Indian companies are preparing for a significant rise in manpower costs following the introduction of new labour codes. Experts predict that wage bills could increase by 5-15%, particularly in labour-intensive sectors and among MSMEs.
Wage Bills Likely to Increase
The implementation of the new four labour codes will require companies to revise HR policies and compensation structures. Analysts estimate that manpower expenses may rise 5-10% on average, with some firms seeing even higher increases.
The hike is primarily driven by enhanced benefits such as:
-
Gratuity
-
Overtime payments
-
Bonuses
-
Leave encashment
These components will now be calculated according to the new uniform wage definition, explained Sonu Iyer, National Leader at EY India.
Sectors Most Affected
Labour-intensive industries like manufacturing, MSMEs, and companies with complex pay structures are expected to experience the steepest cost increases.
However, firms with variable pay and allowances forming a major part of compensation may see only moderate rises. Viswanath PS, CEO of Randstad India, stated that a 5-10% increase is a reasonable estimate, though it may vary across industries and pay designs.
Companies Adjust Hiring and Salary Models
To comply with the new wage rules, companies are reassessing hiring strategies, particularly the mix of contract and fixed-term employment. Salaries and pay structures are also being realigned to match the uniform wage definition.
Atul Gupta, Partner at Trilegal, said,
“Remuneration in kind up to 15% will now be counted as wages, prompting employers to review which pay components are included or excluded. Gratuity is expected to be most affected among employee benefits.”
Prabir Jha, Founder & CEO of Prabir Jha People Advisory, added that increases could range from 5-12% for organised employers, while companies heavily relying on allowances or contract labour may see a 10-15% rise or more.
Employee Benefits: A Positive Impact
From an employee perspective, the new codes protect wages from being reduced, ensuring financial security. Sudhakar Sethuraman, Partner at Deloitte India, noted that employees are likely to benefit from higher guaranteed pay under these regulations.
Government’s View on Compliance
The government expects that simplified compliance requirements under the new codes will offset additional employer costs, including those related to overtime payments and mandatory health checks for workers.
