What will 2026 mean for your salary hikes?

The year 2026 is not far away.

Already, many workers are eagerly looking forward to increasing their pay packets and bank balances.

According to a new report from investment and consulting firm Mercer, Indian firms will likely hand out an average salary increase of around nine per cent in 2026. According to the report, employers will continue to have the upper hand over employees next year.

The development comes as artificial intelligence (AI) is poised to play a bigger role in the decision-making of companies in 2026.

But what does the report say? What impact would the new Labour Code have on take-home salaries?
Let’s take a closer look.

What the report says

Mercer on Tuesday released its India ‘Total Remuneration Survey 2026’. The survey traced compensation trends over 8,000 roles and across 1,500 companies across the country.

Mercer said the underlying factors that determine salary remain the same. These comprise an employee’s performance, their position within the salary range, inflation and how competitive the organisation wishes to be when it comes to the talent market – keeping in mind its balance sheet and a focus on cost.

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According to Mercer, those working in product and consulting and in the manufacturing, engineering and automotive industries will likely receive the highest increments in 2026 at 9.3 per cent and 9.5 per cent respectively. On the other hand, those working in information technology (IT), Information Technology Enabled Services (ITES) and Global Capability Centres (GCC) sectors will receive innovative and progressive employee benefits. This is in line with the sector’s commitment to enhancing employee well-being and engagement.

The salaries of those working in fields such as life sciences, and consumer and retail, will remain stagnant. When it comes to attracting and retaining top talent, employers will be focused on short-term incentives such as bonuses, performance pay and refining compensation. Companies will also likely reward those who continue to acquire new skills. They will also look to ensure that attrition levels normalise and will likely be cautious on new hires in general.

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“Our survey shows most organisations in India will continue to plan pay increases in line with balancing cost pressures and talent retention. Alongside this, there is a growing emphasis on skills-based organisation architecture, talent assessments to better align workforce capabilities with evolving business needs and pay programmes to drive desired outcomes,” Malathi KS, Mercer’s Rewards Consulting Leader India, said.

What about the new labour codes?

The Mercer report said that implementation of the newly approved labour codes will tighten the social security net and preventive healthcare.

“As India embraces digital transformation, navigates shifting workforce expectations and sharpens its focus on productivity, revisiting the number of employees eligible to receive an increment is a strategy being adopted by some companies to manage costs,” Mercer’s Career Business Leader, India, Mansee Singhal said.

“This is a time for leaders to review their priorities and build stronger cultures embedded in a high-performance ethos, making empowerment and accountability go hand in hand, and fostering a fit-for-purpose value proposition.”

However, according to Moneycontrol, the new labour codes have made companies calculate additional expenses on employees. The codes could result in companies having to increase social security contributions, which in turn will inflate their own costs.

Under the new codes, taxable income and contributions to superannuation will increase, cutting down take-home salary, and it will also have an impact on firms’ profit and loss as liabilities will grow due to leave and gratuity. The new codes require companies to provide free medical check-ups to all employees aged 40 and above, which could add to the cost burden.

The role of AI

According to the report, companies will likely move towards transparent, skill-based pay structures in the backdrop of greater adoption of AI.

According to a report in The Times of India, those earning high salaries in 2026 will have specialised digital and technical skills such as cybersecurity, cloud architecture, AI integration and data handling.

Even blue-collar tech roles such as EV technicians, automated manufacturing operators and niche skilled workers will see relatively better compensation due to greater demand. Digital fluency and AI literacy will be essential across many roles, and not just in pure tech jobs.

Certifications and niche credentials such as EV safety, drone piloting and IoT maintenance will become key differentiators. Basic digital literacy and comfort with workplace tech tools, from inventory apps to workflow systems, are no longer optional. Adaptability, quick learning and the ability to use tech effectively are highly valued traits.

“Broadly, the roles that seem to be moving fastest are the ones that combine strong execution, good communication and comfort with digital tools,” Kartik Narayan, CEO at jobs marketplace Apna.co, told the newspaper. “AI fluency is becoming something most people will need to be comfortable with… not from a technical angle, but simply knowing how to use AI tools to work a little faster, understand things better and make sharper calls,” Narayan added.

With inputs from agencies