India’s Labour Codes 2025: A Compliance Wake-Up Call for U.S. IT/ITES MNCs

New wage definitions, expanded social security, and stricter governance reshape
how global tech employers manage risk and workforce strategy in India.

Srajan Singhai

India’s labour landscape has entered a new era. With the implementation of four consolidated Labour Codes in November 2025, the country has replaced 29 fragmented laws with a streamlined framework covering wages, social security, industrial relations, and occupational safety. For US multinational corporations (MNCs) operating in India’s IT and IT-enabled services (ITES) sector, this is not a routine HR update—it is a regulatory transformation that reshapes compliance, cost structures, and workforce governance.

Simplification with Deeper Compliance

The government has positioned the Labour Codes 2025 as “simplification plus protection.” On one hand, they reduce the number of rules and forms, introduce single registrations, and enable digital filings. On the other, they expand coverage to gig workers, platform workers, fixed-term employees, and migrant labour. For IT/ITES firms, which employ large, diverse workforces across multiple states, this duality means compliance must be tested not only for efficiency but also for inclusivity and fairness.

Compensation Design: A Structural Shift

Perhaps the most immediate impact for IT/ITES employers is the new definition of “wages.” Fixed components such as basic salary must now constitute at least half of total pay, limiting the scope of allowances and variable structures. This change increases liabilities for gratuity, overtime, leave encashment, and social security. Industry estimates suggest manpower costs may rise 5–12% for organized employers, with higher impact on firms that relied heavily on allowances. Finance leaders must recalibrate budgeting, profitability forecasts, and payroll controls to absorb these changes.

Social Security Expansion

The Social Security Code extends coverage to categories previously outside the net, including gig and platform workers. For IT/ITES companies that rely on flexible staffing, this means mandatory contributions and benefit parity. Aadhaar-linked databases such as e‑Shram and national/state social security boards increase reporting complexity. Internal auditors must validate eligibility tracking, contribution accuracy, and portability of benefits across states—critical for firms with distributed delivery centers and remote workforces.

Industrial Relations and Workforce Strategy

The Industrial Relations Code allows establishments with up to 300 workers to effect layoffs and retrenchments without prior government approval. While this provides flexibility in managing headcount, stronger rules on standing orders, majority trade union recognition, and dispute-resolution mechanisms demand robust documentation and audit trails. For IT/ITES firms, workforce strategy must balance agility with compliance, especially in project ramp-downs or restructuring scenarios.

Safety and Working Conditions in IT/ITES

The Occupational Safety, Health & Working Conditions Code mandates annual health check-ups, stricter safety standards, and crèche facilities for qualifying establishments. For IT/ITES companies, this translates into mandatory wellness programs, ergonomic workplace standards, and preventive healthcare initiatives. Large campuses with 500+ employees must constitute safety committees with worker representation, introducing new governance bodies whose functioning must be tested in internal audits.

Contract Labour and Vendor Governance

The codes tighten obligations of the principal employer, making IT/ITES firms responsible for welfare facilities and back-up liability for wages if contractors default. Given the sector’s reliance on outsourced facilities, security, and support services, vendor governance becomes a critical audit theme. Group audits must now include contract reviews, welfare facility inspections, and vendor compliance testing to mitigate reputational and financial risks.

Transition Risks and State-Level Fragmentation

While simplification reduces the number of rules and forms, companies must migrate to new registers, formats, and digital submission standards. Simplification does not mean lower risk—it shifts risk to migration quality, system configuration, and change management. Labour remains a concurrent subject, so central codes coexist with state rules. During transition, IT/ITES firms may face dual compliance regimes where old rules survive until state-level notifications are complete. Multistate MNCs must map entity locations against differing state notifications to avoid reliance on outdated provisions.

For global internal auditors, the Labour Codes demand a structured compliance lens:

• Governance: Board and audit committee oversight of labour-code transition.
• Contracts: Review of employment letters and vendor agreements for conformity.
• Payroll: Testing wage definition flows into gratuity, PF/ESI, bonus, and overtime.
• Multistate Compliance: Monitoring state notifications and dual-regime risks.
• Workforce Categories: Detecting classification arbitrage between employees, contractors, and gig workers.
• Safety: Validating safety committees, wellness programs, and documentation at large IT campuses.

For US MNCs in India’s IT/ITES sector, the Labour Codes 2025 represent a transformational compliance frontier. They demand not only HR and payroll redesign but also finance, governance, and audit recalibration. Global internal auditors must treat these reforms as a major regulatory shift, embedding them into enterprise risk frameworks and compliance testing. Done right, this transition strengthens workforce protection, enhances transparency, and positions IT/ITES firms as responsible employers aligned with India’s evolving labour ecosystem.

Srajan Singhai is a Global Internal Auditor & Finance leader (ICAI Chartered Accountant)