Indian companies are preparing for increased wage expenses as the new labour codes come into effect. Experts predict that manpower costs may rise 5-15% across sectors, impacting gratuity, overtime, bonuses, and leave encashment.
Wage Bills Set to Increase
With the implementation of four new labour codes, Indian companies are revising HR policies and salary structures. Experts estimate that manpower costs may rise 5-10% on average, and labour-intensive sectors like manufacturing, MSMEs, and fragmented pay structures could see the highest increases.
According to Sonu Iyer, national leader, People Advisory Services – Tax at EY India:
“Benefits like gratuity, overtime, and bonuses will now be calculated according to the new wage definition, driving higher costs for employers.”
Impact on Different Compensation Models
Firms with variable pay and allowances forming a significant part of total compensation may face moderate increases. Viswanath PS, CEO of Randstad India, noted:
“A 5-10% rise in manpower costs is a reasonable estimate, but it varies by industry and current salary structure.”
Companies Reassess Hiring and Salary Policies
Businesses are re-evaluating hiring models, especially the balance between contract and permanent employees, to comply with the uniform wage definition.
Atul Gupta, partner at Trilegal, highlighted:
“Up to 15% of in-kind remuneration will now count as wages. Employers need to review which components of pay will be treated as ‘wages’ and adjust their structures accordingly. Gratuity will see the most significant change.”
Prabir Jha, founder of Prabir Jha People Advisory, added:
“Manpower costs may rise 5-12% for most organized employers, but for companies heavily relying on allowances or contract labor, increases could reach 10-15% or higher.”
Employee Benefits Gain
From the employee perspective, the new codes protect salaries. Sudhakar Sethuraman, partner at Deloitte India, said:
“Employers cannot reduce wages under these codes, meaning employees stand to benefit significantly.”
Government Expects Balance
The government believes that reduced compliance burdens under the new codes will offset additional employer costs, including overtime and mandatory health checks, creating a more efficient and fair labor system.
