How are social security contributions and other statutory deductions handled by an Employer of Record (EOR)?

When employing workers in India through an Employer of Record (EOR), understanding how social security contributions and statutory deductions are handled is crucial for both employers and employees. These contributions are an essential part of the Indian employment landscape, ensuring workers' welfare and compliance with local labor laws.

An EOR takes on the responsibility of managing all aspects of social security contributions and statutory deductions, ensuring that both the employer and employee obligations are met accurately and in a timely manner.

Here's a comprehensive overview of how these are handled:

Social Security Contributions in India

The primary social security schemes in India that an EOR manages include:

1. Employees' Provident Fund (EPF)
2. Employees' Pension Scheme (EPS)
3. Employees' State Insurance (ESI)

Employees' Provident Fund (EPF)

The EPF is a retirement benefit scheme where both the employer and employee contribute a portion of the employee's salary. An EOR handles the following aspects:

• Calculation of contributions: 12% of the employee's basic salary plus dearness allowance from both employer and employee.
• Deduction from employee's salary and employer contribution.
• Timely remittance to the EPF authorities.
• Filing of monthly and annual EPF returns.

Employees' Pension Scheme (EPS)

The EPS is a part of the EPF, where a portion of the employer's contribution goes towards the employee's pension. An EOR manages:

• Allocation of 8.33% of the employer's EPF contribution to EPS.
• Ensuring the contribution does not exceed the wage ceiling (currently ₹15,000 per month).

Employees' State Insurance (ESI)

ESI provides health insurance and disability benefits. An EOR handles:

• Calculation of contributions: Currently, 3.25% from the employer and 0.75% from the employee.
• Deduction and remittance of contributions.
• Filing of ESI returns.

Statutory Deductions

Besides social security contributions, an EOR manages other statutory deductions, including:

1. Professional Tax
2. Income Tax (TDS - Tax Deducted at Source)

Professional Tax

Professional tax varies by state in India. An EOR ensures:

• Correct calculation based on the employee's work location.
• Timely deduction and remittance to state authorities.
• Filing of professional tax returns.

Income Tax (TDS)

Income tax deduction is a crucial aspect of payroll management. An EOR handles:

• Calculation of TDS based on the employee's income and applicable tax slabs.
• Consideration of employee's investment declarations for tax-saving deductions.
• Monthly deduction and quarterly remittance to tax authorities.
• Issuance of Form 16 (annual tax statement) to employees.

Example of Statutory Deductions

Here's an example of how these deductions might look for an employee with a monthly salary of ₹50,000:

Challenges in Managing Social Security and Statutory Deductions

1. Regulatory Compliance: Keeping up with changing regulations and ensuring timely compliance.
2. Accurate Calculations: Ensuring precise calculations of various contributions and deductions.
3. Timely Remittances: Meeting deadlines for remitting contributions to respective authorities.
4. Record Keeping: Maintaining detailed records for audit and compliance purposes.
5. Employee Education: Helping employees understand their payslip and the various deductions.

How Wisemonk Can Help You Handle Social Security Contributions and Statutory Deductions

As a leading EOR service provider in India, Wisemonk offers comprehensive solutions to manage social security contributions and statutory deductions efficiently and accurately. Here's how Wisemonk can assist you:

1. Automated Calculations: Our advanced payroll system automatically calculates all required contributions and deductions, eliminating manual errors and ensuring accuracy.
2. Compliance Expertise: Our team of experts stays updated with the latest changes in labor laws and social security regulations, ensuring your payroll always remains compliant.
3. Timely Remittances: We handle the timely remittance of all contributions to the respective authorities, avoiding any penalties or legal issues.
4. Detailed Reporting: Wisemonk provides comprehensive reports on all deductions and contributions, giving you full visibility into your payroll operations.
5. Employee Self-Service Portal: We offer an easy-to-use portal where employees can access their payslips, tax documents, and understand their deductions clearly.
6. Customized Solutions: Our services can be tailored to meet the specific needs of your organization, regardless of its size or industry.
7. Expert Support: Our dedicated team is always available to address any queries or concerns regarding social security contributions or statutory deductions.

By partnering with Wisemonk, you can ensure that all aspects of social security contributions and statutory deductions are handled with precision and in full compliance with Indian labor laws. This allows you to focus on your core business activities while we take care of the complexities of payroll management in India.