The Morning Brief Why Are Labour Laws Denting Corporate Profits?
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Feb 3, 2026 Puneet Gupta, Partner in People Advisory Services–Tax at EY and labour‑law and payroll expert, breaks down India’s new labour codes. He explains the new common wage definition and why statutory costs spiked. He discusses retrospective gratuity recalculations, which sectors are hardest hit, and whether firms will reshuffle pay or slow hiring. Short‑term shock versus long‑term formalisation is a recurring theme.
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One Unified Wage Definition Raises Costs
- The new labour codes create a single, broader definition of wages that expands the wage base for statutory benefits.
- This wider definition shifts calculations like gratuity from basic pay to a much larger portion of total pay, raising costs significantly.
A 20-Year Employee's Gratuity Jump
- Puneet gives a concrete example: an employee with basic 40 and special 40 sees gratuity move from 40 to 80 as the base.
- That retrospective change forces companies to book large one-time charges for long-tenured employees.
Who Bears The Cost: Gratuity Vs Leave
- Gratuity affects all employees while annual leave encashment under the new rules applies only to 'workers' as defined by the code.
- The worker definition is broad and can include many non-managerial staff across IT, manufacturing and GCCs.