Gratuity new rules: In recent months, the term gratuity has become one of the most discussed topics among salaried employees in India. With the implementation of the new labour codes and the 50% wage rule, many employees are trying to understand how these changes will affect their salary structure, provident fund (PF), take-home income, and retirement benefits.

For many working professionals, gratuity is not just an extra payment received while leaving a company. It is an important financial benefit that rewards long-term service and provides security for the future. The new labour code is expected to increase transparency in salary structures and may also increase gratuity payouts for employees over time.

Here is everything you need to know about gratuity, eligibility rules, calculation methods, the new wage rule, and how these changes could impact your monthly salary and future savings.

 What is Gratuity?

Gratuity is a financial benefit paid by an employer to an employee for the services they have provided to the company over the years. It is usually paid when an employee resigns, retires, or leaves the organisation after completing a certain period of service.

In simple words, gratuity is a reward from the employer for an employee’s loyalty and contribution to the company.

The payment of gratuity is governed under the Payment of Gratuity Act, 1972 in India.

Who is Eligible for Gratuity?

An employee becomes eligible for gratuity under certain conditions. Generally, gratuity is paid if:

• The employee has completed at least 5 years of continuous service with the company.
• The employee retires from the organisation.
• The employee resigns after completing the minimum service period.
• The employee becomes permanently disabled due to an accident or illness.
• In case of the employee’s death, the gratuity amount is paid to the nominee or legal heir.

New Rule for Fixed-Term Employees

One of the important changes introduced under the new labour code is related to fixed-term employees.

Earlier, gratuity benefits were mostly available only after completing 5 years of service. However, under the new framework, fixed-term employees may become eligible for gratuity even after completing just one year of service.

This move is expected to benefit contractual and short-term workers significantly.

 What is the Payment of Gratuity Act?

The Payment of Gratuity Act, 1972 is a law designed to provide financial support to employees after long-term service.

According to this law:

• The Act applies to organisations employing 10 or more workers.
• Employees receive gratuity based on their last drawn salary and years of service.
• The employer is legally required to pay gratuity once eligibility conditions are met.

The main objective of this Act is to provide social security and financial stability to employees after years of service.

How is Gratuity Calculated?

The gratuity amount depends mainly on:

• Last drawn salary
• Number of years worked
• Whether the company is covered under the Gratuity Act

Formula for Employees Covered Under the Gratuity Act

Gratuity = (15 × Last Drawn Salary × Years of Service) ÷ 26

In this formula:

• 15 represents 15 days’ salary for every completed year of service.
• 26 represents the number of working days in a month.

 Formula for Employees Not Covered Under the Gratuity Actor Gratuity New Rules

Gratuity = (15 × Last Drawn Salary × Years of Service) ÷ 30

Gratuity Calculation Example

Let us understand with a simple example.

Suppose:

• Last drawn salary = ₹40,000
• Years of service = 10 years

If Covered Under the Gratuity Act

Gratuity = (15 × 40,000 × 10) ÷ 26

Final Amount = Approximately ₹2.30 lakh

If Not Covered Under the Act

Gratuity = (15 × 40,000 × 10) ÷ 30

Final Amount = ₹2 lakh

This example clearly shows how the gratuity amount changes depending on the rules applicable to the employer.

How Much Gratuity Will You Get After 5 Years?

If you complete 5 years in a company, gratuity is calculated using the same formula.

For example:

Gratuity = (15 × Last Salary × 5) ÷ 26

So, the higher your salary and longer your service period, the larger your gratuity payout will be.

 Is Gratuity Tax-Free?

In many cases, gratuity received by employees is tax-free up to a certain limit.

However, tax treatment depends on factors such as:

• Government or private sector employment
• Amount received
• Applicability of the Gratuity Act

Employees should check current income tax rules while filing returns.

 What is the Gratuity New Rules & 50% Wage Rule?

The new labour code introduced a standard definition of wages across industries.

Under the gratuity new rules:

• Basic salary plus dearness allowance (DA) must be at least 50% of the total salary package.
• Employers cannot keep basic salary too low while increasing allowances excessively.

This change is expected to standardise salary structures across companies.

How Will the New Labour Code Affect Employees?

The new wage structure may directly affect monthly salaries and long-term benefits.

 1. PF Contributions May Increase

Since PF is calculated on basic salary, higher basic pay means higher PF contributions.

This can help employees build a bigger retirement corpus over time.

 2. Take-Home Salary May Reduce

As PF contributions increase, monthly in-hand salary may reduce slightly if the overall cost-to-company (CTC) remains unchanged under gratuity new rules.

This is one of the biggest concerns among employees.

 3. Gratuity Amount May Increase

The biggest long-term benefit could be a higher gratuity payout.

Because gratuity is linked to basic wages, an increase in basic salary can increase the final gratuity amount employees receive while leaving the company.

 4. Better Retirement Security

Higher PF and gratuity contributions may strengthen long-term financial security for employees.

Although employees may receive slightly less monthly cash, retirement savings could become stronger.

How Will Companies Be Affected?

The new wage rules may also increase the financial burden on employers.

Companies may need to:

• Restructure salary packages
• Modify payroll systems
• Increase contributions towards employee benefits
• Update HR policies
• Educate employees about salary changes

Many organisations are still adjusting to these changes.

 PF Update Under the New Labour Code

Experts suggest that PF contributions can continue based on the employee’s basic salary, especially if the monthly basic wage is ₹15,000 or more.

Companies are expected to redesign salary structures carefully to maintain compliance with the new wage rules.

 Has the New Labour Code Already Been Implemented?

The four labour codes officially came into effect in late 2025. However, implementation may vary across states and industries.

Some rules are still being finalised, while many companies have already started changing salary structures and payroll systems.

Over time, the new labour code is expected to make salary structures more transparent and standardised.

Frequently Asked Questions (FAQ)

 Q1. How many years are required to get gratuity?

Generally, employees must complete 5 years of continuous service.

 Q2. Can private employees receive gratuity?

Yes. Private sector employees are eligible if the company has 10 or more employees.

Q3. Is gratuity paid after resignation?

Yes, if the employee has completed the required service period.

 Q4. Can gratuity be checked online?

Employees can contact HR departments or estimate the amount using the gratuity formula.

 Q5. Will the new labour code reduce salaries?

Take-home salary may reduce slightly because PF contributions may increase. However, long-term benefits like PF savings and gratuity are expected to improve.

 Conclusion

The discussion around gratuity new rules and the new labour code is likely to continue as companies adapt to the revised salary structure rules. While the 50% wage rule may reduce monthly take-home salary for some employees, it can improve long-term financial security through higher PF contributions and increased gratuity benefits.

For employees, understanding gratuity is now more important than ever. Whether you are working in a private company, planning a job switch, or preparing for retirement, gratuity can become a valuable part of your future savings. Under the new labour code, gratuity is expected to play an even bigger role in employee benefits and retirement planning in India.