Statutory Compliance for Business in India

Statutory compliances are set of rules and regulations based on the legal framework, which incorporates provisions from various acts in India's Central and State labor laws. These acts include but are not limited to the Employees' Provident Fund and Miscellaneous Provisions Act, the Employees' State Insurance Act, the Industrial Disputes Act, and the Factories Act, among others. The purpose of these laws is to establish boundaries within which organizations must function, ensuring they conduct themselves ethically, treat their employees fairly, and operate in accordance with the law.

Another objective is to promote the welfare of both employees and employers and protect the interests of businesses. As professionals, it's essential to regard these laws as valuable guides that prioritize safety rather than viewing them as hindrances or hurdles as these laws are designed to ensure ethical and legal practices in different aspects of business and daily operations. As per the law, every company that fits the eligibility criteria of the act needs to follow those specific applicable statutory compliances. Any failure to adhere to these laws can lead to corrective consequences, making it crucial for organizations to prioritize statutory compliance in their day-to-day operations.

Benefits of Statutory Compliance in a Business

In the fast-paced and ever-changing world of business, adhering to statutory compliance might not sound like the most exciting topic. However, it's a crucial aspect that can bring numerous benefits to any organization. Think of it as a set of ethical guidelines and legal safeguards that not only protect the business but also create a positive impact on various aspects of its operations:

• Legal Protection - By ensuring that your company follows all relevant laws and regulations, you shield yourself from potential legal troubles and costly penalties. It's like building a strong fortress around your business, safeguarding it from the risks of non-compliance. In the case of startups, it becomes more important to comply with laws as it becomes a crucial aspect in the event of funding.
• Mitigating Risk – It is another vital advantage of being compliant. Running a business inherently involves risks, but non-compliance can significantly escalate them. By adhering to statutory requirements, you minimize the chances of regulatory fines, lawsuits, or damage to your reputation. This enables you to focus on your core business strategies and growth without the constant fear of unexpected setbacks.
• Healthy Relations with Workforce - Maintaining healthy employee relations is an essential factor in any successful enterprise. When a business complies with employment laws and regulations, it fosters trust and loyalty among its workforce. Employees feel secure in the knowledge that their rights are protected, leading to a happier and more productive workforce. Moreover, a compliant workplace promotes a fair and inclusive environment, boosting employee morale and motivation.
• Competitive Advantage - Being on top of statutory compliance also provides a competitive advantage for businesses. In industries where adherence to regulations is essential, compliance becomes a differentiator. Customers, partners, and investors are more likely to choose a company that demonstrates a strong commitment to ethical practices and legal standards. Compliance, in this sense, becomes a powerful tool for building trust and credibility in the market.
• Maintaining Relations - Reputation is everything in the business world. A tarnished reputation can be extremely hard to recover from, impacting relationships with customers, partners, and the public at large. Compliant businesses, on the other hand, are seen as trustworthy and responsible, enhancing their brand image and attracting more opportunities. Positive public perception can lead to increased customer loyalty and even help in attracting top talent.
• Refining of Process - When a company adheres to specific standards, it streamlines its processes, reduces errors, and eliminates wasteful practices. It creates a well-organized and disciplined work environment, resulting in smoother operations and improved overall performance.
• Ethical Practices - Lastly, we can't ignore the ethical aspect of statutory compliance. Operating a business with integrity and social responsibility should be at the core of any organization. By being compliant, businesses contribute to a more transparent and accountable society, which ultimately benefits everyone.

Statutory Compliance Checklist

Any company must study the following acts to make sure that their company is following the compliances thoroughly.

• Companies Act, 2013 
• Goods and Services Tax (GST) Act
• Shops and Commercial Establishments Act
• Income Tax Act, 1961
• Employees' Provident Fund and Miscellaneous Provisions Act, 1952
• Employees' State Insurance Act, 1948
• Professional Tax
• Foreign Exchange Management Act (FEMA)
• Intellectual Property Laws
• Maternity Benefit Act 1961
• Payment of Gratuity Act 1972
• Equal Remuneration Act 1976
• Minimum Wages Act 1948
• Payment of Bonus Act 1965
• The Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013
• The Information Technology Act, 2000
• The Environmental Protection Act, 1986
• The Factories Act, 1948
• Industrial Disputes Act 1947
• Apprentice Act, 1961
• Trade Unions Act, 1926

Major Statutory Compliances in India

Some of the major statutory compliances that every company must take a look at are mentioned below:

Companies Act, 2013

The Companies Act, 2013, serves as the bedrock of corporate governance and operations for businesses in India. It encompasses a wide array of statutory compliances that must be followed. First and foremost, the act governs the process of incorporation, outlining the procedures for registering and establishing a private limited company. It lays down rules regarding the appointment and qualifications of directors, their remuneration, and their roles and responsibilities. The Act prescribes the mandatory conduct of board meetings and annual general meetings (AGMs) to ensure transparency and accountability within the company. These meetings are essential for making important decisions, approving financial statements, and discussing key strategies.

Goods and Services Tax (GST) Act 

Under the GST Act, businesses are required to obtain a GST registration, enabling them to collect and remit GST to the government. They must categorize their goods or services under the appropriate GST rate slabs and issue proper tax invoices to customers. One of the essential compliances under GST is the timely filing of GST returns. Depending on the type of business, companies may need to file monthly, quarterly, or annual GST returns. These returns summarize their outward and inward supplies, along with tax liabilities and input tax credits. GST also mandates the maintenance of accurate and up-to-date records of all transactions, including invoices, debit/credit notes, and other supporting documents. This ensures transparency and facilitates audits by tax authorities. For businesses operating across state borders, GST compliance involves obtaining an Inter-State GST (IGST) registration and dealing with Integrated GST for interstate transactions.

Shops and Commercial Establishments Act

One of the key compliances under this Act is obtaining the necessary registration and licenses before commencing operations. The Act usually requires businesses to register their establishments with the local labor department within a specified timeframe. Businesses need to adhere to the prescribed working hours and weekly offs for employees to prevent overwork and safeguard their well-being. This includes regulating daily working hours, and rest intervals, and providing weekly rest days. The Act emphasizes maintaining proper records of employees, such as attendance, leaves, wages, and working hours. Companies must also ensure timely salary payments and proper maintenance of registers as required by the Act.

Employees' Provident Fund and Miscellaneous Provisions Act, 1952

It is a significant labor law in India designed to provide financial security and social welfare benefits to employees. companies need to register with the Employees' Provident Fund Organization (EPFO) and obtain a unique PF code for their establishment. They must also ensure that the PF contributions are deducted from employees' salaries at the prescribed rate and deposited into the EPF account within the specified due dates. Employers must maintain accurate and up-to-date records of employees' PF contributions, along with the company's contributions. Regularly issuing and distributing PF statements to employees enables transparency and helps them keep track of their savings. In the case of certain establishments, the Act may require contributions to be made towards the Employees' Pension Scheme (EPS) and Employees' Deposit Linked Insurance (EDLI) Scheme, which provide additional benefits like pension and life insurance coverage to employees and their families.

Employees' State Insurance Act, 1948

It aims at providing social security benefits to employees, it states that companies employing ten or more employees must register with the Employees' State Insurance Corporation (ESIC). Once registered, the company needs to contribute a percentage of the employees' wages towards the ESI fund, while the employees also contribute a smaller portion of their salaries. It is the company's responsibility to maintain accurate records of its employees, their wages, and their ESI contributions. Ensuring timely and proper submission of ESI contributions and returns to the ESIC is crucial for compliance. Moreover, the companies are required to display notices informing employees about their entitlement to benefits and the procedures for availing them. This enhances awareness and accessibility to the benefits provided.

Intellectual Property Laws

​​​​​​​IP laws are a set of legal regulations that protect the creations of the human mind, such as inventions, trademarks, copyrights, and trade secrets. For companies, complying with these laws is essential to safeguard their innovative ideas and creative works from unauthorized use and exploitation. One of the main compliances under IP laws is to secure proper protection for inventions and innovations through patents. Companies must file patent applications with the relevant intellectual property offices to obtain exclusive rights over their inventions for a specific period. Trademark registration is another critical aspect of compliance. Companies need to protect their brand names, logos, and symbols to prevent others from using similar marks that may confuse consumers. Copyright compliance is essential for companies involved in creative works like literature, music, software, and artistic expression. Registering copyrights ensures legal ownership and the right to control reproduction and distribution. Trade secrets, valuable confidential information, are protected through non-disclosure agreements and internal security measures. Companies must ensure that employees, partners, and contractors respect the confidentiality of sensitive information.

Maternity Benefit Act 1961

It is a crucial labor law in India that upholds the rights and well-being of working women during pregnancy and childbirth which aims to provide essential benefits and protections to pregnant employees, ensuring they can balance their personal and professional lives without facing discrimination or hardship. Any company with ten or more employees must adhere to the act’s provisions. These companies are required to grant eligible female employees paid maternity leave of up to 26 weeks for their first two children. Companies need to provide a safe and conducive work environment for pregnant women and ensure they are not assigned tasks that could be harmful to their health during pregnancy. Companies are required to maintain Maternity Benefit Policy in which all the details regarding the creche facility, leaves provided, and other facilities provided by the Company. 

Payment of Gratuity Act 1972

This act ensures employees receive a well-deserved financial reward for their long and continuous service. To comply with this Act, employers in establishments with ten or more employees must adhere to specific provisions. Eligible employees, who have completed a minimum of five years of continuous service, are entitled to receive gratuity. The amount is calculated based on their last drawn salary and the number of years of service.

The Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013

 It is a critical law in India aimed at ensuring a safe and respectful work environment for women. It addresses the issue of sexual harassment at workplaces and lays down guidelines for its prevention, prohibition, and redressal. For compliance with this Act, companies are required to frame a POSH policy and establish an Internal Complaints Committee (ICC) at each workplace with ten or more employees. The ICC plays a crucial role in handling complaints of sexual harassment, conducting inquiries, and recommending appropriate actions. Companies are also required to file annual returns detailing the number of complaints received and actions taken to comply with the law.

The Information Technology Act, 2000

For compliance with the Information Technology Act, companies need to adhere to the following main requirements:

1.  Data Protection: Companies must implement reasonable security practices and procedures to safeguard sensitive data and personal information of customers and employees. This includes ensuring data encryption, access controls, and regular security audits.
2. Cybersecurity Measures: To prevent unauthorized access, companies need to deploy robust cybersecurity measures, such as firewalls, intrusion detection systems, and regular software updates.
3. Privacy Policies: Companies dealing with personal data should have a clear and transparent privacy policy in place, informing users about the type of data collected, its usage, and the measures taken to protect it.
4. Electronic Contracts: The Act recognizes electronic contracts as legally valid, so companies should ensure that their online contracts are properly drafted, accessible, and legally binding.
5. Cybercrimes and Incident Reporting: Companies should be aware of cybercrime offenses and report any security incidents to the appropriate authorities promptly.
6. Digital Signatures: The Act recognizes digital signatures as legally valid, so companies should consider using them for secure authentication and validation of electronic records and transactions.
7. Offensive Content: Companies should refrain from publishing or promoting offensive or objectionable content, as it may lead to legal consequences under the Act.
8. Compliance with Government Authorities: Companies are obligated to cooperate with government agencies when required for investigations related to cybercrimes and electronic records.

The Environmental Protection Act, 1986

The Environmental Protection Act, 1986, is significant legislation in India designed to protect the environment and foster sustainable development. It mandates companies that are into manufacturing to adhere to various compliances, including obtaining environmental clearance, managing hazardous waste responsibly, controlling pollution, conserving biodiversity, and submitting regular reports. Prioritizing eco-friendly practices and responsible waste management can lead to a greener planet and enhance a company's image as a socially responsible corporate entity. Staying informed about environmental regulations and seeking expert guidance is crucial for ensuring seamless compliance with the Act and safeguarding our precious natural resources for the well-being of present and future generations.

The Factories Act, 1948

For compliance with the Factories Act, companies need to adhere to the following main requirements:

1. Working Hours and Overtime: The Act sets limits on the number of hours employees can work per day and week, ensuring proper rest intervals and overtime payment.
2. Health and Safety Measures: Companies must provide a safe and hygienic work environment, including adequate ventilation, clean drinking water, and sanitation facilities.
3. Welfare Provisions: The Act mandates companies to provide essential welfare amenities such as first aid, canteen, and restrooms for employees.
4. Employment of Young Workers: Companies need to comply with rules concerning the employment of young workers and their working hours, ensuring their protection and proper education.
5. Hazardous Processes: Special regulations apply to factories engaged in hazardous processes, necessitating additional safety measures and precautions.
6. Annual Leave with Wages: Companies must grant employees annual leave with wages to ensure a healthy work-life balance.
7. Display of Notices: Employers are required to display informative notices regarding working hours, holidays, and emergency procedures within the factory premises.
8. Record-Keeping: Companies must maintain accurate records of accidents, leave, and employment details for each worker.
9. Welfare Committees: Establishing and consulting Welfare Committees comprising representatives from workers and management is essential for addressing employee welfare concerns.

How to ensure your company complies with the Statutory Compliances?

Ensuring your company complies with statutory regulations is vital to maintain legal sanctity, avoid penalties, and build trust with stakeholders. To achieve this, consider the following steps:

• Conduct Regular Compliance Audits: Schedule periodic internal audits to assess your company's adherence to statutory requirements. Identify any gaps or areas of non-compliance, and take corrective measures promptly.
• Maintain Comprehensive Record Keeping: Keep well-organized and up-to-date records of all compliance-related activities, such as licenses, permits, employee records, tax filings, and financial documents. Accessible records aid in proving compliance during inspections.
• Stay Updated with Regulations: Laws and regulations change over time. It's essential to stay informed about any amendments or new statutory requirements relevant to your industry. Regularly review compliance manuals and policies to ensure they align with the latest legal developments.
• Establish Robust Compliance Policies: Develop clear and comprehensive compliance policies tailored to your company's operations. Communicate these policies to all employees, emphasizing their importance and the consequences of non-compliance.
• Training and Awareness: Conduct training sessions for employees to raise awareness about statutory compliances, their significance, and their role in maintaining the company's reputation and legal standing.
• Appoint Compliance Officers: Designate specific personnel responsible for overseeing compliance matters and keeping the organization informed about relevant regulatory changes.
• External Legal Guidance: Seek advice from legal experts or consultants specializing in statutory compliances to ensure a thorough understanding of complex laws and avoid costly mistakes.
• Engage with Regulatory Authorities: Establish positive relationships with regulatory bodies and be cooperative during inspections or audits. Promptly address any concerns raised by the authorities.
• Risk Assessment and Mitigation: Conduct risk assessments to identify potential compliance risks and develop strategies to mitigate them effectively.
• Encourage Whistleblowing: Create a safe environment for employees to report any compliance violations or concerns anonymously. Implement a robust system to investigate and address reported issues.

About The Author:

Adv. Madhav Shankar is a seasoned lawyer with over seven years of experience in advisory and dispute resolution. His expertise spans commercial law, cheque bounce cases, company matters, IPR, property disputes, banking, and insolvency cases. He also has extensive experience in matrimonial disputes and arbitration. Madhav holds a Master’s degree from Tilburg University in the Netherlands, specializing in law and technology, and has completed a copyright course from Harvard University. He is known for his ability to handle complex legal challenges with precision and integrity.