Ensuring payroll compliance is a crucial aspect of running a business, requiring organizations to stay vigilant to avoid penalties and ensure smooth operations. As we step into 2024 and beyond, it’s crucial for businesses to update their payroll processes in line with the latest regulatory changes. This blog offers a comprehensive payroll compliance checklist to help Indian businesses navigate the complexities of payroll management while providing an overview of key updates to be aware of in 2024 and 2025.

Understanding the Payroll Compliance Framework

• Central and State Laws: Payroll compliance in India is governed by a combination of central and state-specific labour laws. Key legislations include the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, and the Payment of Bonus Act, 1965. Additionally, state-specific regulations must also be adhered to, making it essential to stay updated with both central and state laws applicable to your business location.
• Industry-Specific Regulations: Different industries may have specific payroll-related regulations. For instance, industries like manufacturing, IT, and retail may have varied requirements concerning employee benefits, working hours, and leave policies. 

Checklist on Key Payroll Regulations and Compliance Requirements

Compliance with the Employee Provident Fund (EPF) and Miscellaneous Provisions Act, 1952

• Contribution: Employers and employees must contribute to the EPF scheme.
• Interest: Ensure timely payment of interest on EPF contributions.
• Formalities: Submit necessary forms (EPF-2, EPF-5, etc.) and maintain accurate records.
• Digitalization: Utilize the Unified Portal for Employee-centric Services (UPES) for online filing and management.

Compliance with the Employees’ State Insurance (ESI) Act, 1948

• Eligibility: Determine if your employees are eligible for ESI benefits based on salary and location.
• Contribution: Calculate and remit contributions to the ESI fund.
• Formalities: Submit the required forms (ESIC-1, ESIC-2, etc.) and maintain proper records.
• Online Services: Use the ESI portal for online filing and management.

Professional Tax (PT) Compliance

• State-Specific: PT rates and rules vary across Indian states.
• Exemptions: Understand the applicable exemptions and deductions.
• Formalities: File the required PT returns and pay the tax on time.

Compliance with the Minimum Wages Act

• State-Specific: Minimum wages vary by state and industry.
• Compliance: Ensure that employees are paid at least the minimum wage.
• Record-Keeping: Maintain records of wages paid and working hours.

Compliance with the Payment of Gratuity Act, 1972

• Eligibility: Determine if employees are eligible for gratuity based on tenure and salary.
• Calculation: Calculate gratuity as per the Act’s provisions.
• Payment: Pay gratuity upon employee’s retirement, resignation, or death.

Compliance with the Code on Wages, 2019

• Wage Components: Understand the different wage components (basic, dearness allowance, etc.).
• Payment Frequency: Ensure timely and accurate payment of wages.
• Record-Keeping: Maintain comprehensive wage records.

Compliance with the Income Tax Act, 1961:

• TDS Deduction: Deduct Tax Deducted at Source (TDS) from employee salaries if applicable.
• Filing and issuing required Forms: Prepare and distribute Form 16 to employees, and file the necessary TDS return forms, including Form 24Q and Form 26Q, with the Income Tax Department, detailing the quarterly TDS returns.
• Employee Declarations: Obtain employee declarations for TDS purposes.

Compliance with the Labor Laws

• Working Hours: Adhere to statutory limits on working hours.
• Overtime: Pay overtime wages as per applicable laws.
• Leaves: Grant statutory leaves (annual leave, sick leave, etc.) and maintain records.
• Other Laws: Comply with other relevant labour laws, such as the Maternity Benefit Act and the Contract Labor (Regulation and Abolition) Act.

In addition to the above, regular internal audits of payroll processes are essential for ensuring compliance with regulations, as they help identify and rectify discrepancies proactively. Staying updated with changes in labour laws and payroll regulations is equally important—businesses should subscribe to government notifications and consult legal experts to stay informed.

Additionally, regular training for HR and payroll staff is crucial to ensure that all team members understand their compliance responsibilities and the importance of adhering to legal requirements.

Adopting payroll software, such as Zoho Payroll and Analytics, GreytHR, Power BI and QuickBooks, can significantly enhance compliance by automating audits, protecting data privacy, and maintaining accurate records, all while adapting to the latest legal requirements. 

Recent Updates to Payroll Compliance Regulations

While the above checklist provides a solid foundation for ongoing payroll compliance, it’s crucial to stay updated with the regulatory changes for 2024-25 to ensure your practices remain current and fully compliant.

Changes in Income Tax rates

Revision in Tax Rates for Individuals

• Standard Deduction: Increased to ₹75,000 for salaried employees under the New Tax Regime.

• Revised Tax Slabs under the New Regime:

• • • ₹0 – 3,00,000: 0%
    • ₹3,00,001 – 7,00,000: 5%
    • ₹7,00,001 – 10,00,000: 10%
    • ₹10,00,001 – 12,00,000: 15%
    • ₹12,00,001 – 15,00,000: 20%
    • Above ₹15,00,000: 30%

Corporate Tax Rates

• Domestic Companies: Tax rates remain unchanged at 25%.

• Foreign Companies: Corporate tax rate reduced from 40% to 35%.

TDS Provisions – Revised TDS Rates:

• Section 194D (Insurance Commission): Reduced from 5% to 2% (Effective April 1, 2025)

• Section 194DA (Life Insurance Payments): Reduced from 5% to 2% (Effective October 1, 2024)

• Section 194H (Commission or Brokerage): Reduced from 5% to 2% (Effective October 1, 2024)

• Section 194-O (E-commerce Payments): Reduced from 1% to 0.1% (Effective October 1, 2024)

• TCS Interest: Failure to deposit TCS within the due date will attract 1.5% interest per month.

• Sections 194Q and 206C(1H): Eligible for a lower withholding certificate.

• Assessee in Default: No order after six years from the end of the financial year in which payment is made or credit is given, or two years after the correction statement is delivered, whichever is later

Capital Gains Amendments

In 2024, the exemption limit for long-term capital gains (LTCG) on listed equities, REITs, InvITs, and equity-oriented mutual funds increased to ₹1.25 lakh. Indexation benefits have been removed for all long-term capital assets, and FPIs selling listed debentures will now be taxed at 10%. The buyback distribution tax has been abolished, with buybacks now treated as dividends and subject to withholding tax. Additionally, gifts of shares are no longer exempt from transfer taxes, and there’s clarity on indexation for unlisted shares acquired before January 31, 2018.

Other Amendments

The angel tax on excessive share premiums above fair market value has been abolished starting FY 2024-25. The equalization levy of 2% on e-commerce operators has also been removed, reflecting the government’s intent to simplify and reduce tax burdens.

Changes to EPF rules

• Automatic account transfers: As of April 1, 2024, EPFO will automatically transfer an employee’s PF account to a new account when they change jobs, without requiring a form or request. This includes both the EPF and EPS amounts.

• Withdrawal rules: Effective from July 11, 2024, EPF account holders can withdraw up to 90% of their balance upon reaching the age of 54. Additionally, those who are unemployed for one month after leaving a job can withdraw 75% of their balance, with the remaining 25% available after two months. Partial withdrawals for emergencies such as medical treatment, higher education, or home purchases are also accessible online.

• Claim settlement process: In May 2024, EPFO introduced changes to streamline the claim settlement process. These include extending the auto-settlement facility, enabling multi-location claim settlements, and expediting death claim processing. Additionally, mandatory document uploads for certain online claims have been relaxed, simplifying the process for members.

Updates to ESI Rules

The ESIC has fixed the contribution rate of the employees at 0.75% of their wages and the employer’s contribution at 3.25% of the wages for FY 2024-25.

• Rule 29: The Director General will now make all contracts on behalf of the Corporation for any purpose of the Act. The expenditure limit for contracts has been increased from Rs. 5 crores to Rs. 25 crores, so the Standing Committee no longer needs to approve contracts that exceed this amount. These changes came into effect on February 26, 2024.
• Permanent Disablement Benefit (PDB) and Dependents Benefit (DB): The ESIC increased the rates for these benefits.

Increase in Minimum Wages in 2024

• Unskilled workers: From INR 17,234 to INR 17,494
• Semi-skilled workers: From INR 18,993 to INR 19,279
• Skilled workers: From INR 20,903 to INR 21,215

The minimum wages for non-matriculate employees, matriculate employees, graduates, and those with higher educational qualifications also increased:

• Non-matriculate employees: From INR 18,993 to INR 19,279
• Matriculate employees: From INR 20,903 to INR 21,215
• Graduates and those with higher educational qualifications: From INR 22,744 to INR 23,082

India does not have a uniform national minimum salary, and instead state governments set wages based on location, industry, and skill level. The country’s national floor-level minimum wage is roughly INR 178 per day, but it’s not enforced uniformly.

In conclusion, maintaining payroll compliance is an ongoing commitment that requires vigilance. By regularly updating payroll processes, businesses can ensure compliance, avoid penalties, and create a transparent, employee-friendly workplace.

The 2024 updates, including changes to EPF, ESI, and tax regulations, highlight the importance of staying informed about regulatory changes. Again, the specific details of these changes may vary depending on the state or region. It’s essential to consult with legal or payroll experts to stay updated on the latest regulations and ensure compliance.

BCL India, with 35 years of expertise, offers comprehensive payroll compliance services that ensure error-free processing and timely delivery. Their services help businesses stay updated with regulatory changes and mitigate non-compliance risks by providing crucial information on amendments and notifications across various labor laws in India. With insightful guidance, BCL India enables businesses to make informed decisions and maintain seamless compliance in a dynamic regulatory environment.