From Challenges to Solutions: India SME Forum Charts Roadmap for Labour Code Success

India SME Forum's Labour Code Implementation Recommendations

In the current focus and environment on Labour Codes and Laws, India SME Forum was part of a high-level meeting chaired by the Secretary (Labour & Employment), wherein, as a prominent voice for the development and facilitation of the MSME Industry, India SME Forum put forward points and recommendations that will work towards the betterment of the labour law.

India's labour code consolidation was necessary because the existing framework of 29 central laws and over 100 state laws had become an unmanageable obstacle to both business growth and worker protection. Created over nearly a century with many dating to the colonial era, these laws suffered from definitional inconsistencies (the term "wages" alone had eight different meanings), overlapping jurisdictions, and fragmented compliance requirements that forced MSMEs to navigate 15-20 different statutes simultaneously. This complexity pushed 90% of India's workforce into the informal sector where they lacked legal protections, while burdening formal enterprises particularly MSMEs with limited HR and legal capacity with what economists call a "compliance tax" that diverted resources from productivity to bureaucratic navigation. The consolidation into four comprehensive codes: the Code on Wages (standardizing wage definitions and payment mechanisms), the Industrial Relations Code (simplifying union, strike, and dispute resolution rules), the Social Security Code (creating universal coverage frameworks), and the Occupational Safety, Health and Working Conditions Code (unifying workplace standards) addresses these systemic failures by providing consistent definitions, unified compliance mechanisms, and technology-enabled enforcement. For an economy where MSMEs contribute 30.3% to GDP and employ 11 crore workers, the fragmented old system forced businesses to choose between remaining small, operating informally, or bearing disproportionate administrative costs. The four-code framework aims to create a predictable regulatory environment that eases doing business while extending meaningful worker protections to emerging forms of employment in the 21st century economy.

Comprehensive Digital and Training Infrastructure

India SME Forum proposed a structured compliance transformation roadmap emphasizing technology adoption and capacity building. For employers, recommendations included implementing digital HR and payroll systems with automated wage calculations under the new uniform wage definition, conducting comprehensive wage structure audits, and establishing industry-wide certification programs for HR and compliance officers.

For workers, India SME Forum strongly advocated multilingual nationwide awareness campaigns to educate them on wage rights, timelines, and grievance redressal mechanisms. A government-backed digital platform was proposed to ensure portability of social security benefits for migrant, gig, and platform workers, complemented by worker-accessible dashboards tracking salary payments, PF/ESI contributions, and dispute timelines to strengthen transparency.

On the government side, the Forum urged accelerating standardized state-level rule notifications to reduce inconsistencies. Critical was the recommendation to upgrade the Shram Suvidha Portal into a single compliance window featuring pre-filled forms, risk-based inspections, and plug-and-play APIs for MSME HR software. The Forum advocated replacing punitive inspection approaches with advisory-oriented inspector-cum-facilitator training to foster collaborative guidance rather than enforcement fear.

MSME-Centric Adoption Frameworks

The Forum's strongest contribution was proposing practical, phased implementation models tailored to MSME realities. A three-tier compliance approach was recommended: micro units would receive simplified compliance in years one to two, including quarterly wage audits instead of real-time systems, followed by gradual adoption of digital registers and contract templates, with full compliance only after adequate handholding and training.

To address supply chain complexities, the Forum proposed a central registry of government-audited contract suppliers with 60% of audit costs co-funded by the government, preventing small vendors from being pushed out of formal value chains. A principal employer proxy system would allow consolidated compliance returns across multi-tier supply chains, eliminating duplicate filings and reducing documentation burden on MSME subcontractors.

Additionally, the Forum recommended crisis-responsive flexibility mechanisms: a defined 90-day crisis flexibility clause allowing temporary relaxation of certain labour compliances during economic or environmental shocks, and temporary PF contribution reduction from 12% to 8% for MSMEs facing over 30% profitability decline, subject to commissioner approval.

The India SME Forum affirmed that the Labour Codes represent a roadmap toward a fair, transparent, digitally empowered workforce ecosystem. However, their success hinges on implementing the targeted support mechanisms proposed, harmonized state rollouts, simplified digital systems, phased adoption pathways, and worker-centric tools that balance protection with productivity for a future-ready, globally competitive workforce.