New labour codes unlikely to hit salary hikes, but IT sector may see softer increments

HR heads and compensation experts said the majority of companies were unlikely to reduce salary increases due to higher wage bills resulting from the implementation of new labor laws, although increases in some select sectors such as information technology could be affected. The costs of benefits such as bonuses, overtime, bonuses and leave pay increased after the new labor law came into force in November 2025, which will be calculated using the new wage definition. Many companies, especially from the IT sector with large workforces, made significantly lower profits last quarter due to one-off provisions and costs associated with enforcing the rules. People interviewed by ET said wage growth was driven by labor demand, skills and productivity rather than adjustment spending. In a competitive market, reducing pay creates higher risk of attrition, which can be more expensive.

But margin-sensitive sectors, including IT services and parts of the non-banking finance segment, may see softer pay growth, they said.
Amit Otwani, associate partner at Aon Talent Solutions-India, said organizations are taking different approaches to finance the impact of new labor laws. Some allocate a separate budget for these costs, while others cover them from the general salary pool. Aon predicts salary increases of approximately 9% for 2026.

“Many organizations had anticipated that such costs would eventually increase. As a result, they had already factored in the need for a separate buffer, even if they did not know when it would be triggered,” he said.

Rajkamal Vempati, head of HR at Axis Bank, said the slight moderation in salary increases is likely to be selective rather than broad-based. “Companies are expected to maintain pay for high performers and business-critical roles where talent is scarce. In-demand and specialized skills will continue to command bonuses, even as overall ramp-up cycles become more cautious,” Vempati said.
The transition will take time
Companies will not fine their employees just because there is a regime; On the contrary, it will benefit employees, said Rajorshi Ganguli, president and global head of HR, Alkem Laboratories.
Once the finer details of labor laws are analyzed, companies will reconsider their pay structures and readjust as necessary. Ganguli added that this transition may take 2-3 months for the changes to stabilize.

Arvind Usretay, president of Human Capital Consulting-Asia at Lockton, said the cost of employment law enforcement should not be directly linked to salary increases. “These need to be aligned with employers’ market and talent needs. Silent increases can impact employee engagement.”

Usretay added that the ongoing problem with employment laws is that there are still too many moving parts, and I expect problems with the broad ‘interpretation’ of various requirements by employers.

However, margin-sensitive sectors such as IT services and parts of the NBFC space may see a downward trend in salary increases going forward, said Anustup Chattopadhyay, associate partner, Talent Solutions-India, Aon.

This is because organizations where employee costs constitute a large share of total revenue and operating expenses are less likely to expand their compensation budgets beyond one point. “Any additional responsibility will only increase the pressure. In such cases, even standard wage increases of 8-9% can become challenging, especially for companies operating on low margins,” Chattopadhyay added.

Labor laws are likely to trigger a broader rethink of workforce planning, including the role of headcount mix, outsourcing, automation and artificial intelligence. “This is not a short-term accounting adjustment. It is a long-term reset of how organizations think about compensation, talent and cost structures,” Otwani added.