Indian industry bodies are urgently seeking clarifications from the government on the impending labour codes, as companies face the prospect of significantly higher financial liabilities. The Institute of Chartered Accountants of India (ICAI) has advised that firms should start accounting for increased gratuity and other related payments in their financial statements for the current December quarter itself.
Key Concerns Over Retrospective Application and Wage Definition
One of the primary anxieties for corporate India revolves around the retrospective application of the new rules. A major point of contention is the provision that wages must constitute at least 50% of an employee's total remuneration. Industry lobby group Confederation of Indian Industry (CII) has explicitly asked the labour ministry to ensure this rule is not applied retrospectively. "Retrospective implementation will have significant cost implications for employer organisations," CII stated, particularly regarding gratuity and leave encashment liabilities.
CII has highlighted over a dozen issues requiring immediate clarity. These include confusion around the effective date for calculating wages under the Employees' State Insurance (ESI) scheme, pointing to conflicting circulars issued after November 21, 2025. The body has also demanded clarity on the transition time for implementing rules related to leave encashment for workers on December 31, 2025, as mandated by the Occupational Safety, Health and Working Conditions Code.
ICAI's Directive on Quarterly Accounting and PwC's Operational Concerns
In a significant move, the ICAI has issued guidance for auditors, concluding that the anticipated increase in gratuity liability must be recognized as an expense in the company's profit and loss account starting from the current quarter. This recommendation is based on the fact that the four labour codes were officially notified and took effect from November 1, even though the detailed rules are still awaited.
While the ICAI's Frequently Asked Questions (FAQs) provide clarity on accounting treatment, major operational questions remain unanswered. Anshul Jain, National Leader for Regulatory Affairs at PwC India, noted that organizations are still awaiting guidance on how to calculate social security contributions like gratuity for periods prior to November 21, and the inclusion of elements like Employee Stock Ownership Plans (ESOPs) and variable pay in wage definitions.
Ambiguities in Law, Worker Definition, and Core Activities
The industry is grappling with several other layers of ambiguity. CII has sought precise clarification on the definition of wages, specifically whether performance bonuses and share-based income will be included in total remuneration for wage calculations. Another question is whether special allowances need to be added if the sum of basic salary and dearness allowance already meets the 50% threshold.
There is also uncertainty about which set of regulations will take precedence. For the non-manufacturing sector, it is unclear whether state-specific Shops and Establishment Acts or the central labour codes supplemented by state rules will govern areas like working hours, overtime, and leave benefits for women on night shifts.
Furthermore, clarity is needed on which categories of employees will fall under the "worker" definition, and whether manufacturing units can continue to employ contract labour for their core manufacturing processes. The government is expected to notify the draft rules for the labour codes in the coming weeks, which will hopefully address these pressing concerns for India Inc.
