India's New Labour Codes Won't Hit Salary Hikes — 9% Raises Expected to Continue

India's long-awaited labour code overhaul is finally here, and millions of workers are wondering the same thing: will my next raise take a hit? The short answer is no. According to Aon, one of the world's leading human capital advisory firms, salary increments across India in 2026 are projected to stay at approximately 9%, right in line with recent years. While the four new labour codes that came into force in November 2025 are reshaping how companies calculate wages, benefits, and overtime, the consensus among compensation experts is that most organizations have already factored these changes into their budgets. That said, the picture is not uniformly rosy. Certain sectors, particularly IT services and non-banking financial companies (NBFCs), face tighter margin pressure that could translate into slightly smaller raises. For the vast majority of Indian workers and job seekers, though, the new codes represent a net positive: stronger protections, clearer rules, and pay packets that keep growing.

What Are India's New Labour Codes?

For decades, India's labour regulations were a patchwork of 29 central laws, many dating back to the colonial era. Employers navigated a maze of compliance requirements that varied by state, industry, and workforce size. The Ministry of Labour and Employment spent years developing a modern replacement, and in November 2025, four comprehensive labour codes finally came into effect nationwide.

The four codes are:

1. Code on Wages — Establishes a universal minimum wage, mandates equal pay for equal work regardless of gender, and requires salary disbursement by the 7th of every month.
2. Industrial Relations Code — Streamlines trade union registration, dispute resolution, and the rules governing strikes and lockouts. It also sets new thresholds for when employers need government approval to lay off workers.
3. Code on Social Security — Extends social security protections to gig workers, platform workers, and the informal sector for the first time. It consolidates provisions for provident fund, insurance, maternity benefits, and gratuity under a single umbrella.
4. Occupational Safety, Health and Working Conditions Code — Sets uniform safety standards across industries, caps regular working hours, and mandates overtime compensation at twice the regular wage rate for any hours exceeding 48 per week.

Together, these four codes aim to simplify compliance for employers while significantly strengthening protections for workers. The most immediate financial impact comes from revised wage definitions, which change how basic pay is calculated. Under the new rules, basic wages must constitute at least 50% of total compensation. This recalculation affects employer contributions to provident fund, gratuity, overtime pay, bonuses, and leave encashment, effectively increasing the total cost of employing each worker.

Will the New Labour Codes Affect Salary Hikes in 2026?

This is the question on everyone's mind, and the answer from leading compensation consultancies is reassuring. Aon's latest salary increase survey, which covers hundreds of companies across India, projects that median salary increments in 2026 will land at approximately 9%, virtually unchanged from the 9.3% median recorded in 2025. This suggests that despite the added costs from the new labour codes, most employers have absorbed or planned for those expenses without cutting into their annual raise budgets.

Amit Otwani, a partner at Aon's Human Capital Solutions practice, explained the dynamic: "Organisations are adopting different strategies to manage the increased cost burden. Some are creating dedicated budgets specifically to handle the new compliance costs, while others are adjusting within existing salary pools." In either case, the headline increment numbers that employees see on their appraisal letters are expected to remain largely intact.

It is worth noting that the composition of compensation may shift even if the top-line number stays the same. Because basic pay now forms a larger share of total compensation, statutory benefits like provident fund contributions, gratuity, and overtime pay will automatically increase. For employees, this actually means more money flowing into long-term savings and retirement accounts. The take-home portion of the salary may dip slightly for some workers, but the total value of the compensation package, including employer contributions, goes up.

Other major consultancies echo Aon's outlook. Deloitte India and Mercer have both indicated that India's salary growth trajectory remains among the highest in the Asia-Pacific region, driven by strong GDP growth forecasts of 6.5% to 7% for FY2026, a tight talent market in key sectors, and continued demand for skilled professionals in technology, healthcare, and financial services.

Which Sectors Will See Lower Raises?

While the overall salary picture is stable, not every industry is equally comfortable absorbing the increased compliance costs. Two sectors in particular are expected to deliver slightly more modest increments in 2026: IT services and non-banking financial companies (NBFCs).

India's IT services sector, which includes industry giants like Tata Consultancy Services, Infosys, Wipro, and HCLTech, is one of the country's largest employers with over 5 million workers. These companies have been navigating margin pressure for several quarters due to slower global demand for outsourcing, the rising cost of AI-related investments, and pricing competition. The new labour codes add another layer of cost through higher statutory contributions and revised wage structures. Aon's data suggests IT services salary increments could land between 7% and 8% in 2026, a step down from the 9% median but still healthy by global standards.

NBFCs face a similar squeeze. The Reserve Bank of India has tightened regulatory requirements for non-banking lenders over the past year, including stricter capital adequacy norms and lending restrictions. Combined with the increased employee costs from the new labour codes, NBFCs are expected to be more conservative with salary budgets. Increment projections for this sector hover around 7.5% to 8.5%.

On the brighter side, several sectors are expected to meet or exceed the 9% median. Pharmaceuticals, healthcare, electric vehicles, and renewable energy companies are all projecting strong increments, fueled by robust demand and government incentive programs like the Production Linked Incentive (PLI) scheme. Manufacturing, buoyed by the "Make in India" push and rising capital expenditure, is also holding steady. Financial services outside the NBFC category, including insurance and asset management, are expected to remain competitive with raises in the 9% to 10% range.

What New Benefits Do Workers Get Under the Labour Codes?

Beyond the salary increment conversation, the new labour codes introduce a suite of worker protections that represent a meaningful upgrade from the previous regulatory framework. Here are the key benefits employees should know about:

Mandatory overtime pay at double rates. Any employee working beyond 48 hours per week is now entitled to overtime compensation at twice their regular hourly wage. This is a significant change from the previous patchwork of overtime rules that varied by state and industry. For workers in sectors like retail, logistics, and manufacturing where extended hours are common, this provision could meaningfully boost earnings.

Equal pay for equal work. The Code on Wages makes it mandatory for employers to pay men and women equally for performing the same or substantially similar work. While India already had the Equal Remuneration Act of 1976, the new code strengthens enforcement mechanisms and broadens the definition of what constitutes comparable work. According to the World Economic Forum's Global Gender Gap Report, India ranked 127th out of 146 countries on economic participation and opportunity for women, so this provision addresses a critical gap.

Timely salary payment. Employers are now required to release salaries by the 7th of every month. Late payments can result in penalties and interest charges. This rule particularly benefits workers in the informal and semi-formal sectors where delayed wages have been a longstanding problem.

Social security for gig and platform workers. For the first time, workers employed through platforms like Zomato, Swiggy, Ola, and Urban Company are covered under a social security framework. The Code on Social Security mandates the creation of schemes for gig workers covering health insurance, accident coverage, and retirement benefits. With India's gig workforce estimated at over 7.7 million workers by the NITI Aayog, this is a landmark expansion of the social safety net.

Higher gratuity and provident fund contributions. Because the revised wage definition raises the basic pay component to at least 50% of total compensation, employer contributions to the Employees' Provident Fund Organisation (EPFO) and gratuity calculations automatically increase. Workers will see more money flowing into their provident fund accounts each month, strengthening their retirement savings even if there is a minor adjustment to take-home pay.

How Are Companies Adapting to Higher Employee Costs?

The new labour codes undeniably raise the cost of doing business in India. Revised wage definitions, higher statutory contributions, mandatory overtime pay, and expanded social security coverage all add to the employer's bill. So how are companies managing this without slashing salary increments?

According to Aon, organizations are broadly taking one of three approaches. The first group is creating dedicated compliance budgets that sit outside the regular compensation pool. These companies treat the increased statutory costs as a separate line item, ensuring that the annual salary review process is not affected. This approach is more common among large multinational corporations and major Indian conglomerates that have the financial flexibility to absorb additional costs.

The second group is restructuring compensation packages within existing salary pools. These companies are adjusting the mix of fixed and variable pay, reducing certain allowances, or redesigning incentive structures to offset the higher statutory costs. The total compensation budget stays roughly the same, but the allocation shifts. Employees in this scenario may notice changes in how their salary is broken down on paper even though the overall increment percentage holds.

The third approach involves longer-term strategic adjustments. Some companies are reconsidering their hiring patterns entirely, investing more aggressively in automation and AI tools to reduce headcount growth, or shifting certain functions to outsourcing models. This does not directly impact current employees' salary increments, but it does signal a potential shift in hiring volumes. Companies that might have planned to add 500 new positions may now hire 400 and invest the savings in technology. For job seekers, this means that while salary offers remain competitive, the total number of open positions in certain sectors could grow more slowly than expected.

Industry groups like the Confederation of Indian Industry (CII) and NASSCOM have been working closely with the government to smooth the transition. Both organizations have advocated for phased implementation timelines and sector-specific guidance to help smaller companies adapt without disrupting their workforce planning. The Society for Human Resource Management (SHRM) India chapter has also been conducting workshops and publishing compliance guides to help HR teams navigate the changes.

What Does This Mean for Indian Workers and Job Seekers?

If you are currently employed in India, the new labour codes are broadly good news. Your salary increment for 2026 is likely to stay near the 9% mark that has become the norm in recent years. On top of that, you gain stronger statutory protections: guaranteed overtime pay if you work beyond 48 hours a week, equal pay regardless of gender, and timely salary disbursement. Your provident fund and gratuity contributions will increase, building a larger retirement cushion. The trade-off may be a slight reduction in take-home pay for some workers as the basic-to-gross pay ratio shifts, but the total value of your compensation package actually goes up.

If you are a job seeker entering the Indian market, the landscape remains favorable. India's economy continues to grow at one of the fastest rates among major economies, and demand for skilled talent remains high across technology, healthcare, financial services, and manufacturing. The new labour codes actually make the employment market more transparent and predictable. You can now expect clearer offer letters with well-defined salary structures, enforceable timelines for salary payment, and social security coverage even if you join the gig economy.

However, there are a few things to watch. In the IT services sector, companies may be more selective in hiring, preferring candidates with specialized skills in AI, cloud computing, and cybersecurity over generalist roles. The automation trend accelerated by the new labour codes could reduce demand for routine process-oriented positions. Job seekers in the NBFC space should be aware that regulatory tightening may lead to more conservative hiring, though high-quality candidates in risk management, compliance, and digital lending will remain in demand.

For women entering or re-entering the workforce, the equal pay mandate is particularly significant. Combined with expanded maternity benefits and the government's push for higher female labor force participation, the new codes create a more equitable environment. The International Labour Organization (ILO) has noted that India's female labor force participation rate, which stood at around 37% in 2024, could see meaningful improvement if the new codes are enforced effectively.

The bottom line: India's new labour codes are a structural reform, not a salary killer. They raise the floor for all workers, bring gig employees into the formal safety net, and force companies to be more transparent about compensation. And through all of this, that 9% raise? It is still coming.

People Also Asked

Q: When did India's new labour codes come into effect? A: India's four new labour codes — the Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code — came into force in November 2025. They consolidate 29 older central labour laws into a modern, unified framework that applies across all states and industries.

Q: What is the average salary hike in India for 2026? A: According to Aon's salary increase survey, the median salary increment in India for 2026 is projected at approximately 9%. This is consistent with recent years and applies across most industries, though IT services and NBFCs may see slightly lower raises in the 7% to 8.5% range due to margin pressure.

Q: Do India's new labour codes apply to gig workers? A: Yes. The Code on Social Security extends social security protections to gig workers and platform workers for the first time in India's history. Workers on platforms like Zomato, Swiggy, Ola, and Urban Company are now covered under a framework that mandates health insurance, accident coverage, and retirement benefit schemes.

Wondering what you should earn? Whether you are negotiating a raise under the new labour codes or evaluating a fresh offer in India's evolving job market, knowing your market value is the first step. Sign up for Metaintro to get personalized salary insights, job market updates, and career resources delivered straight to your inbox — free.