Perceive the brand new gratuity guidelines underneath the Social Safety Code 2020. Evaluate previous vs new guidelines with eligibility, wage adjustments and PIB replace dated 21 Feb 2025.
The Central Authorities has as soon as once more introduced consideration to the long-awaited Labour Codes by publishing a brand new Press Info Bureau (PIB) launch on 21 November 2025 (PIB Launch ID: PRID 2192524). This press be aware confirms that the 4 main Labour Codes, together with the Code on Social Safety, 2020, are prepared for implementation and can come into power as soon as the Authorities notifies the date.
Among the many numerous provisions, a very powerful and broadly mentioned change pertains to Gratuity—a retirement or exit profit that each salaried worker in India appears to be like ahead to.
On this article, I’ll stroll you thru:
- How gratuity works underneath the present (previous) legislation
- What’s going to change underneath the brand new legislation
- Why fixed-term staff get a serious profit
- How the brand new “50% wage rule” will increase gratuity
- Comparability of previous vs new guidelines
- A sensible instance
- Official authorities supply
It is a easy, easy, and easy-to-understand clarification geared toward serving to staff, HR professionals, and monetary planners.
Previous vs New Gratuity Guidelines Underneath the Social Safety Code 2020
1. What’s Gratuity?
Gratuity is a lump-sum profit paid by an employer to an worker as a token of appreciation for long-term service. It’s payable:
- On resignation
- On retirement
- On termination
- Or to the nominee in case of demise or incapacity
The gratuity system is ruled TODAY by the Cost of Gratuity Act, 1972, and within the FUTURE by the Code on Social Safety, 2020, as soon as notified.
2. Previous Gratuity Legislation: Cost of Gratuity Act, 1972 (Present System)
The current gratuity system continues till the Authorities notifies the brand new Code. Right here is how the previous legislation works.
2.1 Eligibility
An worker turns into eligible for gratuity solely after finishing 5 years of steady service.
The exceptions are:
In such instances, the 5-year rule doesn’t apply.
This rule applies to:
- Everlasting staff
- Non permanent staff
- Contract staff (if underneath employer supervision and management)
There isn’t a particular concession for fixed-term staff within the previous system.
2.2 Wage Definition (Previous Legislation)
Gratuity is calculated solely on Fundamental Wage + Dearness Allowance (DA).
This permits corporations to maintain the Fundamental wage low (25–40%) and distribute the remaining CTC as allowances (HRA, particular allowance, bonus, and many others.), which reduces gratuity payouts.
2.3 Method Underneath Previous Legislation
The statutory formulation for gratuity is:
Gratuity = (Fundamental + DA) × 15/26 × Variety of Accomplished Years
The place:
- 15 = 15 days’ wages
- 26 = variety of working days in a month
This formulation has remained the identical for many years.
Consult with the whole particulars about this previous legislation on Gratuity at “Gratuity – New Restrict, Eligibility, Method, Taxation and Calculator“.
3. New Gratuity Legislation Underneath the Code on Social Safety, 2020 (But to Be Carried out)
As per the PIB Press Launch (PRID 2192524, dated 21 November 2025), the provisions of the Social Safety Code, together with gratuity guidelines, are finalized and prepared for implementation.
Let’s perceive what adjustments as soon as the brand new legislation is notified.
3.1 The Gratuity Method: No Change
The formulation stays precisely the identical:
Gratuity = Wages × 15/26 × Years of Service
Nevertheless…
The definition of “Wages” adjustments drastically — and that is the sport changer.
3.2 New Definition: Wages Should Be 50% of Complete Wage
Underneath the up to date “Wages Definition” (widespread to all labour codes):
- Wages = (Fundamental + DA + Retaining Allowance)
- All allowances mixed can’t exceed 50% of complete wage (CTC).
- If allowances are greater than 50%, the surplus is added again to wages.
This implies:
- Firms will probably be compelled to maintain Fundamental at minimal 50% of CTC
- This can naturally enhance the gratuity quantity
This is without doubt one of the greatest monetary impacts of the brand new labour codes.
3.3 Fastened-Time period Workers Get a Main Profit
For the primary time in Indian labour legislation, the brand new Code introduces a particular profit:
Fastened-term staff grow to be eligible for gratuity after finishing simply 1 12 months of service.
This was not obtainable underneath the previous legislation.
Why that is vital?
Earlier:
- A set-term worker working 2–3 years (on repeated 1-year contracts) obtained no gratuity, except they accomplished 5 years.
Now:
- If the contract is 1 12 months or extra, gratuity turns into payable.
It is a large profit for workers in:
- IT sector
- Startups
- Manufacturing
- Gig and project-based industries
- EdTech
- Telecom
- Quick-duration talent contracts
Common staff, nevertheless, will proceed to comply with the 5-year rule.
4. Previous vs New: Facet-by-Facet Comparability
| Function | Previous Legislation (1972) | New Legislation (2020 Code) |
| Method | Similar | Similar |
| Wage definition | Fundamental + DA | Fundamental + DA have to be 50% of complete CTC |
| Eligibility (Common staff) | 5 years | 5 years |
| Eligibility (Fastened-term staff) | No particular provision | Gratuity after 1 12 months |
| Influence on payout | Decrease | Greater attributable to wider wage definition |
| Wage structuring flexibility | Excessive | Restricted to guard staff |
| Allowances cap | Not relevant | Allowances capped at 50% of CTC |
5. Instance: Previous vs New Gratuity Calculation
Let’s assume an worker incomes a CTC of Rs.10,00,000 per 12 months, having accomplished 10 years of service.
Previous Legislation Situation
- Fundamental = 35% of CTC = Rs.3,50,000
- Month-to-month Fundamental = Rs.29,167
Previous gratuity:
= 29,167 × 15/26 × 10 = Rs.1,68,101
New Legislation Situation (Obligatory 50% Wage Rule)
- Fundamental = 50% of CTC = Rs.5,00,000
- Month-to-month Fundamental = Rs.41,667
New gratuity:
= 41,667 × 15/26 × 10 = Rs.2,40,396
Improve: ~43%
This instance clearly exhibits why the brand new legislation considerably will increase gratuity advantages.
6. Sensible Influence on Workers
6.1 Workers Profit the Most
- Greater gratuity attributable to greater wage definition
- Fastened-term employees get coated
- Wage structuring turns into extra employee-friendly
- Extra transparency and uniformity in compensation
6.2 Employers See Greater Prices
Firms could have to:
- Restructure wage parts
- Improve Fundamental wage
- Bear greater gratuity outflows
- Modify payroll and HR insurance policies
That is one purpose the implementation has been delayed.
7. Official Supply: PIB Affirmation
The main points talked about above are straight primarily based on the Authorities of India’s official press launch:
Press Info Bureau (PIB)
Launch ID: PRID 2192524
Date: 21 November 2025
Title: “Labour Codes Prepared for Implementation”
Hyperlink: PIB Notification.
The PIB launch confirms:
- Social Safety Code, 2020 is ultimate
- Provisions associated to gratuity, wage definition, fixed-term staff are in place
- Implementation will comply with notification by the Central Authorities
This makes the knowledge absolutely legitimate and dependable.
8. Last Ideas
The gratuity reforms underneath the Social Safety Code, 2020 are among the most employee-friendly adjustments lately. The 2 greatest advantages are:
1. Obligatory 50% wage definition – Greater gratuity payouts
2. One-year eligibility for fixed-term staff – Expanded protection
Whereas the formulation stays the identical, the bottom (wages) turns into wider and stronger.
As we await the federal government to formally notify the implementation date, this PIB launch assures us that the brand new gratuity guidelines will definitely come. Workers ought to perceive these adjustments, and employers ought to put together for the monetary affect.
When carried out, these adjustments will convey extra uniformity, equity, and predictability to worker compensation in India.
