Building a statutory compliant payroll system for Indian companies
Here is a quick question…and it is not a trick question…
How many organizations in India have a fully compliant payroll system?
Not sure? Okay. Here is another one.
How many organizations in India have a payroll system?
Not sure again?
While you may not be able to pick a number, it is a fair guess that a large number of organizations lack in compliance. Just try and think about the number of news items you have seen or heard recently about employers failing to follow basic statutory norms for payroll.
This could be an oversight, a serious lapse or an intentional act by the employer. Whatever it might be, the big miss in all three cases is the failure to follow a statutory compliant payroll system.
There used to be an argument blaming the time-consuming nature of maintaining manual records but that is not entirely true today. Technology has come a long way and payroll applications are available for organizations of all types and sizes. What is lacking today is the will and the REAL fear of law getting the better of these employers who fail to comply.
Times are changing…for good
Two things have happened in the past decade, and at a decent pace:
- Law enforcement agencies have started tracking more organizations for payroll violations
- Employees are well informed about their rights
- Technology, mobile adoption & Social media have helped disgruntled employees to anonymously flag wrongdoings by employers
This has forced employers to relook their existing systems and check for adherence to statutory compliance norms. Auditors, in turn, have alerted employers to work towards a statutory compliant payroll system while also highlighting compliance issues in other areas.
Compliance checklists are gaining in significance. We talked about building an HR compliance checklist in a separate article titled ‘Building your HR compliance checklist’.
The same approach applies to building a statutory compliant payroll system for organizations in India.
Building a statutory compliant payroll system for Indian companies
Employers need to put together a Payroll operation checklist that covers the following areas:
- Minimum Wages
- Provident Fund registration
- ESIC registration
- Gratuity as part of employees CTC
- Statutory deductions: TDS and Professional Taxes
- Payroll accounting
- Leave Management
- Maternity benefits
- Employee handbook
Avoiding the wrong side of regulations
As mentioned earlier…
“…The anomalies could be an oversight, a serious lapse or an intentional act by the employer. Whatever it might be, the big miss in all three cases is the failure to follow a statutory compliant payroll system…”
Just as HR has the huge responsibility of making the organization a great place to work, the Payroll processing team (could be HR again in some cases) deals with remuneration and has the added responsibility of being fair to its employees. Payroll regulations are in place to plug gaps and ensure fair play for both employer and employees.
As with any part of the compliance world, it is upon the leaders of the organization to lead by example and demonstrate their care for employees. Using strict compliance yardsticks for both is a natural first step to show that the organization cares.
Moreover, it makes the audit process easy and reduces the time taken for investigations. Automation plays a key role as the organization expands and recruits more people. This is where manual processes give way to automated tools but the core proposition remains the same….protect employer and employee interests through proper compliance processes and checklists.
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