India’s Information Technology (IT) and IT-enabled Services (ITeS) sector is central to the country’s economic growth, global competitiveness, and digital innovation ecosystem. With more than 50 lakh professionals, flexible work models, contract-based engagements, offshore delivery centres, and round-the-clock operations, the IT industry has unique workforce dynamics that differ significantly from traditional manufacturing and service sectors.

The introduction of four consolidated labour codes —

The Code on Wages, 2019
The Industrial Relations Code, 2020
The Occupational Safety, Health and Working Conditions Code, 2020
The Code on Social Security, 2020

marks the most significant overhaul of India’s labour regulatory ecosystem since Independence.

These codes aim to simplify compliance, bring uniformity, promote worker welfare, and align India's labour regime with modern, flexible, digital-economy realities.

For the IT industry — known for long hours, global customers, hybrid workforces, distributed teams, and high attrition — these changes carry far-reaching implications.

This article presents a detailed, professional, and industry-specific analysis of how the four labour codes impact IT companies, employees, and the broader digital economy.

1. Code on Wages, 2019 – Implications for IT Compensation Structures

The Code on Wages is particularly relevant for the IT sector because it influences how organisations structure salaries, bonuses, allowances, and variable pay.

1.1 Uniform Definition of Wages — The 50% Rule

The Code introduces a standardised definition of “wages.”
Basic pay + DA + retaining allowance must form at least 50% of total compensation.

Impact on IT Companies

Most IT firms currently have salary structures with:

Low basic pay
High allowances
Performance-linked components

These structures were designed for tax efficiency and cost optimisation.

Under the new rule:

Basic pay may need to be increased
Statutory obligations like PF, gratuity and bonus may rise
CTC (cost-to-company) structures may need redesigning

This will particularly affect:

Gig developers
Contract IT staff
Project-based IT workers
Companies with multinational benchmarking

1.2 Minimum Wages & National Floor Wage

Although IT employees generally earn above minimum wage thresholds, the Code ensures:

No IT employer can pay below State-notified minimum wages
Apprentices, interns, and support staff receive statutory protection

1.3 Timely Wage Payments & Digital Wage Slips

IT companies will need to ensure:

Strict wage-period compliance
Automated wage slips (physical or digital)
Timely final settlements within 2 working days of separation

Result: Greater payroll transparency and reduced disputes.

2. Code on Social Security, 2020 – Bringing Formal Protection to a Diverse IT Workforce

The IT industry employs:

Permanent staff
Contract employees
Fixed-term developers
Freelancers
Gig and platform workers
Remote and hybrid employees

The Social Security Code introduces inclusive coverage for all.

2.1 PF, ESIC and Insurance Applicability

The uniform wage definition may increase PF contributions, impacting:

Employer budgets
Employee in-hand salary
Long-term social security corpus

ESIC coverage expands geographically, possibly covering IT units outside notified areas.

2.2 Gig and Platform Workers

With the rise of:

On-demand coders
Remote contractual tech specialists
IT freelancers
Platform-based digital workers

The Code ensures:

Access to welfare schemes
Coverage for life/disability insurance
Social Security Fund contributions from aggregators

This is the first time gig tech workers receive formal recognition.

2.3 Gratuity for Fixed-Term Employees

Fixed-term IT professionals (project-based developers, data specialists, testers) now qualify for gratuity after just one year, making IT employment more equitable.

2.4 Portability of Benefits

A unified registration system helps:

Employees moving between IT firms
Contract-to-full-time transitions
Inter-state work mobility
Remote/hybrid workforce portability

3. Occupational Safety, Health and Working Conditions Code, 2020 – Workplace Norms for the Digital Era

While the OSH Code is often associated with factories and construction, it also significantly affects IT workplaces.

3.1 Applicability to IT Establishments

The Code applies to offices with 10 or more workers, including:

IT parks
BPO centres
Development studios
Corporate headquarters
Remote-working clusters (in relevance to ergonomics & safety)

3.2 Health and Safety Requirements

Even for office-based IT staff, employers must ensure:

Ergonomic seating
Adequate ventilation and lighting
Safe electrical and computer infrastructure
Clean restrooms and drinking water
Periodic medical check-ups
First-aid availability

With rising reports of:

burnout
eye strain
repetitive stress injuries (RSI)
mental-health challenges

the wellness obligations become more relevant to IT employers.

3.3 Women Working in Night Shifts

IT/ITeS firms commonly operate 24x7 due to global time zones.
The OSH Code allows women to work night shifts but imposes:

Mandatory consent
Transportation facilities
Safety escorts
Additional workplace security measures

This impacts BPOs, cybersecurity teams, global support desks, and backend operations.

3.4 Contract Labour and Outsourcing

The Code applies to contractors with 50 or more contract labourers, impacting:

IT temp staffing companies
Outsourcing vendors
Facility management providers
Managed service partners

4. Industrial Relations Code, 2020 – Impact on Hiring, Retrenchment, and Workforce Management

The IR Code has structural implications for large IT companies (especially with 300+ employees).

4.1 Standing Orders for IT Companies

Establishments with 300 or more workers must adopt:

Clear rules on conduct
Termination processes
Work hours
Leave policies
Remote working conditions
Project relocations
Digital discipline policies

This helps bring clarity in employee relations.

4.2 Fixed-Term Employment

IT employers gain flexibility to hire on project cycles without long-term obligations, while employees retain:

Equal benefits as permanent staff
Pro-rata gratuity
Equal pay protections

4.3 Retrenchment and Closure

The threshold for government permission is raised from 100 to 300 workers, giving IT companies more operational flexibility while still maintaining compensation safeguards.

4.4 Strikes and Lockouts – Notice Requirements

Given the IT sector’s critical role in global service continuity, the Code requires 14 days’ notice before strikes or lockouts.

This ensures:

Stability of service delivery
Reduced business disruption
Time for conflict resolution

5. Digital Compliance – A Major Advantage for IT Companies

The Labour Codes encourage:

Online registrations
Digital registers
Web-based inspections
Electronic filings
Randomised, tech-enabled inspection mechanisms

For a tech-driven industry, digital-first compliance:

Reduces administrative costs
Minimises disputes
Improves transparency
Enhances corporate governance

6. Key Advantages for the IT Industry

More flexibility in hiring models
Increased clarity in employment contracts
Predictable compliance and dispute resolution
Better safety and security protocols for night-shift operations
Broader coverage for gig developers and contract professionals
Improved social security and wellness initiatives
Reduced litigation due to standardised definitions and processes

7. Challenges the IT Sector Must Prepare For

1. Rising Cost Implications

The 50% wage rule increases:

PF contributions

Gratuity obligations

Bonus calculations

This affects payroll budgets, especially for large IT workforce clusters.

2. Reduced Flexibility in Compensation Design

Companies lose room to structure:

Allowance-heavy CTCs

Variable pay

Special skill-based incentives

Potentially impacting talent competitiveness.

3. Transition & Operational Burden

Compliance requires:

Payroll restructuring

HR policy revisions

Multi-state harmonisation

Contract updates

Creating short-term administrative challenges.

4. Ambiguities for Remote & Hybrid Work

The Codes do not fully address:

Home-office safety norms

Remote work accident liability

Ergonomic standards at home

Inspection feasibility

Leaving HR/legal teams with grey areas.

5. Higher Liability for Contract Labour

Stricter contractor compliance under OSH and IR Codes increases risk for principal employers who rely heavily on third-party staffing.

6. State-Level Variations

Implementation varies across states, creating uncertainty for IT firms operating pan-India

8. Strategic Recommendations for IT Companies

To adapt effectively, IT organisations should:

Rework compensation structures to comply with the 50% wage rule
Build digital HR-compliance systems
Formalise work-from-home ergonomics and safety policies
Strengthen POSH, security, and night-shift protocols
Train HR, payroll, and compliance teams on new rules
Reassess outsourcing and contract-labour models
Enhance mental health & well-being programmes.

Conclusion

The four labour codes collectively push India’s IT sector toward a more transparent, structured, and worker-centric employment regime. They strengthen social security, standardise wages, enable flexible workforce models, and shift compliance to a digital-first framework.

However, they also bring increased financial commitments, restrict compensation flexibility, and create transitional challenges—particularly in hybrid work settings and contractor-heavy environments.

Overall, the Codes represent a long-term opportunity for better workforce governance, but demand careful adaptation, policy clarity, and strategic planning to manage short-term complexities

Vinay Kaushik and Co.

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Friday, 5 December 2025

The New Labour Codes and Their Impact on India’s IT Industry — A Comprehensive Analysis