New Labor Codes Squeeze IT Margins: Government Calls it 'One-Time Expense'

• India's IT sector, including TCS, Infosys, and HCLTech, saw profit margins hit in the December quarter due to new labor codes.
• The new codes redefine "wages," mandating at least 50% of remuneration as basic pay, dearness allowance, and retaining allowance, increasing provident fund and gratuity calculations.
• Companies incurred significant exceptional charges: TCS (Rs 2,128 crore), Infosys (Rs 1,289 crore), and HCLTech (Rs 956 crore).
• Other compliance costs include paying for excess leave balance, immediate payout of earned leave upon resignation/termination, and increased overtime pay for work beyond 48 hours weekly.
• Industry seeks uniformity in rules across states to reduce compliance costs, while the government views these as one-time transition expenses.

Why It Matters: New labor codes are impacting IT profit margins with increased compliance costs, though the government calls it a one-time expense.