India's Labour Codes Cost Top Firms ₹12,000 Crore
India’s largest companies absorbed a ₹12,000 crore (approx. $1.45B) financial impact in Q3 2025-26 due to new labour code provisions. The cost, representing 7.7% of aggregate profit for the 25 firms surveyed, highlights the growing compliance burden for employers in the country. This regulatory change is expected to accelerate the adoption of compliance automation and payroll health technology.
- The financial impact stems from four new labour codes that consolidated 29 previous central labour laws, effective November 21, 2025. The codes are: the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020. - A primary driver of the increased cost is the new, uniform definition of "wages," which mandates that core components (like basic pay and dearness allowance) must constitute at least 50% of an employee's total remuneration. Previously, many firms kept basic pay low (30-40% of total compensation) to minimize social security contributions. - If an employee's allowances (like HRA, overtime, and bonuses) exceed 50% of their total pay, the excess amount is now added to the wage base for calculating social security contributions and other benefits. This directly increases company outlays for provident fund (PF) and gratuity payments. - The Code on Social Security, 2020, expands coverage to new categories of workers. For the first time, gig and platform workers are legally recognized and are entitled to social security benefits, with aggregators required to contribute 1-2% of their turnover to a welfare fund. - Gratuity eligibility has been significantly altered. While permanent employees still need to complete five years of service, fixed-term employees are now eligible for gratuity on a pro-rata basis after completing just one year of service. - The codes introduce new compliance and operational requirements for employers, including issuing mandatory appointment letters to all workers, providing free annual health check-ups for employees over a certain age, and settling all final wages within two working days of an employee's separation. - The Industrial Relations Code, 2020, raises the threshold for requiring government approval for layoffs and closures from 100 to 300 employees, offering more flexibility to mid-sized firms. It also mandates that employers contribute to a "Worker Re-skilling Fund" for each retrenched employee, equal to 15 days of their last drawn wages. - The reforms also focus on gender parity, permitting women to work night shifts with their consent and adequate safety measures, a practice previously banned in many sectors. The codes also mandate equal pay for all genders for similar work.
