New labour codes unlikely to hit salary hikes; IT may see softer gains

Companies are expected to continue salary hikes despite higher costs from new labour codes, but sectors like IT may see slightly lower increments due to margin pressure

India Inc is expected to largely continue with planned salary hikes despite a rise in employee costs after the rollout of the new labour codes, according to a report by The Economic Times. While some sectors that operate on tight margins may turn cautious, most companies are unlikely to cut increments sharply because pay growth is still driven mainly by demand for talent, skills and business performance.

 

The implementation of the four labour codes in November 2025 has increased certain employee-related expenses for companies. Benefits such as gratuity, overtime, bonuses and leave encashment are now calculated using a revised wage definition, which has pushed up overall payroll costs.

 

Several firms, particularly in the IT sector where employee expenses form a large part of total costs, reported weaker profits in the last quarter. This was mainly due to one-time provisions made to account for the financial impact of the new rules, the news report said.

 

However, experts say companies cannot afford to slow salary growth too much. In a competitive hiring environment, cutting increments could lead to higher employee exits, which may ultimately cost more in recruitment and training.   

 

Select sectors may see softer increments

 

While most industries are expected to maintain steady salary increases, some sectors are likely to be more cautious. The news report quoted experts as saying that IT services companies and certain non-banking financial firms may show a slight dip in pay hikes because of pressure on margins.

 

The news report quoted Amit Otwani from Aon as saying that organisations are adopting different strategies to handle the additional costs. Some have created separate budgets to absorb the new liabilities, while others are adjusting within their existing salary pools. Aon estimates salary increments in 2026 will remain close to 9 per cent, the news report said.

 

Experts, as cited by the news report, believe it may take a few months for companies to fully adjust to the new framework. Firms are currently reviewing compensation structures and may make changes once they better understand compliance requirements.

 

Labour codes may reshape workforce planning

 

All four labour codes came into force across the country in November last year. The new framework combines 29 central labour laws into a simpler set of rules. It aims to improve worker welfare, reduce paperwork for companies and bring India’s labour system closer to global standards.

 

Many of the old labour laws were created between the 1930s and 1950s, which led to overlaps and confusion over time. According to the government, the four new laws -- the Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020) and the Occupational Safety, Health and Working Conditions Code (2020) -- will make the system more modern and ready for future needs, while also balancing worker protection and business growth.

 

Beyond short-term costs, the labour reforms are expected to trigger bigger changes in workforce strategies. Companies may rethink hiring patterns, automation plans, outsourcing decisions and the role of artificial intelligence in operations, the news report said.