'Companies will need to revisit compensation structures, contracts, staffing models, and human resources system.'
Indian information technology services companies may see their payroll costs rise by up to 10 per cent following the implementation of the labour codes last week, according to experts. However, many agree that the new framework will help plug some gaps in a sector that has largely formalised over the past few decades.
The Indian IT/IT-enabled services (ITeS) sector is one of the largest employment-generating sectors. The industry is expected to have an employee base of 5.8 million in 2025-2026, according to UnearthInsight.
A key cost will be the mandatory free health checkup for all employees above 40 years, which was not a legal requirement under the earlier codes, experts pointed out.
A sizeable number of employees in Tata Consultancy Services, Infosys, Wipro, and HCLTech are mid-level managers above that age, and an annual medical test will certainly add to expenses.
It, however, remains to be seen which items companies want to cover as part of the checkup and if there are tests for which they expect employees to bear the cost.
Experts say the new labour codes mark a decisive reset for India's IT/ITeS sector, as for the first time these companies will be governed by the central Occupational Safety, Health and Working Conditions Code alongside state shop-and-establishment norms, bringing prescriptive rules on working hours, overtime, welfare, and statutory documentation.
"The expanded wage definition will raise provident fund, gratuity, and leave benefit outlays, pushing India's payroll costs up by an estimated 5 to 10 per cent," said Jignesh Thakkar, global compliance practice leader at EY.
The codes also curb mass terminations and introduce obligations such as contributions to the reskilling fund.
Larger employers will additionally come under a formal labour-relations framework through standing orders, grievance processes, and digital conduct norms.
Kamal Karanth, CEO of the specialist staffing firm Xpheno, says that with basic pay mandated to be at least half of the total cost to company (CTC), retiral benefits such as PF and gratuity -- which are linked to the basic -- will go up.
"While the take-home will be less, retirals will be more, which will add to the cost for IT firms."
This provision for basic salary was introduced to prevent companies from deliberately keeping basic pay low and structuring the CTC around perks and other benefits, thus reducing their contribution to PF and gratuity.
"Companies will need to revisit compensation structures, contracts, staffing models, and human resources systems. Overall, the codes accelerate formalisation and transparency -- and early movers will navigate the transition with far greater stability," added Thakkar.
The costs add to concerns for IT companies, which have been navigating an uncertain and volatile macroeconomic environment over the past few years for multiple reasons.
Many have been pushing back salary hikes to maintain quarterly margins, at a time when top-line growth has been under sustained pressure, largely due to the impact of artificial intelligence.
Costs are also expected to rise by double digits following the implementation of the Digital Personal Data Protection Rules earlier this month.
That impact, however, will be minimal for most companies, except TCS, Infosys, Wipro, and Tech Mahindra, as they have a significant India-facing business and clients in banking, financial services and insurance, telecommunications, healthcare, government, or business process outsourcing and customer relationship management sectors.
Aditya Narayan Mishra, managing director and CEO of Ciel HR, said the extra cost for these compliances will be passed on to clients, who may feel the impact in the short run.
"India's new labour codes do not disrupt the fundamentals of IT employment, which is already formal and compliant. But they do raise the bar on working-hour governance, annual health checkups, safety norms for women in night shifts, and contractor accountability."
Feature Presentation: Rajesh Alva/Rediff
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