- Leading Indian IT firms faced a Rs 5,600 crore hit from new labour codes in Q3 FY24
- TCS made a Rs 2,128 crore provision, reducing net profit by nearly 12% sequentially
- LTIMindtree recorded the highest labour cost impact at 5.5% of revenue and 31% profit drop
Leading Indian information technology companies took a hit of nearly Rs 5,600 crore to their bottom line in the third quarter of the current financial year due to implementation of new labour codes during the period.
Tata Consultancy Services Ltd., the largest company in the pack, had to make a one-time provision of Rs 2,128 crore out of its consolidated revenue of Rs 67,087 crore in the October-December quarter. That represents a 3.2% share in the topline.
Consequently, net profit fell nearly 12% on a sequential basis to Rs 10,657 crore.
As a share of revenue, the exceptional labour cost was the highest for LTIMindtree Ltd. at 5.5%. The company's net profit plunged 31% sequentially to Rs 971 crore.
Infosys Ltd. profit fell by 10%, L&T Technology Services Ltd. by 8%, Tech Mahindra Ltd. by 6%, and both HCLTech Ltd. and Wipro Ltd. by 4%.
Notably, these IT companies managed to either meet or beat estimates in terms of revenue growth. HCLTech showed the strongest growth at 6% compared to the projected 3.9%.
During the quarter, TCS and Tech Mahindra led reductions in total headcount.
Labour Liabilities
In November last year, the central government officially notified the implementation of four unified Labour Codes, consolidating 29 complex, colonial-era laws into a streamlined framework. This reform aimed to balance "Ease of Doing Business" with enhanced worker welfare. The new codes mandate a higher and more uniform recognition of wages across companies. As a result, the redefined wage structure will increase liabilities related to gratuity, provident fund contributions, and leave encashment.
For IT firms, these changes could lead to a significant one-time impact on Q3 earnings, estimated to be at least 10–20% due to adjustments for past costs, analysts at Jefferies have said. Additionally, the new rules are expected to raise recurring employee expenses, potentially increasing overall wage-related costs by up to 5%, which could place sustained pressure on margins given the industry's employee-heavy cost structure.
Mid-tier IT companies, which rely more heavily on an India-based workforce, are likely to face greater financial strain, while larger IT firms may be better positioned to manage the impact through wage restructuring. Companies may also attempt to offset some of the increased costs by limiting salary hikes at senior levels, Jefferies said.
According to their estimates, a 2% rise in employee costs in India could reduce FY27 earnings by 2-4%. Among the major IT firms, TCS and Infosys are expected to be the least affected, whereas Coforge, LTIMindtree, and Tech Mahindra may experience the highest impact.
Also Read: India's 2025 Reform Revolution: GST Reset To Labour Codes And Global FTA
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