Labour Codes: Expenses of companies likely to increase by 1.5%-10%, per industry estimates

With the implementation of the Labour Codes, the wage bill of employers could rise by as much as 1.5% to 10%, as per industry estimates.

“The Labour Codes are definitely going to impact wage bills of employers due to various provisions on wages and gratuity. As per internal estimates of the industry, this could be in the range of 1.5% to 10%,” said a source close to the development.

Industry and employer associations have been in touch with the Labour Ministry on these issues and hope that when the rules are finalised, they will address their concerns. Sources said the expectation is also that the flexibility provided in the new Codes will help tide over the near-term pain on the expenditure front.

“There are several positive features of the Labour Codes including flexibility in hiring and retrenchments and lower compliance burden that are expected to give a boost to investments,” noted the source, adding that there is also realisation within industry that some of the new provisions to benefit employees are much needed.

The Labour Ministry on Wednesday also issued the draft rules for the four Labour Codes giving more clarity on provisions relating to gratuity and bonus, calculation of minimum wage and the definition of wages. It has also published an FAQ on December 30 outlining clarifying various issues including the effective date and formula for payment of gratuity and the definition of wages.

The Institute of Chartered Accountants of India has also said that companies will have to recognise the increase in gratuity liability in the quarter ending December 31, 2025, as the Labour Codes came into effect from November 21, 2025. “…the increase in gratuity liability arising from new labour codes need to be recognised in interim financial statements/ results for the period ended 31st December, 2025 in accordance with the applicable requirements of Ind AS 19/ AS 15,” it said in a recent FAQ.