The Gratuity laws in India were changed in 2026, considering the enactment of new labour codes. These amendments affect the rate of calculation of gratuity and eligibility. What is new, particularly regarding eligibility, the definition, and the calculation of wages, is a source of confusion for many employers and employees.<\/p>\n
Gratuity is a programmed retirement payment of an employer to an employee as a result of his\/her service. It falls under the category of payments payable when an employee leaves the job by resignation, retirement, death, or disability. Gratuity is also a monetary cushion for an employee, as provided under Indian labour laws, whenever an employee terminates his or her service. Under the law, employers are expected to provide gratuity.<\/p>\n
Until the labour legislation restructuring, the eligibility for the gratuity was simple:<\/p>\n
This implied that you did not usually qualify to receive gratuity in the event that you retired from the job before you had five consecutive years of service, regardless of whether you were a long-term contract worker.<\/p>\n
Aspect<\/strong><\/td>\n| Old Rule<\/strong><\/td>\n | New Rule (Labour Codes 2025\/26)<\/strong><\/td>\n<\/tr>\n | Definition of wages for gratuity<\/td>\n | Based on basic pay and dearness allowance only<\/td>\n | Minimum 50% of total remuneration must include basic pay + DA + retaining allowance (if needed) for gratuity and social security calculations<\/td>\n<\/tr>\n | Gratuity calculation base<\/td>\n | Last drawn wages under the Payment of Gratuity Act, 1972<\/td>\n | Last drawn wages, which must be at least 50% of total remuneration<\/td>\n<\/tr>\n | Eligibility \u2014 fixed-term\/contract workers<\/td>\n | Must complete 5 years of continuous service<\/td>\n | Eligible after 1 year of continuous service on a proportionate basis<\/td>\n<\/tr>\n | Eligibility \u2014 permanent employees<\/td>\n | Must complete 5 years of continuous service<\/td>\n | Still 5 years for permanent employees<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n | What do These Changes Mean?<\/h2>\nThe Salaries are redefined to benefit better<\/h3>\n<\/li>\n<\/ol>\nAccording to the new codes, the definition of wages in calculating the gratuity and other social security benefits can be subject to more items of your total remuneration, as long as at least half of your total remuneration is regarded as basic pay + dearness allowance + retiring allowance. Otherwise, the code considers it to be 50%. This shift can lead to increased gratuity at a time when a wage can take a greater part of your salary.<\/p>\n
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