HOW NEW LABOUR CODE 2025 IMPACTS ON LISTED COMPANY FINANCIALS?

 HOW NEW LABOUR CODE 2025 IMPACTS ON LISTED COMPANY FINANCIALS?

WAGE DEFINITION CHANGES

·    A minimum of 50% of CTC must be classified as basic salary and dearness allowance, compared to lower previous thresholds.

STATUTORY BENEFITS EXPANSION

·    Provident Fund (PF), gratuity, leave encashment, and other employee benefits now calculated on the expanded wage base.

·    Increased coverage, including fixed-term and gig workers in social security frameworks. (benefits / compliance.

LEAVE & EMPLOYMENT NORMS

Changes to leave eligibility (e.g., decreased threshold for paid leave).

HOW IT IMPACTS ON FINANCIALS OF INDIAN COMPANIES

·    Many listed companies reported significant one-off expenses for compliance with statutory benefit changes under the new codes.

·    Profit margins in certain sectors have been materially affected in the first implemented quarter.

·    Increases in recurring cost is anticipated due to broader wage definitions and social security coverage.

ONE-TIME EXCEPTIONAL CHARGES

Many publicly listed companies—especially in the IT and engineering sectors—have taken one-off provisions in Q3FY26 financials to account for revised gratuity and leave encashment liabilities:

HOW TCS,INFOSYS,HCLTECH,WIPRO AND TECH MAHINDRA FINANCIALS IMPACTED?

·    TCS reported the largest charge; Infosys, HCLTech, Wipro, and Tech Mahindra also recognized substantial provisions totalling nearly ₹5,000 crore.

·    Tata Technologies’ profit plunged 96% in Q3 due almost entirely to labour code related provisions.

·    Tata Elxsi saw 45% profit drop with an exceptional charge tied to the codes.

·    Similar impacts were reported by Wipro and L&T Technology in their quarterly releases.

FINANCIAL STATEMENT IMPACTS

 

PROFIT & LOSS:

·    Sharp falls in net profit due to exceptional and current period charges.

BALANCE SHEET:

·    Increased provisions for employee benefit liabilities (gratuity, leave encashment).

MARGINS:

·    Reported margin compression due to sudden cost recognition.

HIGHER STATUTORY CONTRIBUTIONS RESULTED IN LESSOR MARGINS

FACTORS	IMPACT
Higher Provident Fund (PF) Contribution	This may lead to a reduced take-home salary for employees unless the CTC is increased
Gratuity	Higher eligibility for fixed-term employees reduced from five years to one year of service.
Leave encashment and bonus calculations.	Higher contribution leads to higher employee costs
Operational Shifts:	Annual health check-ups, crèche facilities), social security contributions for gig and platform workers, and a "Worker Re-Skilling Fund" contribution for laid-off staff.
Long-Term Benefits:	In the long run, the codes are expected to improve compliance, formalize the workforce, and offer greater operational flexibility (e.g., raising the threshold for government approval for layoffs to 300 workers).

 

SECTOR-SPECIFIC FINANCIAL IMPACTS

IT AND TECHNOLOGY SECTOR

·    IT firms reported significant upfront costs that materially reduced quarterly profits and operating margins (by 260–320 bps in Q3).

·    Analysts warn the impact may not be fully one-off and could sustain cost pressures in FY27 and beyond.

FINANCIAL IMPACT OF NEW LABOUR CODE 2025 ON INDIAN COMPANIES
₹ in Crore
Company	Q3 2025
TCS	2,128
Infosys	1,289
HDFC	1,037

BANKING AND FINANCIAL SERVICES

·    Private banks and insurance companies have reported incremental employee cost hits in Q3FY26 filings:

·    HDFC Bank: ₹800 crore.

·    ICICI Bank: ₹145 crore.

·    HDFC Life / ICICI Prudential / ICICI Lombard also disclosed incremental impacts.

CASE STUDY – ANALYSIS OF TATA CONSULTANCY SERVICES LIMITED FINANCIALS WITH Q3 -2025 & Q3-2024

	Q3 -2025--₹ in Crores	Q3-2024--₹ in Crores
Statutory impact of new Labour Codes 2025	₹2128	0
Provision regarding Legal claim	₹ 1010	0
Profit before tax	₹12912	₹ 15509
Current Tax	₹2903	₹3638

 

·    There is a decline in profit before tax of ₹2597 Crores in Q3 -2025 as increased overheads due to new Labour Codes 2025 is ₹3138.

·    However , TCS saved tax in Q3 -2025  ₹ 735 crores as compared to Q3 -2024 taxes as increased overheads due to new Labour Code 2025 has lessened its tax burden.

KEY TAKEAWAY

·    Increased labour costs due to Labour Code 2025   distorts YoY margin comparisons

·    It compresses Q3/Q4 profitability optics

·    It disproportionately hurts services, IT, BFSI, manpower-heavy models

·    It is not operational underperformance

·    Higher operating expenses, lower margins

·    Profit volatility and margin compression could weigh on earnings forecasts and investor sentiment, especially in sectors with large headcounts.

·    India's five largest IT companies alone reported a combined upfront cost of approximately ₹4,645 crore ($500 million), which reduced their profitability in the quarter 3-2025.

·    HDFC Bank reported an incremental impact of ₹800 crores on its operating expenses.

R V SECKAR, FCS, LLB 79047 19295