India Inc is expected to largely stick to its planned salary increments even as employee costs rise following the implementation of the new labour codes, according to a report by The Economic Times. While sectors operating on thin margins may adopt a cautious approach, most companies are unlikely to significantly cut pay hikes, as compensation growth continues to be driven by talent demand, skills and overall business performance.
The four labour codes, which came into force in November 2025, have increased certain employee-related expenses. Benefits such as gratuity, overtime pay, bonuses and leave encashment are now calculated under a revised wage definition, leading to higher payroll costs for many organisations.
Several companies, particularly in the IT sector where employee expenses account for a substantial portion of total costs, reported weaker quarterly profits. This was largely due to one-time provisions made to account for the financial impact of the new labour regulations, the report said.
However, experts believe companies cannot afford to slow salary growth sharply in a competitive job market. Lower increments could result in higher attrition, which may ultimately increase costs related to hiring and training replacements.
While most industries are expected to maintain stable salary growth, certain segments such as IT services firms and some non-banking financial companies may witness a slight moderation in increments due to margin pressures.
Amit Otwani of Aon, quoted in the report, said organisations are adopting varied strategies to manage the additional financial burden. Some companies have created separate budgets to absorb the new liabilities, while others are adjusting costs within their existing salary pools. Aon estimates that salary hikes in 2026 will remain close to 9 per cent.
Experts cited in the report noted that companies may need a few more months to fully adapt to the new framework. Many are currently reviewing compensation structures and may introduce changes once they gain clarity on compliance requirements.
Labour Codes May Reshape Workforce Planning
The four labour codes — 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) — were implemented nationwide in November last year. Together, they consolidate 29 central labour laws into a streamlined framework aimed at simplifying compliance, improving worker welfare and aligning India’s labour system with global standards.
Many of the earlier labour laws dated back to the 1930s to 1950s, resulting in overlaps and complexities over time. The government has said the new framework seeks to modernise the system while balancing worker protection with business growth.
Beyond the immediate cost implications, the reforms are expected to bring structural shifts in workforce planning. Companies may reassess hiring strategies, automation initiatives, outsourcing decisions and the integration of artificial intelligence into operations as they adapt to the new regulatory environment, the report added.