The new labor codes in India have resulted in a significant impact on the country’s top IT companies, including Tata Consultancy Services (TCS), Infosys, and HCLTech. According to recent reports, these companies are facing a combined bill of approximately ₹4,000 crore ($520 million) in the third quarter of the fiscal year. This substantial amount is attributed to the implementation of the new labor codes, which have brought about changes in the way companies calculate employee benefits, such as gratuity, leave encashment, and provident fund contributions.
The new labor codes, which came into effect on July 1, 2022, aim to simplify and consolidate existing labor laws, providing better protection to employees and promoting ease of doing business. However, the changes have led to significant additional expenses for companies, particularly in the IT sector, where employee benefits are a substantial component of the cost structure. The new codes have introduced changes in the calculation of employee benefits, such as increasing the gratuity payout from 15 days to 30 days per year of service, and altering the method of calculating leave encashment.
TCS, Infosys, and HCLTech are among the companies that have been affected by these changes. The combined bill of ₹4,000 crore is a significant amount, considering the quarterly profits of these companies. For instance, TCS reported a net profit of ₹10,846 crore in the second quarter, while Infosys reported a net profit of ₹6,021 crore. The additional expense will likely impact the companies’ profitability in the third quarter.
The new labor codes have also introduced changes in the way companies can calculate their employee benefits. For example, companies are now required to calculate gratuity based on the last drawn salary, rather than the average salary of the last 10 months. This change has resulted in higher gratuity payouts for employees, adding to the companies’ expenses.
While the new labor codes aim to benefit employees, they have presented challenges for companies, particularly in the IT sector. The increased expenses will likely lead to higher operational costs, which may impact the companies’ profitability and competitiveness in the global market. The companies are expected to review their employee benefit structures and cost management strategies to mitigate the impact of the new labor codes. Overall, the implementation of the new labor codes has significant implications for India’s IT sector, and companies will need to adapt to the changes to maintain their competitiveness and profitability.