The new labour codes introduced by the government last month are going to have accounting implications for the companies, including listed entities, said the Institute of Chartered Accountants of India (ICAI) in a note.
The accounting body said that the gratuity implications on companies arising out of the new labour codes will have to be accounted for in the upcoming financial results for the third quarter of FY26.
Accounting adjustments by companies
While the codes came into effect on November 21, the supporting rules are yet to be notified. However, the wage definition under the new codes are currently in force which would require companies to do accounting adjustments starting December quarter.
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“The increase in gratuity liability arising from new labour codes need to be recognised in interim financial statements or results for the period ending December 31, 2025 in accordance with the applicable requirements of Ind AS 19 and AS 15,” the note said.
Salary structure
As per the new codes, the employers are mandated to structure the salaries in a way that minimum 50% of total remuneration should include basic pay, dearness allowance and retaining allowance — collectively referred to as “wages”. Further, the codes have subsumed the Payment of Gratuity Act, 1972, and companies are required to calculate gratuity payment to all employees based on the last drawn wages.
Further, the new codes have reduced the work threshold for paid annual leaves from 240 days to 180 days, making them accessible sooner. On this issue, ICAI has said that any change in leave obligation arising from the codes has to be recognised as an expense in the profit and loss statement immediately.
“Any increase in gratuity liability arising due to application of the new labour codes is required to be recognised as an expense in the statement of profit and loss as per the requirements of
the relevant applicable accounting standard,” the note said.
However, in a scenario where companies choose to restructure salary to align with new codes, and there is no real increase in the salary then the entire increase in gratuity and leave obligation will be attributed to past service cost, a financial impact caused by the change in the present value of defined benefit obligations for employee service in prior periods.