India’s four new Labour Codes replace 29 earlier laws, creating a unified framework for wages, social security, industrial relations, and workplace safety. The Codes expand coverage of EPF, ESIC, gratuity, and minimum wage norms, increasing the importance of accurate payroll planning and record-keeping.

MSMEs will need to adjust wage budgets, manage higher social security contributions, and shift toward more structured HR processes.

Labour-intensive sectors such as garments, fabrication, machining, logistics, and food services will see stricter requirements for safety, welfare, and working hours.

MSMEs can adapt smoothly by strengthening financial discipline, adopting digital HR systems, improving documentation, reviewing workforce composition, and implementing changes in phases.

The Government of India notified the implementation of four new Labour Codes that streamline 29 existing labour laws into a unified framework, effective 21 November 2025. These Codes define how wages, labour relations, social security, and workplace safety will function under a single structure. By strengthening worker welfare and creating consistent rules across sectors, this move lays the foundation for a more future-ready workforce and more resilient industries.

For MSMEs, the changes bring both opportunities and challenges. Many small enterprises operate on thin margins, depend heavily on contractual or seasonal workers, and use limited HR systems. As the new Codes expect more structured processes, MSMEs will need to rethink certain financial and operational practices. Understanding how the new framework affects small enterprises is essential for preparing ahead. For that, it is important to take a closer look at what these Codes entail.

The 4 New Labour Codes at a Glance

Each Code influences the day-to-day operations of businesses in different ways, shaping payroll calculations, hiring processes, worker benefits, and workplace standards. Given below is how they create a uniform structure that enterprises must now align with for smoother and compliant operations: 

1. Code on Wages, 2019

This Code standardizes wage-related rules by introducing a national floor wage and consistent minimum wage norms across sectors. It governs how salaries, overtime, and deductions are calculated, ensuring greater transparency in payments.

2. Industrial Relations Code, 2020

This Code focuses on the relationship between employers and workers, covering hiring procedures, dispute resolution, and rules for contract labour. It brings more clarity to layoffs, retrenchment, and workplace discipline, especially for growing establishments.  

3. Code on Social Security, 2020

The Social Security Code brings EPF, ESIC, gratuity, maternity benefits, and insurance schemes under one umbrella. It expands coverage to more categories of workers, including fixed-term employees and certain gig or platform workers.

4. Occupational Safety, Health and Working Conditions (OSH) Code, 2020 

This Code consolidates rules on workplace safety, working hours, welfare facilities, and licensing requirements. It sets clear expectations for sanitation, ventilation, rest areas, and protective equipment based on industry type.

These Codes simplify the labour environment but also introduce clearer expectations for compliance. Their financial and operational implications will be felt strongly by MSMEs, especially those operating with flexible staffing and basic HR processes.

Why MSMEs May Feel the Sharpest Impact 

MSMEs often function with mixed workforces and informal HR practices. As the new Codes require more structured compliance, smaller enterprises may experience sharper adjustments. The key areas of change include: 

Higher Wage Bills Due to the National Floor Wage 

The introduction of a national floor wage increases baseline salaries across sectors. MSMEs in regions with lower wage levels must revise payroll budgets and align with uniform wage norms, affecting immediate cost structures. 

Increased Outgo on Social Security Contributions 

Employees’ Provident Fund (EPF), Employees’ State Insurance Corporation (ESIC), and gratuity coverage now extend to more categories of workers, including fixed-term employees. This means MSMEs must plan for higher monthly contributions and maintain disciplined financial allocations. 

More Rigorous Documentation and Record-Keeping 

The Codes require formal registers, structured attendance systems, and clearly written employment documents. MSMEs that rely on manual or informal systems must shift to more organised or digital HR processes to stay compliant. 

Rising Pressure to Formalize Gig, Contract, and Seasonal Labour 

As wider protections now extend to gig, platform, and contract workers, MSMEs must introduce proper agreements, payroll documentation, and transparent processes, even for short-term or seasonal roles. 

Stronger Compliance Requirements for Labour-Intensive Sectors 

Units in garments, fabrication, machining, logistics, and food services will need to meet stricter norms around working hours, safety standards, welfare provisions, and workplace conditions. Non-compliance will carry clearer penalties, making early preparation essential. 

5 Ways MSMEs Can Plan Ahead and Build Resilience 

Regulatory change is manageable when business systems are modern, documented, and financially disciplined. MSMEs can navigate the transition effectively with the right planning and step-by-step implementation. 

1. Build Financial Discipline for Wage & Social Security Changes 

Meeting new wage requirements and social security contributions will require careful budgeting. MSMEs can begin by setting monthly allocations for EPF, gratuity, and ESIC payments instead of treating them as last-minute expenses.

Businesses should forecast wage costs periodically, especially when floor wage revisions occur. To ease immediate cost pressures, MSMEs may consider Business Loans, Loan Against Property (LAP), or Machinery & Equipment Loans from RBI-regulated NBFCs like Protium. This helps maintain compliance without disrupting operations. 

2. Adopt Digital HR & Attendance Systems 

Digital records simplify compliance and reduce risk. Automated attendance systems, payroll software, and HR tools help MSMEs record attendance accurately, generate compliant payslips, manage PF/ESIC filings, and prevent disputes.

Affordable digital tools allow small businesses to move from manual registers to streamlined workflows with minimal training. 

3. Strengthen Documentation & Contracts 

Clear and consistent documentation forms the foundation of compliance. MSMEs should adopt standard offer letters, appointment contracts, and employment terms that define wages, work hours, leave policies, and exit conditions. 

Registers for wages, overtime, safety training, and social security contributions must be maintained. Digital registers reduce errors and make audits simpler. Written agreements are essential when hiring contractors to define roles and reduce liability. 

4. Evaluate Workforce Mix: Contract, Gig, Seasonal, and Permanent 

MSMEs often employ a mix of worker categories. Mapping this mix helps estimate future compliance costs under the new Codes. Businesses should review the ratio of permanent to contract staff, reliance on gig or platform workers, seasonal labour patterns, and deployment locations. This helps plan wage structures, social security contributions, and training obligations more efficiently. 

5. Plan Incrementally: Start with the Most Impactful Areas 

A phased approach allows MSMEs to adapt without overwhelming financial pressure. Businesses can begin with wage adjustments, basic documentation, and payroll restructuring. Safety procedures, record-keeping systems, and training requirements can follow in later phases to minimise operational disruptions. 

The Long-Term Benefits of Compliance for MSMEs 

While compliance may initially seem demanding, the long-term benefits are significant. A well-structured enterprise attracts skilled workers, reduces disputes, improves credibility with lenders, and becomes eligible for more government schemes. 

As MSMEs formalise their systems, they build a stronger foundation for scalability, stability, and risk management. Aligning early with the new labour framework positions businesses to operate confidently and grow sustainably in the years ahead.