BHEL, L&T, Nykaa, Eternal Shares In Focus As New Labour Laws To Impact Employee Costs

Bharat Heavy Electricals Ltd., Larsen & Toubro Ltd., Nykaa parent FSN E-Commerce Ventures Ltd. and Zomato parent Eternal are likely to begin reflecting both recurring and one-time impacts on wage costs from the December quarter, following accounting changes linked to India’s new labour codes, according to Jefferies India Strategy.

The Institute of Chartered Accountants of India has notified that companies will need to account for the new labour law starting the December quarter. Jefferies notes that companies with a higher India employee cost-to-profit before tax ratio will be more impacted on a recurring basis.

After a seven-year process, the government made four new labour codes effective from Nov. 21, 2025, merging and updating 29 different central labour laws. A key change with financial implications is the new definition of “wages”, which requires the compliance wage or basic pay to be at least 50% of total remuneration. While detailed rules are still being framed and some states are yet to notify their own regulations, the accounting impact has become immediate following guidance from the ICAI.

On Dec. 26, the Accounting Standards Board of the ICAI issued FAQs clarifying key accounting implications arising from the new labour codes. The ICAI stated that provisions related to gratuity, which is 15 days of pay for every year worked and paid at the time of employee separation, and leave encashment for accumulated leave are effective from Nov. 21. This creates near-term implications for company financials, particularly in the December quarter.

Jefferies points out that salary structuring in India has traditionally focused on boosting in-hand pay, as pension deductions of around 12% of basic pay, matched by the employer, remain locked in until retirement. Industry surveys suggest that nearly two-thirds of companies currently have only about 35–40% of total pay classified as compliance wage or basic pay.

To comply with the 50% requirement while keeping take-home pay unchanged, companies may need to raise total compensation by 3–5%. In addition, the new labour codes extend gratuity benefits to fixed-term employees who complete at least one year of service, while the five-year threshold for permanent employees remains unchanged.

Assuming a 2% incremental wage cost impact, Jefferies believes this is a reasonable approximation for most companies. Based on this assumption, its screener indicates 14 companies under coverage that could see a 3% or higher recurring impact on profits. The impact is expected to be spread across sectors including capital goods, retail, IT, pharma and banks.

Within capital goods, companies such as BHEL, Afcons and L&T are likely to be impacted, while in retail and discretionary segments, Jubilant, Nykaa and Eternal feature on the list. In the IT services space, Coforge, Tech Mahindra and LTIMindtree are among the companies that could see a relatively higher recurring impact due to their India-heavy employee cost structures.

Jefferies also notes that some companies may report a one-time impact in the December quarter as they adjust accounting provisions to align with the new labour code requirements. However, the brokerage believes that markets are likely to look through these one-off impacts and focus on normalized earnings trends.

There are mitigating factors that could help contain the recurring cost impact over time. A significant portion of employee costs relates to senior staff, who may be more willing to accept higher pension contributions or have capped gratuity payouts. Additionally, companies are likely to align pay restructuring with the annual appraisal cycle, typically around April, which could limit the net increase in wage costs purely due to labour law compliance to around 2%.