New labour codes to keep salary hikes stable; IT sector margins tested

A majority of companies are unlikely to reduce salary hikes, even with higher wage bills resulting from the implementation of new labour codes, according to HR heads and compensation experts. However, increments may be moderated in certain sectors, particularly information technology.Costs for benefits such as gratuity, overtime, bonus, and leave encashment have increased after the new labour codes came into effect in November 2025, as these are now calculated using the revised wage definition.Many companies, especially in the IT sector with large workforces, posted lower profits in the past quarter due to one-time provisions and implementation-related costs.“Wage growth is driven more by labour demand, skills and productivity than compliance expenses,” said industry sources, as quoted by ET. They added that lowering pay in a competitive market could risk higher attrition, which may be more expensive.Amit Otwani, associate partner, Talent Solutions-India at Aon, said organisations are taking varied approaches to handle these costs, “Some are carving out a separate budget for these costs, while others are absorbing them within the overall salary pool.” Otwani added that Aon has projected salary increments of around 9% for 2026. He also noted that many organisations had anticipated rising costs and had already factored in a buffer, even if the timing was uncertain.

Selective moderation in salary increments

Rajkamal Vempati, head of HR at Axis Bank, said moderation in salary increases will be selective rather than broad-based:“Companies are expected to protect pay-outs for high performers and business-critical roles, where talent remains scarce. In-demand and specialised skills will continue to command premiums, even as overall increment cycles turn more cautious.”However, margin-sensitive sectors such as IT services and parts of the non-banking financing segment may see softer salary hikes. Anustup Chattopadhyay, associate partner at Talent Solutions-India, explained that organisations where employee costs account for a large share of revenue are less likely to stretch compensation budgets. In such cases, even standard increases of 8-9% can be challenging, particularly for companies operating on thin margins.

Impact on employee engagement and HR

Arvind Usretay, head of Human Capital Consulting-Asia at Lockton, emphasised that labour code costs should not directly determine pay hikes:“These need to be in line with the market and talent requirements of employers. Muted increments can impact employee engagement,” he said, as quoted by ET.He also pointed out that the labour codes have several moving parts and may lead to wide-ranging interpretations by different employers.

Transition and long-term planning

Companies will take time to recalibrate compensation structures after analysing the finer details of the labour codes.Rajorshi Ganguli, president and global HR head at Alkem Laboratories, said, “Companies will not penalise employees just because there is a rejig; on the contrary, it will benefit employees,” and added that the transition may take 2-3 months for the changes to stabilise.Otwani noted that the new labour codes could trigger a broader rethink of workforce planning, including headcount mix, outsourcing, automation, and the role of artificial intelligence:“This is not a short-term accounting adjustment. It is a long-term reset of how organisations think about compensation, talent and cost structures.”