Indian IT Firms Face 5–10% Payroll Hike Under New Labour Codes

India’s IT and ITeS industry is heading into 2026 with something most companies weren’t exactly hoping for — a 5–10% rise in payroll costs. And let’s be honest, it’s not like tech firms needed more reasons to stress about margins right now.

The trigger? The recently implemented labour codes. They’ve been in discussion for years, but now that they’re actually kicking in, companies are finally facing what it means financially. And spoiler: it isn’t cheap.

Why is this sudden payroll jump happening

One of the biggest changes — and probably the most talked about in boardrooms — is the new rule requiring free annual health check-ups for employees aged 40 and above. If you’ve ever stepped into an IT office, you know how many mid-career professionals keep the whole ship running. So no, this isn’t a small bill.

But that’s just one slice of the pie. Firms also need to rework employee contracts, staffing models (especially project and vendor hires), and HR compliance systems. That means more documentation, more monitoring, and more backend automation. None of that comes without a price tag.

The scale makes it a serious deal

IT and ITeS together employ around 5.8 million people in India right now. Even a “modest” 5% increase feels like a landslide when you multiply it across that workforce. So when executives say they’re recalculating budgets, they’re not joking.

What does this mean on the business side

Let’s put it bluntly:

• Margins will feel the heat. Some companies might quietly push up client pricing, and others may try to trim operational fat instead.
• Companies with older workforces will have it tougher than those hiring more freshers.
• HR teams are entering a whole new chapter — this isn’t a “tweak a policy and move on” moment.

In boardrooms across Bengaluru, Pune, Gurugram, and Hyderabad, you’ll probably hear phrases like “rebalance the workforce mix” and “optimise bench cost” a lot more over the next 6 months.

And what about employees?

A big payroll hike doesn’t automatically mean a fatter paycheck for everyone. In fact, there’s quite a concern that the extra regulatory costs might limit upcoming salary increments for younger employees. Meanwhile, mid-level folks get a direct benefit through health coverage, which is great — though some employees are wondering if perks are being prioritised over take-home salary.

One HR head (off the record, obviously) summed it up perfectly: “We’re spending more per employee — the problem is, employees won’t necessarily feel it.”

Read: Why Employee Motivation is Important for Small Businesses

Investors — don’t panic; just pay attention

IT has been squeezing margins for more than a year because of global demand uncertainty and rising talent costs. This payroll bump just adds pressure. But on the flip side, stronger employee welfare and predictable compliance frameworks can make the Indian tech workforce more stable — and long-term investors usually like stability.

Final thoughts

There’s no denying the next 12 months will be a balancing act. Automation, performance-linked pay, and strategic hiring might become the new holy trinity for tech management teams. And maybe — finally — the industry will recalibrate toward value rather than pure workforce inflation.

Either way, the winds have shifted, and the companies that adapt early will feel the least burn.

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