NewsStocksNew Labour Laws Set to Impact Employee Costs for BHEL, L&T, Nykaa and Other Major CompaniesNew Labour Laws Set to Impact Employee Costs for BHEL, L&T, Nykaa and Other Major Companies
New labour codes effective from November 21, 2025, are set to impact major Indian companies including BHEL, L&T, Nykaa, and Zomato starting from the December quarter. The key change requires basic pay to constitute at least 50% of total remuneration, up from the current 35-40% for most companies. Jefferies analysis indicates 14 companies could face 3%+ recurring profit impact, with effects spanning capital goods, retail, IT, pharma and banking sectors, though mitigating factors may limit the net cost increase to around 2%.
*this image is generated using AI for illustrative purposes only.
Major Indian companies are bracing for significant changes in employee cost structures as new labour codes take effect, with several prominent firms expected to report both recurring and one-time impacts starting from the December quarter. According to Jefferies India Strategy, companies including Bharat Heavy Electricals Ltd., Larsen & Toubro Ltd., Nykaa parent FSN E-Commerce Ventures Ltd., and Zomato are among those likely to be affected by accounting changes linked to India's updated labour regulations.
The Institute of Chartered Accountants of India (ICAI) has mandated that companies account for the new labour law changes beginning with the December quarter. On December 26, the Accounting Standards Board of the ICAI issued FAQs clarifying key accounting implications, making the financial impact immediate despite some regulatory details still being finalized.
Key Changes Under New Labour Codes
After a seven-year development process, the government implemented four new labour codes effective from November 21, 2025, consolidating and updating 29 different central labour laws. The most significant financial implication stems from the redefined concept of "wages," which now requires compliance wage or basic pay to constitute at least 50% of total remuneration.
| Key Provisions: | Details |
|---|---|
| Basic Pay Requirement: | Minimum 50% of total remuneration |
| Gratuity Coverage: | Extended to fixed-term employees (1+ years) |
| Effective Date: | November 21, 2025 |
| Accounting Impact: | December quarter onwards |
The new codes also extend gratuity benefits—calculated as 15 days of pay for every year worked—to fixed-term employees who complete at least one year of service, while maintaining the existing five-year threshold for permanent employees.
Financial Impact Assessment
Jefferies analysis reveals that companies with higher India employee cost-to-profit before tax ratios will face more substantial recurring impacts. Industry surveys indicate that nearly two-thirds of companies currently classify only 35-40% of total pay as compliance wage or basic pay, well below the new 50% requirement.
To achieve compliance while maintaining unchanged take-home pay for employees, companies may need to increase total compensation by 3-5%. Assuming a 2% incremental wage cost impact as a reasonable approximation, Jefferies identifies 14 companies under coverage that could experience a 3% or higher recurring impact on profits.
Sector-Wise Impact Analysis
The effects are expected to span multiple sectors, with varying degrees of impact based on employee cost structures:
Capital Goods Sector:
- BHEL
- Afcons
- L&T
Retail and Discretionary:
- Jubilant
- Nykaa
- Zomato
IT Services:
- Coforge
- Tech Mahindra
- LTIMindtree
IT services companies are particularly vulnerable due to their India-heavy employee cost structures, while the impact extends across pharma and banking sectors as well.
Mitigating Factors and Timeline
Several factors may help contain the recurring cost impact over time. A significant portion of employee costs relates to senior staff, who may be more receptive to higher pension contributions or have capped gratuity payouts. Additionally, companies are likely to align pay restructuring with annual appraisal cycles, typically occurring around April.
| Mitigating Factor: | Impact |
|---|---|
| Senior Staff Flexibility: | Higher acceptance of pension contributions |
| Capped Gratuity: | Limited exposure for senior employees |
| Appraisal Cycle Timing: | Gradual implementation around April |
| Net Cost Increase: | Estimated ~2% due to compliance |
Jefferies notes that while some companies may report one-time impacts in the December quarter as they adjust accounting provisions, markets are likely to focus on normalized earnings trends rather than these temporary adjustments.
Market Implications
The traditional salary structuring approach in India has emphasized maximizing in-hand pay, as pension deductions of approximately 12% of basic pay remain locked until retirement. The new requirements represent a fundamental shift in compensation structures, requiring companies to balance regulatory compliance with employee satisfaction and cost management.
While detailed implementation rules are still being developed and some states have yet to notify their regulations, the immediate accounting implications ensure that the December quarter will serve as the first major test of how companies adapt to these regulatory changes.
Historical Stock Returns for Gretex Corporate Services
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
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| 0.0% | -1.19% | -0.88% | +5.89% | +5.89% | +5.89% |
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