Statutory Compliance – Meaning, Importance, Types & Consequences

If you are seeking an answer to the query, “What is the meaning of statutory compliance?” then this article will be helpful for you

Lets understand the meaning of statutory compliance first. An organisation have to adhere to multiple regulations made by the government and other authorities. However, statutory compliance is the obligation of an organisation. These laws and regulations can be at the federal, state, or local level. This completely depends on the jurisdiction and the nature of the organisation’s activities. The range of statutory compliance includes:

• File accurate returns and pay income tax on time.
• Labour laws govern minimum wage, overtime pay, workplace safety, and discrimination.
• Environmental regulations aim to protect the environment and manage resources responsibly.
• Data privacy laws govern how organisations collect, store, and use personal data.

Example of Statutory Compliance 

A manufacturing company have to comply with various statutory requirements,  such as taxation, employment, environment and data privacy. If they don’t comply with it, then there are penalties based on the type of non-compliance. The manufacturing company have to comply with the following statutory compliance:

• Taxation: Pay corporate income tax, payroll taxes, and any applicable sales taxes.
• Employment: Comply with minimum wage and overtime pay regulations. Provide safe working conditions, and avoid discriminatory practices.
• Environment: You require a permit for air and water emissions to manage hazardous waste disposal. Adhering to these compliances is required for regulations on resource consumption.
• Data Privacy: If they collect personal data from employees or customers. Then comply with the data privacy laws regarding the collection, storage and use of the information.

Must Read: What is Statutory compliance in Payroll?

Importance of Statutory Compliances

The following are the benefits of complying with the statutory compliances: 

1. Safety of Business and Others

For you, it is important to prioritise the safety of employees. By following this, you ensure the safety of your employees and the protection of customer data. So, this creates a responsible and ethical work environment. However, compliance protects you from legal issues, lawsuits, fines, and legal actions. And, this not only saves you money but also safeguards your business reputation and future operations.

2. Maintain Business Reputation

Following the compliance reflects your commitment towards your business practices. This builds the trust and confidence of customers, partners, and investors in the business. Also, creates a stable brand image and attracts valuable stakeholders. This gives you an advantage in today’s competitive market, as it shows your ethics in the business world.

3. Smooth Operations

Maintaining regulatory compliance ensures efficient internal processes. This includes proper record-keeping and management systems. Because of this, the process of business operations becomes smooth. It reduces risk and increases productivity. Also, the following compliances will help in avoiding unexpected disruptions or production halts and create continued business success.

4. Long-Term Sustainability

Adhering to the regulations will promote environmental sustainability and resource management. This not only contributes to a sustainable future but also protects your business from potential environmental liabilities. Also, you should stay updated and compliant with regulatory changes that can future-proof your business.

Checklist of Statutory Compliance

The following are the statutory compliances with which you must comply.

Social Security

• Employees’ Provident Fund and Miscellaneous Act, 1952
• Employee State Insurance Act, 1948
• Labour Welfare Fund Act, 1965
• The Payment of Gratuity Act, 1972

Employee Salaries & Benefits

• Payment of Wages Act, 1936
• Minimum Wage Act, 1948
• Payment of Bonus Act, 1965
• Maternity Benefit Act, 1961

Industrial Relations Labour Law

• Employee Provident Fund Act, 1952
• Payment of Gratuity Act, 1972
• Labour Welfare Fund Act, 1965
• Employee State Insurance Act, 1948

Tax Liabilities

• Tax Deductions at Source (TDS)

Consequences of Not Following Compliances

The consequences of not following the statutory compliances are as follows:

Financial Penalties and Surcharge

In this type of penalty, fines are the most common consequence. It can range from minor sums to millions of dollars, this completely depends on the severity of the violation. Along with this, a surcharge can be imposed on top of fines. An example of this is late payments or interest charges. In case of negligence of tax, the back taxes and penalties can accrue. 

Legal Action of Authorities

With non-compliance of regulations, you can face legal consequences. The people affected by your actions can file a lawsuit against you. And, in the review of that, the court can give orders to limit your business activities until you achieve compliance. However, in severe cases, criminal charges could lead to imprisonment.

Disruption in Operations

The regulatory authorities can shut down your business if you are not complying with the regulations. This can lead to production delays or even stop or delay operations. The license of your business or the permit can be suspended or revoked, which will hinder your ability to operate legally. 

Damage to Public Image

The non-compliance news of your business can damage your public image and brand reputation. However, the customers, partners, and investors can lose their trust in your commitment to responsible business practices. And, new people will hesitate to join your company because of the history of non-compliance.

Conclusion

Statutory compliance is not just a legal requirement, it is important for building a responsible, ethical, and sustainable business. By doing this, you will gain the trust of the customers and stakeholders. In the long term, it will benefit business operations. However, the non-compliance can ruin the reputation of the business and create other legal issues. So, having an understanding of business law is required to run a successful business. You can check other blogs of RegistrationKraft to be aware of multiple business laws.