New labour codes: Indian companies face higher wage expenses; manpower costs may increase 5-15% across sectors

Indian companies are likely to see higher wage bills as they adjust HR policies and compensation structures to comply with the new four labour codes. Experts estimate manpower costs could rise 5-10%, or even more for some firms.

The increase in wage expenses is largely driven by higher costs for benefits such as gratuity, overtime, bonuses, and leave encashment, which will now be calculated according to the new wage definition, said Sonu Iyer, national leader, people advisory services – tax at EY India. Labour-intensive sectors like manufacturing, micro, small, and medium enterprises (MSMEs), and companies with fragmented pay structures are likely to experience the steepest increases.


Firms where variable pay and allowances make up a significant part of total compensation may see only moderate rises, said Viswanath PS, chief executive at Randstad India. "In such cases, a 5-10% increase in manpower cost is a reasonable estimate, though the exact impact will vary by industry and the current compensation design," he said, as quoted by ET.

Companies review hiring and pay structures

Companies are also reassessing hiring models, particularly the mix between contract and fixed-term employment, while realigning salary structures to comply with the uniform wage definition, experts noted.

"As remuneration in kind (if any) up to 15% will be treated as wages, all employers will now need to re-examine what components of their current compensation structures will be treated as 'wages,' and which ones will be excluded from the definition," said Atul Gupta, partner – labour and employment practice at Trilegal. He added that gratuity is likely to see the most significant impact among employee benefits.

"An increase in manpower costs on account of the recent labour codes may go up in the 5-12% range for a typical organised employer. And if the workforce was over indexed on allowances or contract labour, it may be 10-15%, or more," said Prabir Jha, founder and CEO of Prabir Jha People Advisory.

Highlighting the employee perspective, Sudhakar Sethuraman, partner at Deloitte India, said, "The codes specifically prohibit the employer from reducing the wages of the employees…So employees stand to gain from labour codes," as quoted by ET.

The government, however, believes that the significant reduction in compliance burdens under the new codes will balance out any additional employer costs, including those arising from overtime payments or mandatory health checks for workers.

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