Labour welfare and Growth of SMEs

Practices relating to working conditions, safety and health, skills development contribute positively to the welfare of SMEs in India.

May Day is celebrated in most part of the world as a symbol of creating awareness about better labour practices in the workplaces. It is an appropriate time to understand the firms’ labour resources and capabilities, and contributions, as do external interactions – i.e. the diverse market and regulatory/ institutional contexts that condition competitive advantage and survival for SMEs.

India is home to 50 crores jobs mostly informal and often commented for the lack of social protection as well as inadequate physical working conditions, safety and health, education levels and opportunities for skills development. As a result, SME workers are frequently disadvantaged and SMEs are missing opportunities to compete, resulting in the loss of a potentially substantive contribution to sustainable growth.  It is mainly because employers often perceive obligations to apply social protection legislation to their workers as a burden in terms of financing and administration. This is particularly the case for small business owners and managers

Circumstances in SMEs:

First, the widespread reality is that many SMEs are in fact formalizations of what were previously small groups of people working in the “informal” sector. It means that these SMEs have histories that are primarily rooted in a struggle for individual survival and therefore have very short time horizons, denying the implementation of any strategy other than short-term survival.

Second, their precarious financial bases – often directly linked to a lack of accessible credit and delayed payment by the State or by larger companies – are also likely to militate in a similar direction and not allow for much investment.

Third, the weakness and ad hoc nature of management in many of these firms is an issue.

Fourth, the employer, trade and professional associations which may act as conduits for progressive practices often do not see in SME space.

Finally, the States themselves often have highly fragmented structures and policies which lack  coherent action policies to assist SMEs  in a systematic way

The relationship between the factors are complex:

The relationship between working conditions, safety and health, skills development and firm outcomes is very complex. However, research has established at least indicative evidence of some links between good practices in all the areas examined, and various types of positive enterprise-level outcomes. Positive outcomes include reduced employee turnover, higher discretionary contributions by employees to enterprise capacities, improved productivity and profitability and higher levels of customer satisfaction and sales.

We discuss some these practices in detail:

Occupational safety and health(OSH)

A considerable body of evidence confirms a link between the provision of OSH and positive firm outcomes. Various studies confirm a common lack of awareness of the cost implications of accidents or work-related ill health among SME owners/managers. Research also points to a tendency for SME owners/managers to be reactive rather than adopting a preventive stance towards OSH, often focusing on short-term outcomes rather than investments that pay off in the longer term.

SMEs have been found to be more prone to work-related accidents than larger firms. The cost of accidents in terms of expenses towards the employees suffered, loss of working time, impact on the morale of the rest and loss of income all add up very significantly.  However, due to their small and versatile nature, SMEs might be extremely efficient at improving working conditions if properly motivated.  This highlights the need for treating OSH as an essential aspect of good business practice and quality management.

HR Practices:

Recruitment and selection, performance appraisal, performance-based pay, training and development, space for decision making, participation, information sharing are major focus area under HR Practice.

Many SMEs in India especially family businesses have shown intense aversion to embracing the best HR practice and there is a large scale prevalence of perception of it a drag on their profitability. As a result, they deprive themselves of an opportunity get better of their human resource base.

It is well established that relatively well-developed HR practice is effective for SMEs and especially in improving their profitability.  The various studies have revealed considerable evidence that HR practices in SMEs are positively associated with outcomes such as productivity, innovation, staff retention and customer satisfaction.  Some also show that positive outcomes increase over time, highlighting the importance of examining such a policy for longer time horizon.

Working Hours:

Lack of adherence to rigid working hours affects the health and social life of employees. This may also cause higher attrition and thus deprive the company of retaining good employees. Research on the impact of prolonged periods of working long hours and overtime has identified negative short-term effects (such as increased injury risk) as well as adverse health effects (such as depression, strokes and heart attacks), if exercised over a prolonged period of time, and decreased productivity. However, incentive-based moderate overtime can have positive effects on both organizational and individual outcomes if it is done voluntarily and appropriately remunerated.


Training can bring in the multitude of benefits for SMEs. Training can transform low-level wager to a skilled professional. It can enhance the social esteem of an employee.

Unlike large firms, SMEs do not prefer formal training and extend the scope of learning and training that are informal in nature. Small firms prefer informal training methods, as they are congruent with their focus on short-term outcomes, low costs and guaranteed immediate returns, as well as the need to adapt to the rapidly changing environment of their markets.

In either way(formal/informal) training need to be part of any organisation’s survival strategy in the face of increasing demand from customers for quality of products & services and need to protect the profitability through productivity.

The above categories have porous boundaries. “Working hours” is closely related to “occupational safety and health”, whereas  training is a common element of HR practices

Adopt Strategic Human Resource Management approach to strengthen the organisation:

Human resource is one of the key pillars of any organisation aspiring to grow and remain sustainable. In success or distress, the loyal employees will remain committed to supporting the company if they are seen as important. SMEs should explore the ways and means to make it happen.

SMEs should adopt “strategic HRM” that leads to a human resources management system designed to increase employee skills, motivation and job design. This results in the increased discretionary effort and access to employee tacit knowledge which, in turn, improves operational performance, profitability and stock market value.

Formal versus Informal: Every SME begins the journey in very informal labour relationship like addition g incrementally one after the other as the business grows. The progression from informality to formality is highly dependent on the context of the enterprise and takes place over a period of time not necessarily in an orderly manner. Secondly, organisations may hire informal labours even after it may attain certain size for a specific purpose.

The firms need not ignore informal labours as the law does not bind them to assist.   There is many social protection schemes of Govt(Central/State) PMSBY PMJJBY, APY, PMKY and other health-related state-specific insurance covers can be promoted to make their life better. This will help to earn goodwill and can be a good CSR (Corporate Social Responsibility) initiative for SMEs.


Effective human resource management strategy for SME workers is feasible and is most likely to be beneficial to enterprises. It can aid in stale transition.  Many practices improving social protection will be cost-effective and may indeed be sometimes easier to implement in the informal environment of SMEs than in larger firms.