MSMEs need support as Labour Codes raise payroll and compliance pressures: Bry-Air MD

When India’s new Labour Codes finally bite, the assumption is that the first tremors will be felt in HR departments — in spreadsheets, registers and compliance dashboards.

Deepak Pahwa disagrees.

“The earliest change is taking place in shopfloor and not in the paperwork as per the most common assumption,” says the Chairman of the Pahwa Group and Managing Director of Bry-Air.

In his telling, the reform is less about updated forms and more about how factories actually function. Workforce planning is being redrawn. Safety frameworks are being tightened. Employee welfare is being formalised. “Integrated approach is becoming central to labour management that is steering clear from earlier fragmented and rule-by-rule compliance,” he says.

That shift, he argues, is quietly replacing informal practices with structured protocols — for onboarding, skilling and defining roles. Digital attendance systems are gaining ground. Wage structures are being simplified. Working hours are being more clearly defined.

Most striking, perhaps, is the change in tone. “Rather than viewing it as a regulatory burden, they are embracing it as stimulator of professionalism, enhanced productivity and stable and lasting working models,” Pahwa says of manufacturers adapting to the new regime.

From headcount to capability

The Labour Codes are also pushing companies to rethink how they pay and deploy people.

Fragmented wage components are giving way to “simpler and transparent wage structures”, aimed at clarity and stronger social security coverage. On the operations side, shift patterns are becoming more flexible, aligned to demand cycles rather than inherited schedules.

“This is setting the stage for capability-driven models, steering away from head-count driven model with importance given to productivity, safety and well-being of employees,” he says.

In other words, fewer conversations about numbers on payroll, more about what those people can actually do.

Contract labour, but with guardrails

Contract labour has long been the backbone of Indian manufacturing. Pahwa does not see that changing. What is changing, he says, is the framework around it.

“The new Labour Laws focus on professionalising the contractor dependency rather than reducing it.”

The Codes push companies to take greater responsibility for safety, working conditions and social security — accountability that goes beyond the contractor. Digital wage systems and tighter documentation are part of that shift.

The ambition, he suggests, is continuity. Retain trained contract workers. Align their skills to core operations. Reduce downtime. Build resilience.

It sounds tidy in principle. On the ground, the adjustment is more complex.

The part leaders underestimate

Ask Pahwa what factory leaders get wrong, and he does not mention payroll mechanics.

“Behavioural and cultural transition in the factory floor is the most underestimated element of labour reforms.”

Legal alignment is the easy part, he implies. The harder work lies in communication, line manager training, grievance systems and digital capability. Trust between supervisors and workers matters as much as any compliance checklist.

There is also a daily tension playing out in plants. Production targets do not disappear because a new Code has arrived. Nor do cost pressures.

“The most visible tension arises when operational flexibility is juxtaposed with human-centric management,” he says.

Push too hard on output, and fatigue and morale take a hit. “Productivity at the cost of wellbeing can never be sustainable in the long run.”

The MSME squeeze

If large manufacturers are adjusting their models, smaller firms face a sharper squeeze.

“MSMEs are accompanied by limited buffers and very brief credit cycles,” Pahwa notes. Sudden payroll-linked obligations can spike fixed costs. Cash flow predictability becomes fragile.

Many smaller enterprises lack dedicated HR or legal teams. Digital documentation and stricter compliance demand both money and managerial bandwidth. “It requires steep learning curve to accustom the various stakeholders to the new codes, necessitating adequate handholding,” he says.

He argues that phased adoption, advisory support and better access to credit will be critical if MSMEs are to cope.

What getting it right looks like

For Pahwa, success will not be measured by the number of updated policy manuals.

“For getting the Labour Code right, compliance needs to be seamlessly embedded into the everyday operations rather than considering it as an administrative task.”

If that happens, he believes disputes will fall, workforce stability will improve and professionalism will rise.

The caveat is scale. India’s manufacturing ecosystem is vast and uneven. Uniform implementation, particularly across thousands of MSMEs, will not be straightforward.

The Labour Codes promise clarity and structure. Whether they deliver productivity without squeezing smaller players too hard will depend less on the statute — and more on how deeply the change reaches the shopfloor.