution to take care of it.
Statutory Compliance Checklist
All the businesses operating in India need to adhere to legal obligations established by the state and central government. These are applicable to all employers based on their size, type, and location of the business.
Whether you’re a startup or an established enterprise, ignoring these laws can lead to fines, penalties, and reputational damage. On the other hand, complying with them strengthens trust, builds a positive work environment, and ensures peace of mind.
Given below is a simplified overview of the major statutory compliances that businesses must be aware of in 2025.
1. Employees’ Provident Fund (EPF)
The Employees’ Provident Fund is one of the most important social security schemes for employees in India. It ensures that employees build a retirement corpus throughout their careers. This law applies to companies with 20 or more employees and is regulated by the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.
Through EPF, both the employer and employee contribute a fixed percentage of the employee’s salary toward a retirement fund. The accumulated fund can be withdrawn by the employee at retirement or during specific life events like illness, education, or unemployment.
2. Employees’ State Insurance (ESI)
The Employees’ State Insurance scheme provides medical, disability, maternity, and other benefits to employees and their dependents. Governed by the ESI Act, 1948, it is applicable to organizations with 10 or more employees (in most states) whose monthly wages do not exceed a specified limit.
This scheme acts as health and social security protection, especially for low-income employees. It offers financial support during sickness, accidents, or maternity and ensures access to affordable healthcare facilities.
3. Professional Tax
Professional Tax is a state-imposed tax levied on income earned by salaried employees, professionals, and traders. The rules vary from one state to another, including the applicable salary slabs, rates, and return filing timelines.
It is important to note that not all Indian states impose professional tax. However, for businesses operating in states where it is mandatory, employers are responsible for deducting it from employees’ salaries and ensuring timely payments to the state authorities.
4. Payment of Gratuity
Gratuity is a monetary benefit provided to employees who have completed a minimum of five years of continuous service with the same employer. It is governed by the Payment of Gratuity Act, 1972.
The gratuity amount is typically paid at the time of resignation, retirement, or death, as a token of appreciation for the employee’s long-term service. It serves as a form of financial support and recognition for employee loyalty.
5. Labour Welfare Fund (LWF)
The Labour Welfare Fund is another state-specific requirement aimed at improving the well-being of workers. The fund is used to support various welfare activities like education, medical facilities, housing, and vocational training.
It applies to certain categories of employees and is implemented only in specific states. Contributions are made jointly by the employer and the employee, and the frequency of these contributions also varies by state.
6. Minimum Wages
Ensuring that employees are paid fair wages is one of the fundamental legal requirements under the Minimum Wages Act, 1948. Each state government in India notifies minimum wage rates for different job categories, industries, and skill levels.
Paying less than the minimum wage is a legal violation and can lead to severe consequences. Compliance with this law not only protects employees but also promotes ethical and fair practices in the organization.
7. Payment of Bonus
The Payment of Bonus Act, 1965 mandates that eligible employees receive a yearly bonus based on their salary and the company’s profits. This act applies to establishments with 20 or more employees and covers those earning below a specific salary threshold.
Bonuses act as both a reward and a motivation for employees and help foster long-term commitment and job satisfaction. From a compliance perspective, ensuring bonus payments are made correctly is essential to avoid disputes.
8. Shops and Establishments Act
Every business operating in a commercial or office space is required to register under the respective state’s Shops and Establishments Act. This law governs working conditions, opening and closing hours, leave policies, employee rights, and workplace safety.
It applies to a wide range of businesses, including shops, restaurants, offices, and small commercial units. The act helps create a regulated working environment, especially for businesses not covered under other labour laws like the Factories Act.
9. Equal Remuneration and Anti-Harassment Laws
Compliance isn’t just about numbers. Employers must also follow laws that promote equality and safety in the workplace. The Equal Remuneration Act ensures that men and women are paid equally for similar work.
Additionally, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act mandates the formation of Internal Committees and the implementation of strict anti-harassment measures.
These laws are key to building a respectful, inclusive, and legally sound work environment.
Advantages of Compliance
Beyond avoiding fines or penalties, statutory compliance offers long-term value to your organisation. It builds employee trust, improves workplace culture, and enhances your reputation as a responsible employer. Clients, investors, and future hires are more likely to engage with companies that are legally sound and transparent.
Moreover, today’s workforce is informed and empowered. Many employees are aware of their rights and expect organizations to follow fair practices. Failing to meet those expectations can lead to low morale, higher attrition, and even public backlash.
Staying compliant means doing business the right way, and there are many benefits for doing so; some of them are mentioned below.
➔ Build Trust and Reputation
Complying with the rules of the law and paying what is owed to the government in taxes on time builds a trustworthy image for a company. Not only with government bodies but also in the market. When you follow the statutory obligations, the company stays away from legal trouble. That builds a clean, consistent and reliable image for you.
➔ Get Employee Loyalty
When businesses are compliant, that means employees are getting the fare wages, a healthy work environment as well as other benefits. That builds trust with your employees. As a result, they are likely to work harder and stay in the company for a longer period of time.
➔ Avoid Risks & Trouble
Keeping up with tax obligations safeguards you against any legal trouble. That costs you in terms of reputation, business restrictions, as well as monetary consequences in terms of a fine.
Similarly, when your company stay compliant with the labour welfare laws, you don’t have to face issues with a labour union. As a result, your business operations run smoothly without any hindrance.
In Closing
Compliance may seem like a never-ending checklist, but it doesn’t have to be overwhelming. By focusing on the major statutory obligations like EPF, ESI, minimum wages, gratuity, and professional tax, your organization can cover the most essential bases.
Think of statutory compliance not as a burden, but as a responsibility, one that protects your people, builds credibility, and ensures long-term business stability. With the right systems in place and a proactive approach, compliance can become a seamless part of how your business grows and thrives.
FAQs on Statutory Compliance
1. What is the role of HR in Statutory Compliance?
The role of HR is to ensure that all the policies in the company comply with the statutory requirements. It includes auditing the policies related to working hours, payscale, leaves, statutory contributions and more. The HR should also stay updated with the changes in the regulations and modify the policies that ensure compliance. When the HR follows all the statutory guidelines and keeps the records accordingly, it safeguards companies against any legal trouble or penalties.
2. Is TDS a Statutory Compliance?
Yes, TDS is a part of statutory compliance according to the Income Tax Act. The employer is obligated to deduct eligible tax on behalf of the employee according to the income tax rate. The deducted income tax is deposited with the concerned tax authority against the employee’s PAN number. Employee receives their salary after the TDS and other statutory deductions, ensuring timely payment of the taxes on behalf of the employee.
3. Is PF (Provident Fund) part of Statutory Compliance?
The PF or Provident Fund is one of the essential compliance requirements that HR and organisations need to follow. EPF (Employee Provident Fund) is established by the Employees’ Provident Fund Organisation (EPFO) under the Ministry of Labour and Employment, designed to serve as a retirement plan for employees.
4. How can HR software help with Statutory Compliance in payroll?
HR software helps you to calculate the right amount of statutory deductions based on the salary, such as PF, ESI and TDS. The HR software also provides checklists to ensure statutory compliance and keep track of important dates so you don’t miss the deadlines. Some cloud-based HR software also keeps you informed about any changes in the regulatory guidelines, so you can easily keep up with the changes.
5. Which payroll deductions come under Statutory Compliance?
Several payroll deductions are made under the statutory deductions in India. These deductions include the Employee State Insurance (ESI), Professional Tax (PT), Labour Welfare Fund (LWF), Tax Deduction at Source (TDS) and the Provident Fund (PF), both employee and employer contributions. The Statutory deduction under the payroll ensures that the company stays compliant with the employee welfare and tax obligations.
