New Labor Codes Aim to Stabilize Salary Increases as IT Sector Faces Margin Challenges
A recent analysis reveals that most companies are unlikely to cut salary hikes despite the increased wage bills stemming from new labor codes implemented in November 2025. While some sectors, particularly information technology, may see moderated increments, the overall trend suggests that organizations are prioritizing talent retention over cost-cutting measures. Experts indicate that the demand for skilled labor and productivity will continue to drive wage growth, even as companies navigate the complexities of compliance costs.
Selective moderation in salary increments
According to Rajkamal Vempati, head of HR at Axis Bank, any moderation in salary increases will be selective rather than widespread. Companies are expected to safeguard pay for high performers and critical roles, especially where talent is scarce. In-demand skills will likely continue to command higher salaries, even as the overall increment cycle becomes more cautious. However, sectors sensitive to margins, such as IT services and certain non-banking financial segments, may experience softer salary hikes. Anustup Chattopadhyay, an associate partner at Talent Solutions-India, noted that organizations with high employee costs relative to revenue are less inclined to stretch their compensation budgets. For these companies, even standard increases of 8-9% could be challenging, particularly when operating on thin margins.
Impact on employee engagement and HR
Arvind Usretay, head of Human Capital Consulting-Asia at Lockton, emphasized that the costs associated with labor codes should not dictate pay hikes. Instead, salary adjustments should align with market conditions and the talent needs of employers. He cautioned that muted salary increments could negatively impact employee engagement. Usretay also pointed out that the labor codes contain various components that may lead to differing interpretations among employers, potentially complicating the implementation of new compensation structures.
Transition and long-term planning
As companies work to recalibrate their compensation structures in light of the new labor codes, the transition may take time. Rajorshi Ganguli, president and global HR head at Alkem Laboratories, stated that organizations will not penalize employees due to these adjustments; rather, the changes are expected to benefit employees in the long run. He mentioned that it may take 2-3 months for the changes to stabilize. Amit Otwani further noted that the new labor codes could prompt a broader reevaluation of workforce planning, including aspects such as headcount mix, outsourcing, automation, and the integration of artificial intelligence. He emphasized that this is not merely a short-term accounting adjustment but a long-term reset in how organizations approach compensation, talent management, and cost structures.
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