New Labor Code Cost on IT Companies: IT companies like Tata Consultancy Services (TCS), Infosys and HCLTech suffered a blow of ₹4373 crore due to the implementation of the new labor code. Due to this, there was a sharp double digit decline in the profits of three big IT companies of the country in the third quarter of the current financial year 2026, October-December 2025. On January 14, Infosys released its December quarter results which revealed that it faced an exponential shock of ₹1,289 crore in the December quarter due to the new labor code. On January 12, TCS reported exceptional expenses of ₹ 2128 crore and HCLTech of ₹ 956 crore in the December 2025 quarter.
Now talking about margins, the new labor course had no mixed impact on the margins of these companies. Despite challenges related to the new labor code, TCS managed to maintain an operating margin of 25.2% on a quarterly basis. However, Infosys’ operating margin growth increased to 18.6% while Infosys’ operating margin increased to 18.4% from 21% on a quarterly basis. Infosys says that if there were no costs related to new labor codes, this margin would have been 21.2%.
What are the new labor codes and what do the companies have to say?
The new labor codes came into effect in November 2025. In this, many changes were introduced regarding better salary, safety, social security and welfare. Under the four new labor codes for the IT/ITES sector, guaranteed social security benefits through fixed-term employment, mandatory resignation letter, higher basic pay and fixed work hours have been fixed. Apart from this, IT companies have been asked to provide facilities to women to work in night shift, so that they can get a chance to earn more salary.
According to TCS, out of the ₹ 2128 crore spent on the new labor codes, ₹ 1800 crore was spent on gratuity and about ₹ 300 crore was spent on adjusting the leave liability. TCS CFO Sameer Seksaria said in the post-earnings analyst call that this expense will continue going forward but its impact will not be very high and will be in the range of around 10-15 basis points. He says until there is more clarity on the rules, no additional costs are expected.
Infosys CFO Jayesh Sanghrajka also says that due to the new labor codes, there will be a regular impact of about 15 basis points on an annual basis. HCLTech says the company suffered a blow of about $109 million for adjustment to the new labor codes. HCLTech CEO C Vijayakumar said in the earnings conference that in the coming time there will be very little impact due to this and it can be in the range of around 10-20 basis points.
What do brokerages say?
Global brokerage firm Jefferies believes that the increase in expenses in the December 2025 quarter due to the new labor code is not a one-time thing but there may be further pressure on the margins of IT companies. Due to this the salary hike may be reduced. According to the new labor code, the salary of the employees should be at least 50% of their total CTC. Apart from this, benefits like PF and gratuity will be calculated on the basis of salary. This could lead to increased recurring employee costs for IT companies and a huge one-time financial impact.
Another brokerage firm Jefferies says the new labor codes will further put pressure on margins due to slow revenue growth and changes in business mix with AI as well as on-side high wage hikes due to changes in H-1B visa rules in FY 2027 and FY 2028. The brokerage firm says that if Indian employee costs increase by 2%, it could lead to a 2-4% decline in the earnings estimates of IT companies in FY 2027. In such a situation, companies can slow down the pace of salary hike to reduce its impact, especially at the senior level.