India’s new labor codes to lift IT payroll costs up to 10%

Payroll costs to rise under new labor regime: India’s IT and IT-enabled services sector faces a payroll hike of up to 10% after the rollout of the country’s new labor codes, with mandatory annual health checkups for employees over 40 and expanded wage definitions set to push up provident fund, gratuity, and leave liabilities, Business Standard reports. The rules bring the IT industry, employing some 5.8 mn people, under the Occupational Safety, Health, and Working Conditions Code for the first time, which in turn will tighten norms on working hours, overtime, terminations, and welfare.

(** Tap or click the headline above to read this story with all of the links to our background and outside sources.)

Pressure on margins will intensify amid compliance reset: Large firms such as Tata Consultancy Services, Infosys, Wipro, and HCLTech will need to revisit contracts, compensation structures, and staffing models, even as they have delayed pay hikes to protect margins under a volatile demand environment shaped by artificial intelligence. The mandated 50% minimum basic pay will reduce take-home salaries but lift retirals, further raising employer costs.

Companies are already anticipating double-digit cost increases due to the new Digital Personal Data Protection Rules — see our coverage here — which will primarily impact big tech firms such as TCS, Infosys, Wipro, and Tech Mahindra. The new obligations, alongside rising compliance expenses under India’s data protection rules, are likely to be passed on to clients, adding near-term pricing pressure for a sector already grappling with weak top line growth.

BACKGROUND- The law reform consolidates 29 existing laws into four new comprehensive codes, fundamentally redefining key employment terms. Notably, the definition of “employee” is broadened to include all staff, while the term “worker” is now limited to those earning a maximum of INR 18k per month and engaged in manual, technical, clerical, or supervisory duties. This overhaul will cause major shifts across critical areas such as overtime rules, retrenchment processes, leave encashment, the treatment of contract labor, and dispute resolution mechanisms, per an Ernst & Young report.