India’s labour law landscape is changing with the introduction of four new Labour Codes set to take effect in November 2025. These codes will replace 29 existing laws, including the Employees’ Compensation Act, which has been around since 1923. The shift aims to create a simpler, more modern framework that can ease compliance for businesses while expanding social security for workers, including those in gig economies.
This transition is particularly significant for India’s micro, small, and medium enterprises (MSMEs). The move to a unified registration system is a welcome relief from the maze of regulations that many smaller companies face. However, it’s not all smooth sailing. Experts warn of operational challenges and increased costs for MSMEs, which often run on tight margins.
Shreya Sharma, a legal expert, points out that while the new benefits like minimum wages and double overtime are beneficial for workers, they could strain small businesses. She says, “Many MSMEs will have to reevaluate their financial plans to accommodate these new costs.”
The shift toward mandatory digital record-keeping is another hiccup. Many small businesses may lack the resources to adopt new technologies for HR management. Raghunandan Saraf, CEO of Saraf Furniture, mentions that for micro businesses, switching from manual to digital systems can be daunting. “This might be their first encounter with digital tools, and the requirement feels overwhelming,” he notes.
Another hurdle is the lack of trained HR personnel in many small firms. The new Codes use complex definitions for terms like “worker” and “gig worker,” potentially confusing small business owners. Sharma emphasizes the risk: “Small firms often can’t afford full-time HR staff, increasing compliance risks.”
The Codes also struggle with clarity around flexible work arrangements. With an economy that increasingly relies on seasonal and contract work, many businesses find it hard to navigate the rules. Saraf says the focus on regular, full-time workers leaves too many questions about how to treat casual workers. “There’s a lack of guidance on this, which complicates compliance,” he explains.
Experts also warn that the one-size-fits-all approach to regulations may not suit every sector. Sanjaya Mariwala, from OmniActive Health, warns that standard rules could hinder innovation in specialized areas like R&D. Moreover, because labour regulations are a concurrent subject, states have different rules and timelines. This leads to inconsistencies that can confuse businesses operating in multiple states.
As MSMEs transition to digital platforms for HR records, data protection becomes crucial. Mariwala points out that there’s no clear framework for securing employee data during this switch. “Without robust protections, companies risk exposing sensitive information,” he warns.
Some experts argue that the new labour laws miss opportunities to address the challenges posed by modern technology and flexible working styles. Sharma suggests including specific guidelines on issues like AI and remote work could have made the framework more relevant.
For these Codes to truly benefit MSMEs, experts call for better support during this transition. Initiatives like government-funded digital tools and straightforward guidance tailored to different sectors could ease the burden. Saraf highlights that improved resources will help smaller companies maintain their agility while ensuring compliance.
In conclusion, while these new Labour Codes promise simplification and improved worker welfare, the path forward must also address the unique challenges faced by MSMEs. By doing so, India can genuinely enhance the Ease of Doing Business for all its enterprises, big and small.
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