The Institute of Chartered Accountants of India (ICAI) has stated that the cost liability needs to be reported by the companies in their financial statement for the December quarter. Even though specific regulations have not yet been notified regarding the newly introduced labor laws. The Government of India has consolidated 29 existing labour laws into four labour codes.
These are the Code on Wages, the Industrial Relations Code, the Social Security Code, and the Occupational Safety, Health, and Working Conditions Code, which came into effect on November 21, 2025. The objective is to update the definition of employment and to expand coverage for workers in the Indian labour market.
In guidelines set out through frequently asked questions (FAQs), ICAI clarified that companies must state in their interim financial statements for the quarter ending December 31, 2025. These guidelines apply to both listed and most unlisted companies, which might affect their profitability for the period.
The new structure has also changed the definition of wages under the statute, requiring that at least 50% of the employee's overall wage structure be comprised of basic pay, dearer allowance, and the retaining allowance. The enhanced wage base is utilized for determining the gratuity benefits for the employees, among other work benefits and obligations.
Among the most material changes is gratuity, which earlier required employees, including fixed-term workers, to complete five years of continuous service to qualify. Under the new labour codes, the scope of benefits is expanded and gratuity will be calculated based on the revised definition of wages.
This will result in increased gratuity liabilities being reported by companies. According to ICAI, the increased values should be treated as an immediate addition to the profit and loss account under Ind AS 19 if the company adopts Indian Accounting Standards, and under AS 15 otherwise.
Likewise, adjustments to leave entitlements and the encashment of leave also need to be reflected as an expense in the financials for the December quarter.
Although the FAQs are a great source of clarification regarding treatment, specific transitional issues regarding gratuities and the inclusion of elements such as variable pay or ESOPs within the definition of wages remain uncertain.
Analysts say the ICAI circular is an indicator of the immediate cost sensitivity of the reform to the labour force in India's corporate sector.