New Labor Code
Big IT companies of the country have suffered huge losses in the last quarter. Tata Consultancy Services (TCS), Infosys and HCLTech have suffered a loss of more than Rs 4,373 crore due to extra expenses related to the implementation of the new labor code. Due to this, there has been a huge double digit decline in the profits of the country’s three largest IT service companies in the third quarter ending December 31.
On January 14, Infosys said in its December quarter earnings report that it had to bear a one-time expense of Rs 1,289 crore due to the legal impact of the new labor code. This expenditure includes increase in gratuity liability related to previous service and increase in leave liability. Tata Consultancy Services (TCS) reported on January 12 that it had to incur expenses of Rs 2,128 crore due to the new labor code, while HCLTech reported extraordinary expenses of Rs 956 crore.
What impact did this have on margins?
While TCS maintained its operating margin at 25.2 percent in the third quarter despite cost challenges related to the new labor code, HCLTech increased its operating margin to 18.6 percent. At the same time, Infosys had to suffer loss. Infosys recorded an operating margin of 18.4 percent in the third quarter, which is much lower than 21 percent in the previous quarter. However, the company clarified that if there were no labor code related expenses, its adjusted margin would have been around 21.2 percent. All three companies have said that the new labor code will have very limited impact on margins in the coming quarters. Company management estimates that its impact will be only around 10 to 20 basis points (bps).
What did company officials say?
The new Labor Code, which came into force in November 2025, has made many important changes, the aim of which is to provide better wages, more security, social security and better facilities to the employees. For the IT and ITES sector, all four new labor codes have set rules such as fixed-term jobs, mandatory appointment letters, higher basic salaries and fixed working hours so that employees can get fixed social security benefits. Apart from this, under these codes, IT companies will also have to ensure that women can work in night shifts, so that they get the opportunity to earn more. According to TCS, out of the Rs 2,128 crore spent under the new labor code, about Rs 1,800 crore was spent on gratuity and the remaining about Rs 300 crore was spent on adjusting leave-related liabilities.
TCS CFO Sameer Seksaria said in the analyst call after the company’s earnings that this is entirely an employee-related cost and it will continue to be so. We hope that its impact will not be too much, it will be between 10-15 basis points. Until the rules become more clear, we do not expect any additional major spending. Infosys CFO Jayesh Sanghrajka also said that this expenditure will have a sustained impact of about 15 basis points on an annual basis. He said that this will be a regular effect of the Labor Code in future.
What did HCLTech say?
HCLTech said that due to the changes required to comply with the new labor code, it had to face a one-time impact of about $ 109 million. HCLTech CEO C Vijayakumar said during the company’s earnings conference in Noida that due to the labor code, we do not see much additional expenditure going forward. Its impact will be between 10 to 20 basis points only.
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