Statutory Compliance

• Avoid legal penalties: Non-compliance can lead to fines, interest, and even prosecution against the company or responsible officials.

   

• Build employee trust: Transparent payroll and timely benefits create confidence among staff, reducing disputes and attrition.

   

• Enhance business credibility: Investors, auditors, and government agencies view compliant companies as reliable and professional.

   

• Smooth audits: Accurate filings and records make statutory audits faster, simpler, and less stressful.

   

• ESG alignment: Maintaining proper compliance demonstrates governance and social responsibility, aligning with global ESG standards.

• Employees’ Provident Fund (EPF): Retirement savings fund where both employer and employee contribute 12% of basic salary.

   

• Employees’ State Insurance (ESI): Provides medical insurance and benefits for employees earning up to ₹21,000/month.

   

• Professional Tax (PT): Salary-based tax levied by state governments and deducted monthly.

   

• Tax Deducted at Source (TDS): Employer deducts income tax at source based on employee salary and applicable exemptions.

   

• Gratuity: Benefit paid to employees after 5+ years of service upon retirement, resignation, or death.

   

• Labour Welfare Fund (LWF): Mandatory contribution for employee welfare activities, varies by state.

• EPF Contribution: 12% of basic salary by both employee and employer; employer share split into PF and EPS.

   

• ESI Contribution: 3.25% by employer + 0.75% by employee for eligible employees.

   

• Eligibility: Employees earning ≤ ₹21,000/month (₹25,000 for PwDs).

   

• Digital filing: All contributions must be deposited online through EPFO/ESIC portals; late payments attract auto-generated penalties.

• State-specific slabs: Each state defines PT slabs based on salary; for example, Maharashtra charges up to ₹200/month.

   

• Employer registration: Companies must register separately in each state they operate to deduct PT legally.

   

• Monthly filing: Employers must deposit collected PT with state authorities by the defined deadline each month.

   

• Penalties for non-compliance: Late or incorrect filings attract fines, interest, or legal notices from the state government.

TDS is the income tax deducted by the employer before paying salaries.

Employers calculate TDS based on the employee’s estimated annual income, including basic salary, allowances, and perquisites. Exemptions under HRA, LTA, Section 80C/80D, and NPS are considered. The tax liability is divided across 12 months and deducted monthly. TDS is deposited by the 7th of the next month, filed quarterly through Form 24Q, and employees receive Form 16 annually. With 2025’s digital monitoring, discrepancies are flagged in real time, ensuring compliance accuracy.

Gratuity is a statutory benefit given to employees who have served a company for 5 years or more. It acts as a reward for long-term service and financial security post-retirement.

Calculation formula:

• Gratuity = (15 × Last Drawn Salary × Years of Service) ÷ 26

• Salary: Basic + Dearness Allowance.

• Years of service: Rounded down to the nearest year.

Key points:

• Maximum gratuity limit in 2025 is ₹10 lakh.
• Payable on retirement, resignation (after 5 years), or death (to nominee).
• Employers must calculate and pay gratuity promptly to avoid penalties under the Act.

In 2025, statutory compliance deadlines are strictly monitored through government portals, making it crucial for companies to adhere to them. Monthly deadlines include PF, ESI, PT, and TDS payments, generally due by the 7th of the following month. Quarterly filings include TDS returns via Form 24Q, due at the end of each quarter. Annual obligations involve issuing Form 16 by June 15, submitting PF annual returns, and reconciling gratuity and bonus records. Missing these deadlines can trigger automatic penalties, interest charges, and even legal notices, emphasizing the need for accurate and timely filing.

• Monetary penalties: Delays or errors in PF, ESI, PT, or TDS filings attract fines and interest charges.

   

• Legal action: Serious defaults can lead to prosecution of directors or HR officials under labour and tax laws.

   

• Audit complications: Non-compliance creates discrepancies, making statutory audits time-consuming and stressful.

   

• Employee dissatisfaction: Delayed benefits or incorrect payslips reduce employee trust and can increase attrition.

   

• Reputational damage: Non-compliant companies may struggle with investors, lenders, and government partnerships.

 For startups and SMEs, statutory compliance is both a legal necessity and a strategic advantage. With digital monitoring in 2025, even small businesses are under scrutiny, and non-compliance can result in fines, legal risks, and funding challenges. On the other hand, adhering to statutory norms builds credibility with investors, partners, and employees. Automated payroll platforms now allow SMEs to manage PF, ESI, TDS, PT, and gratuity efficiently, reducing manual errors and HR workload. This ensures that small businesses can scale confidently while remaining fully compliant.

• Social Security Code expansion: Coverage extended to gig and platform workers, increasing employer obligations.

   

• AI-driven audits: Automated systems monitor compliance in real time, flagging deviations instantly.

   

• Integration with PAN and Aadhaar: PF, ESI, and TDS filings now require direct linkage with government IDs for verification.

   

• Unified Labour Portal: One-stop platform for all payroll and statutory filings.

   

• Digital wage payments: Companies increasingly required to maintain paperless salary and benefits records.

 A statutory compliance audit assesses whether a company adheres to all payroll-related laws, including PF, ESI, TDS, PT, gratuity, and bonus obligations. Preparation involves reconciling payroll records with deposited contributions, verifying TDS deductions against Form 26AS, ensuring PT and LWF filings are complete, and maintaining accurate employee records. Since 2025 audits often involve automated system checks, any mismatch between reported and deposited amounts can trigger notices. Companies are advised to maintain digital proofs of all statutory transactions for at least 7 years to ensure audit readiness and avoid penalties.

• Automation of contributions: Calculates PF, ESI, PT, and TDS accurately for all employees.

   

• Regulation updates: Software is updated automatically with the latest government rules.

   

• Challan and return generation: Generates ready-to-upload files for EPFO, ESIC, and Income Tax portals.

   

• Error reduction: Minimizes human errors in payroll processing.

   

• Digital payslips and Form 16: Provides employees with accurate, timely, and downloadable salary and tax documents.