New Labour Codes Unlikely to Derail Salary Hikes; IT Sector May See Softer Gains
Higher payroll costs weigh on margins, but India Inc expected to hold increments near 9% in 2026
India Inc is unlikely to sharply cut salary hikes despite higher employee costs triggered by the rollout of the four new labour codes in November 2025.
Most companies are expected to stick to planned increments, even as payroll expenses rise under revised wage definitions.
Higher Costs, But Limited Impact on Pay Growth
The new framework recalibrates how benefits such as gratuity, overtime, bonuses, and leave encashment are calculated.
- Revised wage definition has lifted overall payroll costs
- Compliance adjustments have added short-term financial provisions
- Employee-related expenses have increased, especially in labour-heavy sectors
Several firms — particularly in IT services, where workforce costs form a large share of total expenses — reported weaker quarterly profits. The dip was largely attributed to one-time provisions made to account for the financial impact of the new rules.
Still, salary growth remains tied more closely to talent demand, skill availability, and business performance than to regulatory costs.
In a competitive hiring environment, companies risk higher attrition if they pull back too aggressively. Cutting increments to save costs could trigger higher recruitment and training expenses later — a false economy many firms are unwilling to embrace.
IT, NBFCs May Turn Cautious
While most industries are expected to maintain steady increments, select sectors may adopt a measured approach.
- IT services companies
- Certain non-banking financial firms (NBFCs)
These sectors face margin pressures and may see slightly softer pay hikes compared to others.
According to the report, Aon estimates salary increments in 2026 will remain close to 9%, indicating stability despite regulatory headwinds.
Amit Otwani of Aon noted that companies are using varied strategies to manage additional liabilities.
- Some have created separate budgets to absorb new costs
- Others are adjusting within existing salary pools
The response suggests recalibration rather than retrenchment.
Adjustment Phase Underway
Experts believe companies will need a few months to fully adapt to the new compliance framework.
Firms are reviewing compensation structures and may tweak pay designs once clarity improves around implementation and long-term liabilities. For now, most are in assessment mode rather than overhaul mode.
A Structural Reset in Labour Policy
All four labour codes came into force nationwide last November, consolidating 29 central labour laws into a streamlined framework.
The new regime includes:
- Code on Wages (2019)
- Industrial Relations Code (2020)
- Code on Social Security (2020)
- Occupational Safety, Health and Working Conditions Code (2020)
The government says the reforms aim to modernise India’s labour system, improve worker welfare, reduce compliance complexity, and align standards with global norms.
Many previous laws dated back to the 1930s to 1950s, creating overlaps and administrative confusion over time.
Beyond Pay: Workforce Strategy May Shift
Beyond immediate payroll costs, the reforms could reshape corporate workforce planning.
Companies may revisit:
- Hiring patterns
- Automation strategies
- Outsourcing models
- The role of artificial intelligence in operations
In that sense, the labour codes are less about short-term increments and more about long-term structural shifts. Will the real impact be felt not in next year’s pay hikes, but in how companies redesign their workforce models?
TL;DR
India Inc is expected to maintain salary hikes near 9% in 2026 despite higher payroll costs under the new labour codes. IT and some NBFCs may see slightly softer increments due to margin pressure. Firms are adjusting budgets while reviewing compensation structures amid the new compliance framework.
AI summary
- Labour codes raised payroll costs via revised wage definitions
- IT sector saw profit impact from one-time provisions
- Salary hikes likely to stay near 9% in 2026
- IT, NBFCs may see softer increments
- Firms reviewing workforce and automation strategies
