Profits for the third quarter of the financial year 2026 for most IT companies were impacted negatively by the new labour codes, which required one-time
provisioning for employee benefits. From TCS, Infosys, HCLTech, Wipro, Tech Mahindra and LTIMindtree, the cumulative hit so far is around Rs 5000 crore in the December quarter. Jefferies, in its report, noted that the new labour codes, which came into effect in November 2025, may not only cause a one-time impact on profits in the third quarter but could also increase recurring employee costs. The report highlighted, “While the gross recurring impact may push employee costs up by as much as 5 per cent, IT firms may limit this impact by lowering wage hikes at senior levels. A 2 per cent increase in Indian employee costs may hit FY27 earnings estimates.” Impact On Top Tier Companies? Tata Consultancy Services Tata Consultancy Services (TCS) reported the largest hit amongst its peers, booking a statutory impact of Rs. 2,128 crore. The net profit declined by 13.9 per cent year-on-year to Rs. 10,657 crore in Q3 FY26 from Rs. 12,380 crore in Q3 FY25. TCS CFO, Samir Seksaria, stated that the provisioning included Rs. 1800 crore towards gratuity and around Rs. 300 crore for leave encashment. He further said that the labour codes would continue to shave off 0.10-0.15 per cent from margins in the coming period. “We expect the ongoing impact to be minimal, around 10 to 15 basis points,” he noted. Infosys Infosys reported a one-time exceptional charge of Rs 1,289 crore due to the new labour codes. The IT major saw its net profit decline by 2.2 per cent to Rs 6,654 crore in Q3 FY26. CEO Salil Parekh stated that the new labour codes would result in an ongoing margin impact of around 15 basis points (bps), while expressing confidence in demand conditions, specifically those driven by AI adoption. HCLTech HCLTech reported a one-time provision of Rs. 956 crore, which led to its net profit declining by 11.2 per cent YoY to Rs. 4,076 crore. The company blamed the new labour codes for this decline, stating that the profits would have grown in the absence of this impact. Shiv Walia, CFO, HCLTech, stated during the post-earnings call that restructuring costs of 26 basis points weighed on services margins, along with wage hikes of 80 basis points and furlough seasonality of 45 basis points, which impacted overall margins. He said. “Q3 EBIT margins, excluding the one-time impact of the New Labour Codes, came in at 18.6 per cent (up 111 basis points quarter-on-quarter),” Wipro Wipro reported a 7 per cent YoY decline in its consolidated net profit in Q3FY26 at Rs 3,119 crore as it incurred Rs 302.8 crore one-time gratuity expense. Tech Mahindra Tech Mahindra was the only major IT firm to report a profit increase, with the net profit rising 14 per cent to Rs. 1,122 crore. Despite this increase, the company has still set aside about Rs. 272.4 crore for the new wage codes. Also Read: Reliance Reports Flat Q3 Profit At Rs 18,645 Cr As Retail Weakness Weighs According to the company’s CFO Rohit Anand, the implementation of the new labour codes would shave around 0.20 per cent off margins quarterly. LTIMindtree LTIMindtree reported a one-time cost of Rs 590.3 crore related to the implementation of the new labour codes, which weighed on its Q3 FY26 earnings. It reported 10.58 per cent YoY in its net profit at Rs 970.6 crore. What are the new labour codes? The new labour regulations consolidate 29 existing labour laws and mandate changes in how companies calculate employee benefits such as gratuity and leave encashment. Three key changes under the new labour codes.
- “Wages” will become the basis for calculating employee benefits such as Provident Fund (PF), gratuity, leave encashment and the Employee State Insurance (ESI) scheme. Wages will need to be at least 50 per cent of cost-to-company (CTC).
- Firms may have to provide employees with the option to encash excess leave exceeding 30 days every year.
- Fixed-term employees and subcontractors will now be eligible for gratuity after one year of service, compared with five years earlier.
