Impact of New Labour Codes: Indian Companies Anticipate Increased Wage Expenses
Indian companies are bracing for increased wage expenses as they adapt to the new four labour codes. Experts predict that manpower costs could rise by 5-10%, with some firms facing even steeper increases. This surge in costs is primarily attributed to changes in how employee benefits, such as gratuity and overtime, are calculated under the new regulations. Labour-intensive sectors, including manufacturing and micro, small, and medium enterprises (MSMEs), are expected to be hit hardest.
Impact on Wage Structures
The introduction of the new labour codes is prompting companies to reevaluate their hiring and compensation strategies. Many firms are reassessing the balance between contract and fixed-term employment while aligning their salary structures with the updated wage definitions. Atul Gupta, a partner at Trilegal, emphasized that remuneration in kind, which can account for up to 15% of wages, will now be classified as part of employee compensation. This change necessitates a thorough review of existing pay structures to determine which components will be considered wages and which will not.
Experts suggest that companies with a significant portion of their compensation tied to variable pay and allowances may experience only moderate increases in manpower costs. Viswanath PS, CEO of Randstad India, noted that a 5-10% rise in costs is a reasonable estimate, although the actual impact will vary by industry and the specific compensation design in place.
Sector-Specific Challenges
Certain sectors are likely to face more pronounced challenges due to the new regulations. Labour-intensive industries, particularly manufacturing and MSMEs, are expected to see the steepest increases in wage bills. Prabir Jha, founder and CEO of Prabir Jha People Advisory, indicated that organized employers could see manpower costs rise by 5-12%. In cases where the workforce relies heavily on allowances or contract labour, the increase could be as high as 10-15% or more.
The changes in wage calculations will also significantly impact employee benefits, particularly gratuity. As companies adjust to the new definitions, they will need to ensure compliance while managing the financial implications of these changes.
Employee Benefits and Compliance
From an employee perspective, the new labour codes offer some protections. Sudhakar Sethuraman, a partner at Deloitte India, highlighted that the codes explicitly prohibit employers from reducing employee wages. This provision means that employees may benefit from the implementation of the new regulations.
The government believes that the reduction in compliance burdens under the new codes will help offset any additional costs incurred by employers, including those related to overtime payments and mandatory health checks for workers. By streamlining compliance processes, the government aims to create a more balanced environment for both employers and employees, despite the anticipated rise in wage expenses.
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