IT/ITES & Global Capability Centres
Labour Code Compliance for India's Technology Sector
Overview
India's IT/ITES sector employs over 5.4 million professionals directly and contributes approximately 9.4% of GDP, making it the country's largest private-sector employer of white-collar workers. The sector's unique workforce characteristics (knowledge workers on round-the-clock shifts, global delivery models, distributed multi-state operations, and a heavy reliance on structured CTC packages) make compliance under India's four Labour Codes both critical and complex. The transition from legacy statutes like the IT-specific Shops & Establishments exemption orders and the Information Technology Act's Schedule-based exemptions to the new unified Code framework creates both opportunities and transitional risk.
The sector has historically operated under state-specific IT/ITES exemption orders, most notably Karnataka's IT Exemption Order and equivalents in Maharashtra, Telangana, and Tamil Nadu, that granted significant flexibility on working hours, shift timings, and women working at night with consented consent mechanisms. Under the new Labour Codes, many of these exemptions must be re-mapped to their statutory counterparts in the OSH Code and the Industrial Relations Code, with some losing grandfathered protection and others being codified more broadly. Employers who assume their legacy exemption orders automatically carry forward under the new codes are exposed to serious compliance risk.
Global Capability Centres (GCCs) present a distinct compliance profile within this sector. Operating as wholly-owned Indian subsidiaries of foreign multinationals, GCCs typically employ 500 to 10,000 professionals under global HR policies that must be reconciled with Indian labour law. Areas of particular tension include post-termination restrictive covenants (unenforceable under Section 27 of the Indian Contract Act), CTC structures with basic wages well below the 50% threshold mandated by the Code on Wages, moonlighting and dual-employment policies under the Industrial Relations Code, and social security portability for seconded employees. The sector must also grapple with the genuinely novel challenges of remote and hybrid work, a compliance grey zone where none of the four Labour Codes explicitly address work-from-home obligations but where inspections, accident reporting, and working hours rules still apply.
Code on Wages, 2019
- The 50% wage rule (Section 2(y) proviso) requires basic wages to constitute at least 50% of total CTC, directly challenging IT sector structures where basic pay typically ranges from 30–40% of CTC.
- Expanded definition of "wages" brings special allowances, city compensatory allowances, and education allowances into the computation base, covering allowances previously excluded by HR policy but not by statute.
- Minimum wages under the Code apply to all employees regardless of designation or salary level, with the Central Government setting a floor wage and states setting scheduled wages above it. IT sector minimum wages in Bengaluru, Hyderabad, and Pune are among the highest in India.
- Overtime compensation at twice the ordinary wage rate applies to any hours worked beyond the prescribed daily or weekly limit. This is a critical issue for IT employees on project-based crunch schedules where unofficial overtime is common.
- Variable pay, ESOPs, and performance bonuses must be assessed against the wages definition. Standard variable pay that is a contractual entitlement is likely "wages"; discretionary bonuses may not be. Incorrect classification affects PF, ESI, and gratuity bases.
- Full and final settlement, including all wage components, must be completed within two working days of the last working day under the Code, representing a significant operational change from the 30–45 day settlement processes currently common in IT.
The Code on Wages fundamentally disrupts the CTC architecture that IT/ITES employers have used for decades to optimise statutory costs. Most technology companies currently have basic wages at 30–40% of CTC, well below the 50% floor that the Code will mandate. Restructuring to achieve compliance without increasing total employer cost requires careful reallocation of allowance components and a managed communication strategy for employees who will see reduced take-home pay due to higher PF deductions. The PF cost increase alone for a typical mid-tier IT employer is estimated at 12–18% of current PF outflow, with aggregate employer cost impact of 8–12% of total payroll.
Most IT companies currently structure basic wages at 30–40% of CTC. Compliance with the 50% wage rule will require full CTC restructuring across the workforce, increasing PF and gratuity bases significantly. Begin impact modelling now; do not wait for state rule notification.
Industrial Relations Code, 2020
- The threshold for mandatory standing orders under the Industrial Relations Code is 300 workers (Section 29), compared to 100 under the Industrial Employment (Standing Orders) Act, 1946. Many mid-sized IT companies currently required to maintain standing orders will be exempt, but large IT employers and GCCs remain subject and must revise their model standing orders to the new central/state models.
- Fixed-term employment (FTE) is now a recognised statutory category under Section 2(o) of the Industrial Relations Code, entitling fixed-term employees to the same wages, hours, benefits, and service conditions as permanent employees, including pro-rata gratuity from day one without the five-year threshold. IT companies using FTE for project-based bench management must revise offer letters and HR policies to ensure statutory parity.
- The dual-employment prohibition (Section 27 of the Factories Act equivalent in the OSH Code, and the standing orders framework in the IR Code) intersects with IT sector moonlighting concerns. Post-COVID moonlighting by IT employees became a high-profile issue, and the IR Code's standing orders framework will require explicit contractual and policy provisions addressing dual employment.
- The threshold for requiring government permission before retrenchment, layoff, or closure is raised to 300 workers under the IR Code, up from 100. This benefits large IT companies considering workforce restructuring, but only if the retrenchment is categorised as such and not framed as "performance termination" to avoid the procedural requirements.
- Workers' definition under the IR Code (Section 2(zr)) covers all employees except those in managerial or supervisory capacity whose wages exceed a notified threshold. In IT, the boundary between "workmen" and managerial staff is contested: a software engineer who manages no one but draws high wages may or may not qualify as a workman, affecting retrenchment protections and dispute resolution.
- Negotiating Unions and Negotiating Councils under the IR Code create a structured framework for collective bargaining. While IT sector unionisation remains low, TCS, Infosys, and several GCCs have faced organising activity, and the Code's provisions may embolden further attempts particularly in BPO and ITES verticals.
The Industrial Relations Code brings both relief and new obligations to IT employers. The higher standing orders threshold exempts many mid-sized IT companies from formal standing orders requirements, but the statutory recognition of fixed-term employment as a legitimate work category with full parity rights changes how project staffing must be structured. Moonlighting (the elephant in the room after high-profile IT sector controversies in 2022–23) must now be addressed through enforceable policy provisions in standing orders for large employers, and in employment contracts for all. The retrenchment threshold increase to 300 workers benefits IT companies during large-scale restructuring, but the procedural requirements for sub-300 retrenchments remain strict.
Fixed-term employees under the IR Code are entitled to pro-rata gratuity from day one, eliminating the five-year continuous service requirement. If you use fixed-term contracts for project staffing, provision gratuity costs from the start of each engagement.
Code on Social Security, 2020
- The Employees' Provident Fund provisions under the Social Security Code are computed on the new "wages" definition. Under the 50% rule, this will significantly increase PF contribution bases across the IT workforce. Many employees currently have PF capped at the INR 15,000 statutory ceiling; the higher basic wages under the new structure will push more employees beyond capped-contribution arrangements.
- Gratuity eligibility threshold is retained at five years of continuous service, but the definition of "continuous service" under the Code now explicitly includes periods of authorised leave, maternity leave, lay-off, and strike (where legal), thereby reducing disputed eligibility cases common in IT's high-attrition environment.
- Social security for gig workers and platform workers (Sections 113–114) is directly relevant to IT companies that maintain large freelancer or independent contractor workforces. If an IT company operates an internal platform that matches freelancers with project teams, it may qualify as an "aggregator" subject to social security contribution obligations.
- Maternity Benefit provisions under the Social Security Code continue the Maternity Benefit Act framework: 26 weeks of paid maternity leave for the first two children, 12 weeks thereafter, mandatory crèche facility for establishments with 50 or more employees, and work-from-home option where nature of work permits. IT companies must formalise WFH maternity accommodation policies.
- Employees' State Insurance coverage threshold remains at INR 21,000/month wages. Most IT professionals earn above this threshold, so ESI applicability in IT is limited to junior support staff, security personnel, and certain BPO/data entry roles. However, in Tier 2 and Tier 3 IT hubs, a larger proportion of the workforce may fall within ESI coverage.
- Portable social security accounts linked to a worker's Aadhaar number are envisaged by the Code, enabling continuous coverage through job changes. This is particularly significant for IT's high-attrition workforce, where PF portability through the UAN system is already partially functional but other benefits are fragmented.
The Social Security Code's most immediate impact on IT employers is the cascading effect of higher basic wages on PF contributions and gratuity provisioning. Beyond this structural impact, the Code expands maternity rights in ways that directly affect IT companies' WFH policies: the work-from-home option for maternity accommodation, previously discretionary, will likely be codified as a right. IT companies with significant freelancer or contractor pools must also assess whether any internal talent marketplace or staffing platform qualifies as an aggregator under the Code's gig worker provisions.
KSK advises IT and GCC employers on PF restructuring, gratuity provisioning, and freelancer classification. Our cross-practice team has assisted 30+ technology companies model the precise social security cost impact of Labour Code implementation before rule notification dates.
OSH Code, 2020
- The OSH Code applies to all establishments employing 10 or more workers, bringing IT/ITES offices squarely within its scope. Unlike the Factories Act, which excluded white-collar IT establishments, the OSH Code's "establishment" definition covers offices, IT parks, and technology campuses explicitly through the Shops and Establishments provisions.
- Working hours under the OSH Code are limited to 8 hours per day and 48 hours per week, with mandatory rest intervals of at least 30 minutes after every 5 hours of continuous work. IT's culture of extended project-delivery hours and "crunch periods" must be managed through proper overtime authorisation and compensation, not informal expectations of unpaid overwork.
- Night shift provisions for women (Section 24 of the OSH Code) permit women to work night shifts (between 7 PM and 6 AM) subject to adequate safety provisions, the employer obtaining the woman's written consent, and the state government's satisfaction that adequate safety measures exist. This codifies and liberalises the approach of Karnataka's IT Exemption Order but requires formal consent documentation that many IT employers currently lack.
- Remote and work-from-home employees remain employees under the OSH Code. Employers retain duties to protect the health and safety of employees regardless of work location, though the Code does not prescribe specific WFH obligations. This creates a grey zone: reporting obligations for accidents at home, ergonomic duty of care, and working hours tracking for remote employees remain open regulatory questions.
- Annual health examination of employees engaged in hazardous processes is mandatory under the Code. IT offices do not typically involve hazardous processes, but data centre operations involving electrical hazards, cooling chemicals, and fire suppression systems may trigger hazardous process compliance.
- Contract labour provisions under the OSH Code (replacing the CLRA, 1970) require both principal employers and contractors to obtain licences, maintain welfare amenities, and jointly ensure compliance. IT companies with facility management, security, cafeteria, and housekeeping contract staff must review their principal employer obligations, including ensuring contractor workers have access to canteen, rest rooms, first aid, and drinking water.
The OSH Code is the most operationally complex of the four codes for IT employers, principally because it brings together the patchwork of state-level IT/ITES exemption orders, Shops & Establishments Acts, and Factories Act provisions into a single framework. The night shift consent requirement for women is a positive development for IT's 24x7 delivery model but demands formal documentation processes that most employers have not yet implemented. The most immediate concern is the working hours framework: IT's informal overtime culture must be replaced by a compliant framework of overtime authorisation, compensatory rest, and double-rate payment that is both operationally feasible and legally defensible.
State IT/ITES exemption orders (Karnataka, Telangana, Maharashtra) do NOT automatically carry forward under the OSH Code. Each state must re-issue exemptions under the new statutory framework. Verify whether your state has issued equivalent OSH Code exemptions before assuming legacy exemptions remain valid.
Compliance Checklist
Conduct a CTC audit across the entire workforce to identify employees where basic wages are below 50% of total remuneration, and model the PF and gratuity cost impact of restructuring to comply with the Code on Wages.
Revise employment contract templates and offer letter formats to reflect the new CTC structure, updated wages definition, and full-and-final settlement timeline of two working days under the OSH Code.
Review and update standing orders (if your establishment employs 300 or more workers) under the Industrial Relations Code, specifically addressing fixed-term employment terms, moonlighting prohibition, and dual-employment restrictions in line with the new model standing orders.
Obtain written night-shift consent from all women employees working between 7 PM and 6 AM, and document the safety measures in place (transport, security, helpline). Maintain consent records and conduct half-yearly reviews as required by state OSH rules.
Verify whether state-specific IT/ITES exemption orders under the OSH Code have been issued by Karnataka, Telangana, Tamil Nadu, Maharashtra, and Haryana. Where legacy exemptions are relied upon, seek legal confirmation of their continued validity under the new Code framework.
Audit all fixed-term employment contracts to ensure fixed-term employees receive the same wages, benefits, working hours, and allowances as comparable permanent employees, and provision pro-rata gratuity from the commencement of each fixed-term engagement.
Review the company's freelancer and independent contractor engagement model to assess whether any internal staffing platform or contractor-management system qualifies as an "aggregator" under the Social Security Code's gig worker provisions, triggering social security contribution obligations.
Implement formal WFH or hybrid work policies that address working hours tracking, overtime authorisation, accident reporting obligations, and ergonomic duty of care for employees working from home, all areas that the OSH Code applies to but does not prescribe specifically.
Register each office location separately under the applicable state Shops & Establishments Act and, once the OSH Code rules are notified, under the OSH Code establishment registration, ensuring compliance calendars are maintained per-location.
Develop a moonlighting policy that is consistent with standing orders (for 300+ worker establishments) and employment contracts, specifying the procedure for seeking prior written consent and the consequences of unauthorised dual employment.
Common Pitfalls
Assuming Legacy IT/ITES Exemption Orders Survive the OSH Code
Karnataka, Telangana, Maharashtra, and other states issued specific IT/ITES exemption orders under the Factories Act and state Shops & Establishments Acts allowing 24x7 operations, extended working hours, and women's night shifts. These exemptions were granted under legislation that the OSH Code replaces. Unless the state has re-issued equivalent exemptions under the OSH Code's framework, the old exemptions have no statutory basis. IT employers relying on Karnataka's 2002 Exemption Order for night shifts, for example, risk non-compliance with the OSH Code's default working hours and night shift consent requirements.
Conduct a state-by-state audit of all offices to verify whether the applicable state has issued OSH Code exemption notifications for IT/ITES establishments. Where no new exemption exists, immediately implement the OSH Code's default compliance requirements: 8-hour day, 48-hour week, written night-shift consent for women, and overtime at double rates. Engage KSK or local employment counsel to confirm exemption status before each round of rule notifications.
CTC Structures Non-Compliant with the 50% Wage Rule
The vast majority of IT companies structure CTC with basic wages at 30–40% of total remuneration to minimise PF, gratuity, and bonus contribution bases. The Code on Wages' 50% wage rule will render these structures non-compliant once central and state rules are enforced. Continued non-compliance after notification carries penalties under Section 54 of the Code on Wages and may additionally attract EPFO penalties for short-contribution on PF calculated on an artificially low basic wage base. The retrospective liability risk is significant: if inspectors treat prior periods of low-basic CTC as short-payment of wages, the exposure could be substantial.
Begin CTC restructuring immediately without waiting for enforcement notification. Model the full impact on employer PF costs, employee take-home pay, and gratuity provisioning. Phase the restructuring with employee communication campaigns that explain the retirement benefit improvements alongside the take-home reduction. For GCCs, align the India CTC restructuring with global CHRO and CFO approval, as the total cost impact can be material at scale.
Fixed-Term Employees Excluded from Parity Benefits
IT companies frequently use fixed-term employment contracts for specific project engagements, bench management, or probationary periods. Under the Industrial Relations Code, fixed-term employees are entitled to the same wages, allowances, working hours, benefits, and service conditions as permanent employees performing the same work. Offering fixed-term employees lower salaries, restricted leaves, or no variable pay compared to permanent counterparts exposes employers to claims of statutory parity violations. The pro-rata gratuity obligation from day one is particularly overlooked: many IT employers do not provision gratuity for fixed-term staff until they approach five years' service, an approach that is now non-compliant.
Audit all active fixed-term employment contracts and compare terms against comparable permanent employees. Where disparities exist, equalise wages, leave entitlements, and benefits from the next contract renewal or immediately if the disparity constitutes an underpayment. Implement a gratuity provisioning system that accrues pro-rata gratuity for all fixed-term employees from day one of engagement, using actuarial estimates for financial provisioning purposes.
Inadequate Documentation for Women's Night Shift Compliance
IT's 24x7 global delivery model requires a significant number of women employees to work night shifts for US, European, and APAC clients. The OSH Code permits this but requires written consent from the woman employee, adequacy of safety measures as determined by the state government, and employer-provided safety infrastructure (transport, security escort, helpline). Many IT employers informally roster women on night shifts without obtaining formal consent, without documenting safety infrastructure, and without conducting the periodic safety reviews that state rules prescribe. In the event of a workplace incident or a labour inspection, the absence of documentation creates criminal and civil exposure.
Implement a formal night-shift consent framework: standard consent forms reviewed by legal counsel, a night shift safety policy document, documented transport arrangements, a CCTV register showing coverage of common areas, a 24-hour helpline, and a half-yearly safety review sign-off by a senior HR officer. Maintain a register of all women employees on night shifts with their consent dates and renewal records. Ensure your standing orders (if applicable) explicitly address night shift provisions in line with the OSH Code.
Moonlighting Policy Gaps Creating Enforceability Issues
The 2022–23 moonlighting controversy in IT, sparked by Wipro's termination of 300 employees for undisclosed secondary employment, exposed a systemic policy gap: most IT employment contracts either prohibited dual employment in vague terms or were silent on the issue. Under the Industrial Relations Code, standing orders for 300+ worker establishments must address service conditions including secondary employment. Vague or absent contractual prohibitions on moonlighting may be unenforceable, and terminations based on them can be challenged as retrenchment without following the Code's procedural requirements.
Draft a specific moonlighting and dual-employment policy that: defines what constitutes prohibited secondary employment (including freelancing, advisory roles, and equity stakes in competitors); specifies a prior written consent process for permissible secondary work (e.g., academic teaching, family business with no conflict); states the consequences of violation; and is incorporated into both standing orders (for 300+ establishments) and individual employment contracts. Have the policy reviewed by employment counsel to ensure it does not inadvertently create a blanket restriction on all outside activity, which some courts have found disproportionate.
Frequently Asked Questions
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