The implementation of the new Labor Code could increase companies' salary expenses by 5 to 12%. Gratuity, overtime bonuses, and leave encashment will now be linked to the new wage definition, which will significantly impact the MSME and manufacturing sectors. Many companies will have to make changes to their pay structures and hiring models.

Labor Code: After the implementation of the new Labor Code, companies in the country will have to spend more on salaries and manpower. Benefits such as gratuity, overtime bonuses, and leave encashment will now be determined based on the new wage definition, which could increase companies' wage bills by 5 to 10%. Companies with higher variable pay and allowances are likely to experience even greater cost increases. This is expected to impact the manufacturing and MSME sectors in particular. The government says that the additional costs may be offset to some extent by reducing the compliance burden.

Companies' salary outgo will increase.

Many companies are making changes to their HR and compensation policies in accordance with the new labor code. Experts believe that a 5 to 10 percent increase in manpower costs is normal in such cases. However, the magnitude of the impact will depend on the industry structure and pay design.

MSMEs and labor-intensive companies will be impacted more significantly

Benefits such as gratuity, bonuses, and overtime will now be directly linked to the wage definition, which will increase the cost pressure on labor-intensive companies. Manufacturing units, MSMEs, and companies with unbalanced pay structures may incur higher costs, especially.

Employees will benefit

The new labor code clearly states that companies cannot cut employees' wages. This means that employees are sure to benefit from these changes. However, the extent of the increase will depend on service period and pay structure. Companies are also focusing on balancing contract and fixed-term hiring.

The biggest change possible in gratuity

Experts say that if compensation includes up to 15% payment in kind, it will also be considered wages. This could have the greatest impact on gratuity calculations. The wage bill could increase by 5 to 12%, and where allowances or a contract-based workforce are high, an increase of 10 to 15% or more is possible.

Government's Argument

The government believes that the implementation of the new code will reduce compliance burden, significantly offsetting the impact of overtime, health checkups, and other expenses. The government claims that these changes are in the best interest of employees and will also benefit the industry in the long run.