“Gratuity Rules Just Changed!” From 1-Year Eligibility To Salary Formula Shift—What You’ll Actually Get Now
“Gratuity Rules Just Changed!” From 1-Year Eligibility To Salary Formula Shift—What You’ll Actually Get Now
From November 21, 2025, new labour codes will directly change how your gratuity is calculated—key rules explained clearly
The government has now clarified that the new labour codes will come into effect from November 21, 2025, bringing specific changes to gratuity eligibility and calculation that employees need to understand carefully.
The biggest shift is in eligibility rules. Earlier, gratuity required 5 years of continuous service in the same company. Under the new rules, this condition remains for regular employees—but for fixed-term (contract) employees, eligibility now starts after just 1 year of service. The payment will be made on a pro-rata basis, depending on the duration of employment.
Another important change is in how ‘wages’ are defined, which directly impacts gratuity. Now, wages will mainly include basic pay, dearness allowance (DA), and retaining allowance. If an employee’s allowances exceed 50% of total salary, the excess amount will be added to the basic salary. This increases the base used for gratuity calculation.
Gratuity itself will continue to be calculated using a fixed formula:
Gratuity = Last Drawn Salary × 15/26 × Total Years of Service
Here, the “last drawn salary” refers only to the wage components defined above—not the full CTC.
There are also clear exclusions. Components such as HRA, bonus, commission, employer’s PF contribution, and medical benefits will not be included while calculating gratuity. This distinction is crucial, as many employees mistakenly assume gratuity is based on total salary.
The timeline for payment remains unchanged. Employers are required to pay gratuity within 30 days of an employee leaving the organisation or retiring.
These changes are particularly significant for contract and fixed-term employees, who were earlier excluded from gratuity benefits unless they completed long service periods. At the same time, the revised wage definition may lead to higher gratuity amounts, depending on how salary structures are adjusted by companies.
Disclaimer: This article is for informational purposes only. Readers should verify details with their employer or a financial advisor before making decisions.
