Indian IT’s Big Five face $500 million labour code hit to profitability

The country’s largest software services provider Tata Consultancy Services Ltd (TCS) incurred incremental costs of $238 million, while second-placed Infosys Ltd disclosed a $143 million impact, according to their quarterly earnings disclosures. HCL Technologies Ltd ($109 million), Wipro Ltd ($33.3 million), and Tech Mahindra Ltd ($30 million) followed.

Together, the Big Five employ more than 1.5 million people, making the sector one of the largest formal sector employers in the country.

In November last year, the Indian government implemented labour codes, which mandate that basic pay for employees account for at least 50% of total compensation, raising statutory payouts such as provident fund and gratuity.

The requirement lopped off 260-320 basis points from their profitability in the October-December 2025 period, with TCS facing the biggest hit. One basis point is a hundredth of a percentage point. TCS, Infosys, HCLTech, Wipro, and Tech Mahindra reported operating margins of 25.2%, 18.6%, 18.4%, 17.6%, and 13.1%, respectively, during the quarter.

TCS’s management said the costs were not recurring.

"On the labour code, we don't expect (any future impact on profitability) unless the rules give more clarity. And there's something else which needs to be (considered) because currently, the rules came into effect and the guidance came towards the end of December, we have made an assessment and done it, and we'll we'll call it out if there is a change in the understanding of our rules," said Samir Seksaria, chief financial officer of TCS, during the company’s post-earnings analyst call on 12 January.

However, its peers do expect recurring costs.

“The recurring impact of this would be 15 basis points on an ongoing basis approximately," said Jayesh Sanghrajka, CFO of Infosys, during the company’s post-earnings analyst call on 14 January. The current costs have factored in only the current legislation, he said.

HCLTech CEO Vijayakumar also does not expect much impact from the labour code.

“We still have to run the business. We just have to comply with all the land which we will do. It will have no impact on our hiring plans," he said during the company's post-earnings press conference on 12 January.

Wipro's management had a similar view.

“Is there any continuing impact of the labor code? Absolutely none. And if you actually notice, our Labor Code impact is perhaps amongst the least compared to the industry," said Aparna Iyer, CFO of Wipro, during the company's post-earnings press conference on Friday.

“That's because we've been gradually and consistently trying to come closer to the labour code, so we were quite well prepared, and we've taken what we have to," Iyer said. "I don't anticipate any continuing impact of it on our financials."

The National Association of Software and Service Companies (Nasscom), the country’s IT industry body, stated that employees will now have more clarity on their pay, will be assured employment letters, and fixed timelines for salaries.

As per the labour code, issuing a formal, written appointment letter to all employees is now a legal requirement for every employer. Salaries have to be disbursed by the seventh day of every month.

“For the technology industry and its workforce, the eventual full implementation of the Codes can bring greater predictability and transparency," said Nasscom, in a media statement dated 21 November 2025. “Provisions on written appointment letters, fixed-term employment with parity of benefits, expanded coverage of social security, recognition of gig and platform work and specific attention to timely salary payments, equal pay and structured grievance mechanisms for IT and IT-enabled services are particularly relevant to a skilled and mobile talent base."

TCS had 582,163 employees, while Infosys employed 337,034 as of December. The headcount at HCLTech stood at 226,379, while Wipro and Tech Mahindra had 242,021 and 149,616 employees, respectively.