By Rishi Agrawal, CEO & Co-founder, TeamLease RegTech,
Every compliance framework starts with a basic question: What compliance requirements apply to the organization? The answer determines what needs to be tracked, completed, and reported. If the applicability assessment is incorrect, the entire compliance framework is affected. In many Indian enterprises, these errors are more common than they appear. A comprehensive compliance audit can help identify these applicability errors before they create gaps across the organisation’s compliance framework.
Applicability mapping is the process of identifying which laws apply to a particular entity, location, and category of employees. It is one of the most important steps in the compliance process, but it is also one of the most common sources of error. The following are five applicability errors that create compliance gaps even before the first statutory requirement becomes due-
1. Treating applicability as a one-time exercise
Many organisations carry out applicability mapping only during the initial setup, such as when a new entity is registered, a new plant is commissioned, or a compliance platform is implemented. Once the mapping is completed, the applicable obligations are added to the system, and tracking begins. However, applicability changes over time. It can be affected by changes in workforce strength, business processes, geographic expansion, and regulatory updates. For example, if an organisation crosses a statutory employee threshold, new legal obligations may apply even though they have not been added to the compliance calendar. A periodic compliance audit can help organisations reassess applicability as these operational and regulatory conditions change.
2. Confusing physical arrangement with statutory criteria
A common misconception is that the applicability of a law can be changed through physical arrangements or operational decisions. The Boilers Act, 1923, for example, determines applicability based on pressure, capacity, and steam generation characteristics, not on whether boilers are physically separated. Similarly, the applicability of gas cylinder regulations depends on the quantity stored, storage conditions, and the mode of use. The applicable legal requirements are determined by statutory thresholds, not by the physical layout of the premises. A compliance audit that validates applicability against statutory criteria can help identify such incorrect assumptions.
3. Failing to reassess when operations change
Changes in business operations can also change the legal requirements that apply to an organisation. Expansion into new locations, the addition of new product lines, changes in workforce composition, including gender ratios and international workers, the introduction of hazardous processes, and changes in contractor deployment can all affect applicability. However, organisations rarely carry out a comprehensive reassessment when these changes take place. As a result, the compliance framework continues to operate on outdated assumptions. A compliance audit can help assess whether changes in business operations have resulted in new or modified compliance obligations.
4. Allowing the compliance team to self-assess applicability
In many organisations, the same team that determines applicability is also responsible for carrying out compliance activities. As a result, there is no independent review of the applicability assessment. This creates an inherent conflict, as the team is effectively assessing its own scope of work. Incorrect exclusions, whether caused by limited knowledge, resource constraints, or genuine misinterpretation, can remain unnoticed because no independent review is carried out. An audit that does not examine applicability leaves the organisation with a compliance map that may no longer reflect its actual legal obligations. An independent compliance audit can provide an objective review of applicability and help identify obligations that may have been incorrectly excluded.
5. Ignoring state-level variation in central laws
Enterprises often assume that central laws apply uniformly across all locations. In practice, most of these laws are implemented through state-specific rules, notifications, and procedures. A requirement that is compliant in one state may not be compliant in another. Forms, registers, renewal timelines, and supporting documents often vary from state to state. An applicability assessment carried out only at the national level, without validating state-specific requirements, can overlook compliance obligations enforced by state authorities. A compliance audit covering entity and location-specific applicability can help identify gaps arising from state-level variations.
The consequences of errors in applicability are immediate. If a legal obligation is marked as not applicable, it is not tracked, carried out, or reported. As a result, it remains outside the organisation’s compliance framework until a regulator identifies the gap. The Compliance Blindspot Report by TeamLease RegTech highlights the importance of identifying such overlooked compliance risks that can remain hidden within an organisation’s compliance framework. Before reviewing compliance execution, review the applicability map. That is where most compliance gaps begin. A comprehensive compliance audit should therefore begin by validating whether the applicability map itself is complete and accurate.