The Micro, Small and Medium Enterprises sector is the backbone of India’s economy, accounting for a substantial 30.1 per cent of the country’s GDP, 35.4 per cent of manufacturing output, and 45.73 per cent of overall exports.

The sector employs nearly 28 crore people across 6.5 crore units. This scale, reach, and diversity make it one of the most crucial engines of development and economic resilience.

Given the central role of MSMEs, continued policy support remains essential to promote competitiveness and consistent growth. To further strengthen this sector, the new labour codes aim to modernise India’s labour ecosystem by formalising employment, simplifying compliance through digital integration, strengthening social security, and ensuring workplace safety and equality.

MSMEs are complementary to large industries as ancillary units and contribute significantly to the inclusive industrial development of the country. Covering the wide spectrum of firms, the sector stands to benefit significantly from the clear and consistent provisions brought in by the new labour codes.

One of the central aims of the labour codes is to simplify and streamline regulatory processes that often overwhelm MSMEs. The reforms address long-standing bottlenecks through rationalised thresholds, digitised paperwork, predictable timelines, and reduced inspections.

The threshold to obtain a factory license has been increased. A 30-day time limit has been prescribed for granting permission for the construction or expansion of a factory, with the provision for deemed permission.

The site appraisal committee must give its recommendations for the initial location or expansion of factories involving hazardous processes within 30 days. This will facilitate quicker setup and expansion of MSME factories by cutting approval delays. The overall approval timeline has been reduced from 90 days to 30 days. These measures drastically cut approval delays and enable MSMEs to establish and scale operations faster.

The threshold for applicability of the provisions relating to contract labour license has been increased from 20 to 50 workers. Now, contractors employing fewer than 50 workers do not need a license. This will reduce excessive regulation for smaller establishments and reduce compliance burden on MSMEs.

The Codes introduce electronic single registration, a single return, and single all-India licences valid for five years, as well as deemed approvals. Such provisions in the Codes will promote both ease of living and ease of doing business, simplify compliance, reduce procedural delays, and lower administrative costs. This is specifically beneficial for the MSME sector, which finds it difficult to manage compliance.

In place of six boards under the existing laws, there will be a single national tripartite board to advise the Central Government on standards, regulations, etc, under the Codes.

The Government will notify standards on occupational safety and health for MSME workplaces across India. This will replace the current situation where different states have framed different standards for the same industries. It will bring uniformity of standards across the country, which will eliminate state-wise variation, promote fairness, predictability, and simpler compliance for MSMEs operating in multiple states.

The threshold for lay-off, retrenchment, and closure has increased to 300 workers. This allows smaller industrial establishments employing fewer than 300 workers to restructure operations based on their requirements without needing complex government approvals.

The threshold for applicability of Standing Orders has increased from 100 to 300 or more workers. Establishments with fewer than 300 workers are now exempt from the requirement of certification of standing orders.

MSMEs can now adapt more quickly to changing economic conditions. This flexibility reduces compliance burden, promotes business growth, job creation, and sustainability of small and medium enterprises while maintaining a balance between regulation and operational freedom.

Provision has been made for third-party audit and certification of start-up establishments or specific classes of establishments, helping them assess and improve health and safety without the intervention of the Inspector-cum-Facilitator.

Inspector-cum-Facilitators will function in place of traditional inspectors, and inspections will be conducted through a randomised, web-based system aimed at reducing the traditional ‘inspector raj’. These changes promote a more harmonious environment by making inspections facilitative rather than intrusive and burdensome. This helps establishments comply with the law, raise awareness amongst the workers, and support greater ease of doing business.

First-time offences punishable with a fine only shall be compoundable by paying 50 per cent of the maximum fine. Offences punishable with fine or imprisonment, or with both, shall be compoundable by paying 75 per cent of the maximum fine. Criminal penalties, such as imprisonment, are replaced with civil penalties like monetary fines. Employers will be given a mandatory 30-day notice for compliance before taking any legal action.

Several offences have been decriminalised, replacing criminal penalties with fines. These provisions make the law less punitive and more compliance-oriented. Employers can avoid prolonged litigation by paying the prescribed penalty, enabling quicker resolution of issues. The provisions lower compliance risk for small firms, promote voluntary compliance, reduce fear of prosecution, and make enforcement more facilitative for MSMEs.

There is a drastic reduction in the number of registers to be maintained. The new provisions promote the digitisation of records, allowing all registers and documents to be maintained electronically. This aligns with the digital-first approach, reducing paperwork and administrative burden.

The labour codes modernise the social security landscape, making compliance simpler and more predictable. Under the Social Security Code, 2020, a 5-year time limit is set for initiating inquiries by the Employee Provident Fund authorities. Such inquiries must be completed within two years, extendable by one year with CPFC approval.

The earlier power to reopen cases on a suo moto basis under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, has been abolished. The deposit amount for filing an appeal before the Employees’ Provident Fund Organisation Tribunal has been reduced to 25 per cent of the awarded amount, instead of the earlier 40-70 per cent.

Self-assessment of cess allows employers to assess construction costs themselves and pay the applicable cess. These provisions ensure timely action, provide legal certainty, and reduce the compliance burden on employers. The reduced deposit requirement lowers the financial burden on employers before filing an appeal. Self-assessment also simplifies the process and promotes timely compliance in construction-related works.

MSMEs can hire workers for seasonal or project-based needs without committing to long-term employment, helping them stay agile in fluctuating market conditions. FTE allows natural expiry of employment at contract end, reducing disputes or procedural burdens related to retrenchment or layoffs. MSMEs can control overheads during low-demand periods since FTE workers are hired only when required.

Many MSMEs rely on casual or informal labour. FTE converts such engagement into formal employment with legal benefits, improving compliance and transparency. MSMEs can hire skilled professionals for specific projects without long-term liability, improving productivity and innovation.

The definition of strike now includes concerted casual leave taken by more than fifty per cent of the workers on a given day, thereby prohibiting flash strikes and preventing loss of man-days or work. Strikes require 14 days’ notice and are restricted during conciliation or tribunal proceedings. Mandatory conciliation is introduced as part of the process. These provisions prevent sudden disruptions, reduce loss of productivity, and give employers confidence to expand operations and hire more workers, knowing productivity will be stable.

The appropriate Governments, i.e. Central and State, now have full flexibility to fix working-hour limits, replacing the earlier uniform cap of 75 overtime hours per quarter. This flexibility in hours of work will enable the industry to fix the hours of work as per the business needs, including when they get peak orders. It will also generate growth and employment.

Any amount an employer deposits with the appropriate Government to secure the performance of a contract, as well as any amount the Government owes the employer for that contract, cannot be attached by any court for debts or liabilities incurred by the employer. The only exception is when the employer owes dues to employees working on that specific contract. Hence, amounts deposited with the Government to secure contract performance are protected from attachment except for dues owed to employees.

No employer shall pay any employee less than the minimum wage notified by the Government. Minimum wages, earlier applicable only to scheduled employments, now cover all employees and must be reviewed or revised at intervals not exceeding five years.

Minimum rates of wages shall be fixed for time work and piece work, based on hourly, daily, or monthly wage periods, taking into account the skill of the employee and the arduousness of the work.

A floor wage will be fixed and regularly revised by the Government, considering minimum living standards, including food and clothing. This will reduce migration of labour from one state to another due to varying wage levels.

Employers must pay employees twice the normal wage rate for any work beyond normal working hours. The employer shall pay or cause to be paid wages to all the employees, based on the prescribed timelines

Provisions on timely payment and unauthorised deductions, earlier applicable only to employees earning up to ₹24,000 per month, now apply to all employees. The period for filing claims by an employee has been extended to three years, instead of the earlier six months to two years.

Bonus shall be paid to every employee drawing wages within the limit fixed by the appropriate Government. Eligible employees must have worked at least 30 days in an accounting year. The annual bonus shall be paid at a minimum of 8.33 per cent and a maximum of 20 per cent of the wages earned.

Employers shall not discriminate based on gender, including transgender persons, in recruitment, wages, or conditions of employment for the same or similar work. The scope of employee compensation now includes accidents occurring during commuting, from his residence to the place of employment, or returning from the place of his employment to his residence after performing duty.

ESIC coverage has been extended pan-India; the earlier concept of notified areas has been removed. Voluntary membership was introduced for establishments with fewer than 10 persons through employer and employee joint consensus. In the case of a female employee, the definition of family has been extended to include parents-in-law, based on income levels prescribed by the Government.

Every employee must be given an appointment letter in the prescribed format detailing designation, category, wages, and social-security information. Every employee is eligible for free annual health check-ups. Workers are entitled to paid leave after working for 180 days or more in a calendar year, reduced from 240 days.

The definition of Inter-State Migrant Workmen has been widened to include those employed directly or through contractors, and also covers workers who migrate on their own.

The Government will prescribe uniform provisions for cleanliness, drinking water, toilets, rest rooms in factory mines employing 50 or more workers, canteens in the establishments employing 100 or more workers, including contract labour.

In case of any retrenchment of a worker by an employer, the employer will need to contribute equivalent to 15 days’ last drawn wages of the retrenched worker to the worker re-skilling fund within 45 days of retrenchment. These provisions strengthen wage protection, ensure timely payments, and extend the coverage of minimum wages and bonuses to a wider group of employees. Workers receive expanded social security and health, and welfare benefits. Anti-discrimination measures uphold gender equality in employment, and the worker re-skilling fund provides financial support during transitions after retrenchment.

Fixed Term Employment workers are entitled to wages, hours of work, allowances, leave, and social security benefits at par with regular employees doing similar work. FTE replaces informal, insecure jobs with formal contracts, ensuring legal rights and benefits such as PF, ESI, and bonus.

Working under multiple contracts across sectors helps workers gain varied skills and experience. Workers know their employment duration, salary, and conditions upfront, reducing exploitation and uncertainty.

Good performance in FTE roles may often lead to absorption in regular employment and help fulfil their aspirations to work in large, organised industries for better wages, working conditions, and prestige. These provisions give workers equal benefits, formal contracts, skill growth, predictable tenure, and potential absorption into regular employment with better conditions.

Overall, the labour codes collectively represent one of the most significant reforms in India’s labour governance framework. By simplifying compliance, encouraging digital processes, promoting voluntary adherence, and expanding social security, the Codes create a balanced environment where MSMEs can grow more easily while workers benefit from fair wages, dignity, and protection.

India’s MSME ecosystem will strengthen under these new codes, ensuring that the benefits of development reach every worker and entrepreneur.