NEW DELHI: With India Inc. facing higher liability due to the labour codes,
Industry bodies have sought clarifications from the government on various issues, while the Institute of Chartered Accountants of India (ICAI) has suggested that companies provide for increased gratuity and some of the other payments in the accounts for the Dec quarter itself.
One of the key issues is when the new rules, such as wages accounting for 50% of an employee’s remuneration,
kick in. Lobby group CII has asked the Labour ministry to ensure that it is not retrospective. “Clarity is needed on whether wages, as defined under labour codes, will be considered for ESI coverage and calculation effective November 21, 2025?”
Wages as defined under labour codes are to be considered effective Nov 21, 2025? There are conflicting circulars issued by ESI office on this after Nov 21, 2025.”
The report listed over a dozen issues for which clarity is required. Similarly,
When it comes to gratuity and leave encashment, it said, “Retrospective implementation will have significant cost implications for employer organisations.”
Pointing out leave encashment for workers on Dec 31, 2025, is needed under the Occupational Safety, Health and Working Conditions Code.
The industry body has demanded clarity on the transition time for implementation, apart from uniformity in the rules drafted by the Centre and the states. In a set of FAQs for auditors,
ICAI has concluded that change in gratuity increase is required to be recognised as an expense by the company in the profit and loss account and it needs to be done from the current quarter itself.
The labour codes were notified as being effective.
The labour codes were notified to be effective on November 1, but the specific rules have not yet been announced. The Centre is expected to notify the draft rules in the coming weeks.
It has also clarified the tax treatment for companies.
These (ICAI) FAQs certainly bring in clarity in terms of accounting treatment-related aspects for various provisions related to gratuity and leave obligations.
But most of the organisations are waiting for clarity on the manner in which social security contributions like gratuity etc. would be calculated and what happens to gratuity pertaining to period prior to Nov 21, including of terms like ESOP,
variable pay, etc. Also, in the absence of rules under central labour codes or state rules, many operational aspects are still left unanswered,” said Anshul Jain.
national leader for regulatory affairs at consulting firm PwC India. In its communication with the government,
The Council for Industrial Innovation (CII) has demanded a clear definition of wages. First, it stated whether performance bonuses and share-based income will be included in the total remuneration for calculating wages; second,
where basic salary plus dearness allowance is 50% of gross remuneration, whether allowances like special allowance will need to be added for calculation of wages.
There is also ambiguity regarding which law will prevail.
For instance, for non-manufacturing sector, whether it will be state-specific Shops and Establishment Act or the labour codes read with state rules should be followed by entities for compliance with requirements related to working hours.
overtime, leave and benefits for night shifts for women employees. Similarly,
it is unclear which category of employees will be covered under “worker” definition and if the manufacturing sector can continue to engage contract labour for manufacturing process.
which constitutes core activity. CII has also sought clarity on who is covered under working hours and overtime provisions under the Code on Wages.
