Labour codes: Real estate expects up to 10% spike in baseline labour cost

Developers expect short-term cost and timeline pressures, but say unified labour laws will bring predictability, better compliance and steadier workforce availability

With four labour Codes having been made effective, real estate is bracing itself for an increase in baseline labour costs of 5-10 per cent over the next one year, with labour making up close to one-fourth of project costs.  

According to industry executives, labour accounts for 25-30 per cent of project costs, and hence a structural change affects developers’ projections.  

“We are estimating a baseline increase of 5-10 per cent over 12 to 18 months,” said Sujay Kalele, founder, Mumbai-based MD TRU Realty. 

Suruchi Kumar, partner at law firm Shardul Amarchand Mangaldas, said some increase was inevitable at the start because the Codes restricted exclusions from wages to no more than 50 per cent (of the people employed), and statutory contributions like the provident fund, gratuity and overtime calculations would rise for certain categories of employees, such as gratuity for fixed-term contracts. 

“Similarly, the Social Security Code’s Chapter III expands the net of workers eligible for benefits, which brings an additional contribution load,” Kumar added. 

Experts say while the transition may be detailed, once it settles, having one consolidated regime instead of 29 scattered laws should make compliance far more predictable. 

“The plan is to rebuild payroll structures, sync contractors on the new requirements, and move all registers and workforce data on to a digital workflow,” Kumar said. 

With changes such as the standardisation of national floor wages and the documented safety and welfare duties, the internal systems are being holistically overhauled rather than making cosmetic tweaks. Executives added the structural change and new compliance would affect projections and timelines, requiring companies to reassess project planning, fortify contractor ecosystems, and build more resilient delivery models.  

However, they are expecting that short-term adjustments will be offset by fewer disputes, better retentions, and smoother operations.  

“The updated provisions on workforce flexibility, smoother exit thresholds, and longer shift options of 8-12 hours, capped at 48 hours a week, can offset part of the cost escalation through productivity gains,” Kalele said. 

He added that for large construction sites, even a small rise in efficiency or reduction in downtime improved delivery timelines.

While implementation is expected to hit construction timelines initially, executives say the Codes will bring consistency in areas like working hours, contract-labour conditions, and migrant worker norms.  

“We expect a short settling-in period as contractors adjust to the more detailed safety, welfare and record-keeping requirements. That could slightly extend mobilisation in the early months,” Kumar said. 

However, uniformity in working hours will reduce surprises at state level and help ensure steadier manpower availability. 

“In our projections, the timeline impact should normalise quickly and become more stable than before,” Kumar from Shardul Amarchand Mangaldas added.  

Ashish Bhutani, chief executive officer of the Bhutani group, added that with proper planning and proactive management, firms could maintain construction timelines without compromising on quality or compliance. 

Industry announces support, but seeks clarity on Codes’ rollout Calling the Codes a positive step for a sector where the workforce is largely migratory and often under-protected, National Real Estate Development Council Chairman Niranjan Hiranandani said while there might be a short-term increase in labour costs due to revised wage definitions, and broader benefit coverage, this should be viewed as an investment rather than a burden.  

The industry, however, is seeking clarity on the operational rollout and uniformity in implementation across states.  

“In the absence of state rules, the position of ground-level procedural compliances is less clear, but there may be some streamlining with fewer registrations,” said Atul Gupta, partner (labour and employment practice), Trilegal.   

Shahid Balwa, vice-chairman and managing director, Valor Estate, added that progressive firms would view these reforms not merely as compliance obligations but as a catalyst to elevate execution standards and strengthen credibility across the value chain.