IT Sector Cost Hike: New Labour Codes Mandate Higher Basic Pay

New Delhi, November 25, 2025: India’s Information Technology (IT) sector, a cornerstone of the nation’s economy, is preparing for a significant shake-up as the government rolls out four new Labour Codes, effective from November 21, 2025. These reforms, which consolidate 29 older central laws, aim to boost worker welfare and simplify compliance, but they will notably raise operating costs and necessitate a restructuring of salary packages across the industry.

The New Wage Equation

One of the most impactful changes comes from the Code on Wages, 2019, which introduces a uniform definition of ‘wages’ for all statutory benefits. The core mandate is that the component of Basic Pay (including Dearness Allowance and Retaining Allowance) must constitute at least 50% of an employee’s total remuneration (CTC).

Previously, many IT companies kept the basic salary low and inflated various allowances to minimise contributions to the Provident Fund (PF) and Gratuity. Since both PF and Gratuity are calculated based on basic pay, a higher basic pay automatically leads to increased contributions from the employer.

• Impact on Employees: While an employee’s long-term financial security (gratuity, retirement funds) will increase, their net take-home salary may see a slight reduction if the employer chooses not to increase the overall Cost-to-Company (CTC) and instead adjusts other allowances.
• Impact on Employers: Companies face higher statutory costs due to increased PF and Gratuity liabilities for a larger section of their workforce. This necessitates an immediate review and restructuring of all existing salary components.

⏰ Capping the Work Week

The Occupational Safety, Health and Working Conditions Code, 2020 clarifies and standardises working hours across sectors. Key provisions for the IT industry include:

• 48-Hour Work Week: The maximum work period remains capped at 48 hours per week.
• 12-Hour Daily Flexibility: The Codes allow for a flexible work schedule, enabling a work day of up to 12 hours (with sufficient rest intervals) if the employee works for fewer than six days a week (e.g., a four-day work week).
• Overtime Pay: Any work beyond the defined normal hours must be compensated at a rate that is at least double the normal wage. This makes overtime a much costlier proposition for companies and is expected to encourage better work-life balance.

For an industry known for extended workdays, weekend work, and high-pressure project cycles, these regulations impose a more rigid framework, increasing costs for projects that rely heavily on long hours.

Benefits for the Flexible Workforce

The new codes offer significant benefits to the contract-based workforce that is common in IT. Under the Industrial Relations Code, 2020:

• Fixed-Term Employees are now eligible for gratuity after just one year of continuous service, a major reduction from the previous five-year requirement. They must also receive benefits on par with permanent staff.
• Gig and Platform Workers are formally recognised and included under the social security net for the first time, with aggregators required to contribute to a dedicated fund.

The shift is poised to formalise the job market, improve financial safety for workers, and increase accountability for employers. While IT giants scramble to assess the financial impact and adjust their compensation and staffing models, the reforms promise a more equitable and transparent work environment for India’s vast technological talent pool.