New labour codes to significantly reduce compliance burden for MSMEs: TeamLease report

only approximately 9% of India’s workforce benefits from the current labour laws,

The implementation of the new labour codes in India is expected to significantly reduce the compliance burden on micro, small, and medium enterprises (MSMEs) by ‘consolidating and streamlining’ various regulatory requirements, said a TeamLease Regtech report on June 27.

The reforms, linked to the four codes, promise to ease administrative overhead for businesses, especially MSMEs, and promote a more transparent and efficient regulatory environment, said the report.

The Centre had passed four labour codes in 2019-2020, namely, Code on Social Security (CSS) 2020; Occupational Safety, Health and Working Conditions Code (OSH & WC) 2020; Industrial Relations Code 2020 and Code on Wages (CoW) 2019. However, these laws have not yet been notified.

"The Code on Wages merges multiple annual returns and reduces the number of registers employers must maintain from 12 to 4, with the possibility of further reducing them to just one," said the report.

The Code on Industrial Relations also simplifies trade union registration and has reduced the 2 registrations required by the trade unions to 1, and the CSS consolidates 36 annual returns required under nine separate Acts into a single return, slashing the number of remittances, returns, and register submissions by over 90%.

The OSH &WC Code, which governs occupational safety and health, cuts down licenses from 4 to 1, registrations from 11 to 1, returns from 22 to 1, and registers from 76 to as few as 2 or 3 effectively reducing the compliance load by over 90%, the report mentioned.

Labour laws fall under the concurrent list of the Constitution, implying both Centre and the states have rights to frame rules. However, in case of conflict between central and state laws, the central legislation typically prevails, unless the state law has received the Presidential assent, in which case it can take precedence.

In 2019-2020, a total of 29 labour-related acts were consolidated into four comprehensive Labour Codes. The aim was to promote trade and investment, enhance ease of business, reduce compliance burden, support decriminalisation, address skill development, and improve dispute resolution mechanisms.

However, government sources had told Moneycontrol earlier that the Centre sees no immediate need to notify the four codes, as most states and Union Territories (UTs) have already made the necessary changes in their respective state laws.

The TeamLease report said among India’s 6.3 crore MSME enterprises, only 10 lakh are formal entities covering their workforce under labour laws, while 6.2 crore are small and informal, employing over 90% of the labour force. As a result, only about 9% of India’s workforce benefits from the current labour laws, the report added.

Labour laws form the single largest component of compliance obligations for MSME, accounting for roughly 45% of all requirements, said the report. Labour accounts for 463 acts (30.1%), 32,542 compliances (47%) and 3,048 (46%) filings. Of these, 17,819 (54%) carry imprisonment as a penalty for non-compliance. Out of the total compliances that prescribe jail term, 68% of them belong to labour.