The new labour codes could increase the cost of doing business for micro, small and medium enterprises (MSMEs), even as they are expected to enhance productivity and workforce stability over time, according to industry experts.
“Labour Codes are a mixed bag. While they reduce compliances, they increase the cost by covering all employees—workers, managers, etc.—across factories, shops or offices under minimum wage. The cost would increase for unorganised MSMEs. The compliance cost of gratuity would also go up,” said Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME).
The new codes mandate minimum wages, health coverage and access to basic facilities such as canteens, drinking water and rest areas. MSMEs will need to reorganise wage structures to align with a unified wage definition and formalise HR processes.
“Many smaller businesses don’t have dedicated HR expertise, so interpreting the Codes and updating policies can be a daunting task. Adjusting working-hour norms, safety processes and payroll components may also create short-term uncertainty among employees,” said Jayanth Neelakanta, Founder & CEO of Equip, a human resource firm that works closely with MSMEs.
A note issued by the India SME Forum observed that MSME workers are now clearly covered under the Social Security Code. While this will strengthen worker protection and reduce high attrition levels, it may also push up payroll costs and prompt MSMEs to adopt cloud-based HR systems for seamless compliance.
Industry representatives say that while a wider social security net could make the sector more attractive to workers, support and awareness will be critical for smooth implementation.
According to India SME Forum President Vinod Kumar, wider ESIC/EPF and insurance coverage for casual workers, fixed-term employees, gig and platform workers, and employees in hazardous industries will expand the social security net, requiring MSMEs to understand contribution rules and manage more structured monthly compliance. “Firms will need to be cautious to avoid legal consequences,” he added.
For many MSMEs, enforcement mechanisms could be another key concern. “The most challenging provision is the change in procedure for filing violations. Earlier, it was done through a government official only; now anyone can file a case of violation against the employer. It would increase harassment and litigation,” Bhardwaj said.