Pratik Vaidya, head of HR compliance & labour committee at India SME Forum, said moving from familiar state-wise laws to a new compliance architecture may feel overwhelming for small firms. This is because they operate with thin margins, informal processes and limited advisory support.
“Unlike large corporations, MSMEs do not have in-house legal or HR teams. Without phased implementation, clear guidance, digital handholding and a strong facilitation framework, labour codes may be perceived less as ease of doing business and more as compliance pressure. This is especially during an already challenging economic cycle,” he added.
The draft rules for the new labour codes were put out for public consultation on December 30. The rules are expected to be fully effective from the next financial year, after the government concludes stakeholder consultations and notifies the finalised rules.
“When goods and services tax (GST) as a concept was introduced, MSMEs had to outsource compliance activities. A similar facilitative layer — preferably through simple digital tools, assisted compliance mechanisms and capacity-building support — may be useful under the labour codes as well. This is essential during the initial years,” said Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (FISME).
Under the new labour codes, the definition of ‘wages’ includes basic pay, dearness allowance and retaining allowance.
The Code on Wages, 2019, states that 50 per cent of the total remuneration must constitute ‘wages’. This is likely to raise provident fund (PF) contributions and gratuity payouts, since these will be calculated on a larger wage base.
“The impact will differ significantly between MSMEs and larger organisations. MSMEs are likely to feel the transition more acutely because they operate with lean HR teams and limited compliance infrastructure. The upfront effort required to formalise documentation, upgrade payroll systems, and understand new rules can feel disproportionately heavy for smaller businesses,” said Ankit Aggarwal, founder of Unstop, an upskilling and hiring platform.
There are currently 74 million registered MSMEs in India, according to the performance dashboard of the Ministry of MSMEs. According to the dashboard, approximately 99 per cent of these are micro enterprises, while 0.7 per cent and 0.05 per cent are small and medium enterprises, respectively.
Sonal Arora, country manager of GI Group Holding, an HR and recruitment services provider, said MSMEs will need to adjust their cost structures and make investments in compliance expertise.
“Bigger companies will be able to adapt to these changes because they have a more established HR infrastructure and economies of scale as well as the ability to either absorb or pass on additional costs,” she added.
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