India’s New Labour Codes: Will Your Salary Hike Survive the 2026 Shift?

The implementation of India’s four new labour codes—covering wages, social security, industrial relations, and occupational safety—is expected to reshape corporate India’s compensation structures.

However, latest industry projections suggest these codes are unlikely to derail overall salary hikes in 2026, though the IT sector remains a notable exception with more tempered expectations.

Labour Codes and the “50% Basic Pay” Rule

The primary concern regarding the new codes is the provision requiring “basic pay” to be at least 50% of an employee’s gross salary.

For many companies, especially in the private sector where allowances often make up the bulk of the CTC (Cost to Company), this shift will increase Provident Fund (PF) and Gratuity contributions.

While this increases long-term social security benefits for employees, it initially raised fears that companies would cut annual increments to offset the higher statutory costs.

Recent HR consultancy reports indicate that most mid-to-large-scale enterprises have already factored these potential changes into their financial planning, ensuring that the transition does not eat into the 8% to 10% average increment pool projected for the general industry.

IT Sector: A Softer Landing for Hikes

While the manufacturing and consumer sectors remain optimistic, the IT and tech services industry is bracing for “softer” increments.

Global macroeconomic headwinds, reduced discretionary spending by US and European clients, and a shift toward AI-driven automation drive this trend more than the labour codes do.

Analysts project that average hikes in the IT sector will hover between 4% and 7%, which is significantly lower than the double-digit raises seen during the post-pandemic talent war.

Firms like Wipro, TCS, and HCLTech are focusing on “prime” or niche skill sets for higher rewards while keeping general increments modest to protect operating margins.

Long-term Impact on Take-Home Pay

The immediate consequence of the new codes will be a slight reduction in monthly take-home pay for employees with high-allowance structures.

However, experts emphasize that this is a “deferred gain,” as the wealth accumulation in PF and Gratuity will be substantially higher over a career span.

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