Why Statutory Compliance Is the Highest-Stakes Skill in HR
Of all the skills an HR professional needs, statutory compliance is the one where mistakes have the most direct financial and legal consequences for the company. Get a JD wrong and you get bad candidates. Get PF wrong and your company gets a notice from the EPFO, faces penalties, and may have employees who cannot access their provident fund benefits. Get TDS wrong and the Income Tax department comes calling.
This is not to scare you — statutory compliance is very manageable once you understand the mechanics. What I want to convey is that companies pay a genuine premium for HR professionals who know their PF, ESI, and TDS properly. It is the single skill most likely to move you from ₹3.5 LPA to ₹5.5 LPA in a salary negotiation in Pune in 2025.
This guide covers all three areas in practical depth — rates, deadlines, filing procedures, common mistakes, and how to handle the situations that actually come up in real companies.
Provident Fund (PF) — Complete Practical Guide
Who Must Contribute to PF?
The Employees' Provident Fund and Miscellaneous Provisions Act 1952 applies to establishments with 20 or more employees. Once a company comes under the Act, it continues to be covered even if the employee count falls below 20. Employees earning a basic salary of up to ₹15,000 per month must mandatorily be enrolled. Employees earning above ₹15,000 can choose whether to join — and many choose to because of the employer contribution benefit.
PF Contribution Rates — 2025
| Component | Employee Contribution | Employer Contribution |
|---|---|---|
| Employees' Provident Fund (EPF) | 12% of basic wages | 3.67% of basic wages |
| Employees' Pension Scheme (EPS) | Nil | 8.33% of basic wages (max ₹1,250/month) |
| Employees' Deposit Linked Insurance (EDLI) | Nil | 0.5% of basic wages |
| EPF Admin Charges | Nil | 0.5% of basic wages (min ₹500/month) |
| Total Employer Cost | — | ~13% of basic wages |
PF Filing — Step by Step
- Prepare the monthly ECR (Electronic Challan cum Return) — this is a file showing each employee's UAN, name, wages, and contribution amounts. It can be generated from GreytHR, Keka, or the EPFO's own Excel template.
- Upload to the EPFO Unified Portal (unifiedportal-emp.epfindia.gov.in) — log in with your establishment credentials, go to Payment section, upload the ECR file, verify the details.
- Generate the challan — the portal generates a challan with a TRRN (Temporary Return Reference Number). Note this number carefully.
- Make payment — pay via net banking or NEFT before the 15th of the following month. Delays attract interest at 12% per annum plus damages.
- Download the acknowledgement — save the paid challan PDF for your records. You will need it for audits and statutory inspections.
Many companies compute PF on only the basic salary shown in the payslip, keeping other allowances outside the PF base. Under the Supreme Court's 2019 judgment (Surya Roshni case) and the new Labour Codes wage definition, allowances paid uniformly to all employees may form part of PF wages. Get your wage definition reviewed by a compliance consultant if you have significant allowances in your salary structure.
Employee State Insurance (ESI) — Complete Practical Guide
ESI Applicability
ESI applies to factories and establishments with 10 or more employees. Employees earning gross wages up to ₹21,000 per month (or ₹25,000 for persons with disability) must be covered under ESI. Once an employee's wages cross ₹21,000 mid-year, they continue to be covered until the end of the contribution period.
ESI Contribution Rates — 2025
| Contributor | Rate | Based On |
|---|---|---|
| Employer | 3.25% of gross wages | Total gross wages of covered employees |
| Employee | 0.75% of gross wages | Employee's own gross wages |
| Total | 4% of gross wages | — |
Employees earning gross wages up to ₹137/day (approximately ₹176/day for certain states) are exempt from employee contribution — they get coverage with employer contribution only.
ESI Filing Procedure
- Register on ESIC portal (esic.gov.in) — get your 17-digit ESIC code
- Register employees — each covered employee gets an IP (Insured Person) number and ESIC card
- Monthly challan — generate the monthly contribution challan on the ESIC portal or through GreytHR/Keka, pay before the 15th of the following month
- Half-yearly return — file the half-yearly return within 42 days of the end of each contribution period (April–September, October–March)
- Employee queries — employees can check their ESIC card status and benefits entitlement on the ESIC portal using their IP number
TDS on Salary — Section 192 Complete Guide
What is Section 192?
Under Section 192 of the Income Tax Act, every employer is required to deduct TDS from the salary paid to employees at the applicable rate based on each employee's estimated annual tax liability. Unlike other TDS provisions, there is no fixed percentage — the deduction amount depends on the individual employee's tax slab after considering their declared investments and exemptions.
How TDS on Salary Works — The Annual Process
- Investment declaration collection (April) — at the start of each financial year, collect declarations from all employees: HRA claim, Section 80C investments, 80D insurance premiums, home loan interest, LTA, and other exemptions
- Compute estimated annual tax — based on projected annual salary and declared investments, calculate each employee's estimated total tax for the year
- Monthly TDS deduction — divide the annual tax by 12 and deduct that amount from salary each month. Adjust as the year progresses if salary changes or investment declarations are updated
- Actual investment proof collection (January–February) — collect actual proof of investments declared. Adjust TDS deduction for remaining months based on actual vs declared investments
- TDS deposit — deposit deducted TDS with the government by the 7th of the following month using Challan 281
- Quarterly TDS return — file Form 24Q (TDS return for salary) each quarter. Penalties for late filing: ₹200 per day
- Form 16 issuance — issue Form 16 to all employees by 15th June each year. Form 16 is the TDS certificate and the primary input employees use for filing their personal income tax returns
Learn Payroll Compliance from Practitioners
Aapvex's Payroll Management course covers PF, ESI, TDS in complete practical depth — with actual filing exercises on real software.
New Tax Regime vs Old Tax Regime — HR's Role
Since 2020, employees have a choice between the Old Tax Regime (with exemptions like HRA, 80C, etc.) and the New Tax Regime (lower slab rates, no exemptions). From FY 2024–25, the New Tax Regime is the default — employees who want to continue with the Old Regime must explicitly opt in.
HR's practical responsibilities here: clearly communicate the choice to employees, collect their election form at the start of the year, ensure payroll software is configured correctly for each employee's chosen regime, and handle the tax computation correctly for both regimes.
Professional Tax — Maharashtra
Professional Tax in Maharashtra is levied on salaried employees based on gross salary slabs. Current slabs (as of 2025):
| Monthly Gross Salary | Monthly PT Deduction |
|---|---|
| Up to ₹7,500 | Nil |
| ₹7,501 – ₹10,000 | ₹175 |
| ₹10,001 and above | ₹200 (₹300 in February) |
PT must be deposited with the Maharashtra state government by the last working day of each month. PT annual return must be filed by 31st March. Note: women employees earning up to ₹25,000 per month are exempt from PT in Maharashtra.
Common Statutory Compliance Mistakes to Avoid
- Late PF filing — EPFO charges interest at 12% per annum plus damages of 5–25% for delays. A single month's delay on a 100-person payroll can cost ₹10,000–50,000 in penalties.
- Not deducting ESI for new joiners immediately — ESI coverage starts from the day of joining. Many HR teams delay enrollment to the next month. This is non-compliant.
- Wrong TDS deduction — not collecting investment declarations and deducting TDS at the wrong rate. Result: employees face tax liability at year-end and may complain. Company may face scrutiny.
- Not issuing Form 16 on time — penalty of ₹100 per day per employee for Form 16 not issued by 15th June.
- Not updating UAN for new employees — every new employee must have their UAN activated and linked before the first PF contribution. Missing this creates PF account issues that are painful to resolve.
The Bottom Line on Statutory Compliance in HR
Statutory compliance is non-negotiable, high-stakes, and — once you learn it properly — very systematic and manageable. The companies that get it wrong are almost always companies where HR learned payroll on the job through trial and error rather than structured training. The people who know this material command better salaries, more responsibility, and genuine professional respect.
If you want structured, practical training in PF, ESI, TDS, and Professional Tax, call us at 7796731656. Our Payroll Management course covers all of this with actual filing exercises on GreytHR — not just theory.