Perceive the brand new gratuity guidelines below the Social Safety Code 2020. Examine outdated vs new guidelines with eligibility, wage modifications and PIB replace dated 21 Feb 2025.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 Data 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 drive as soon as the Authorities notifies the date.
Among the many numerous provisions, a very powerful and extensively mentioned change pertains to Gratuity—a retirement or exit profit that each salaried worker in India appears ahead to.
On this article, I’ll stroll you thru:
- How gratuity works below the present (outdated) legislation
- What is going to change below the brand new legislation
- Why fixed-term staff get a serious profit
- How the brand new “50% wage rule” will increase gratuity
- Comparability of outdated vs new guidelines
- A sensible instance
- Official authorities supply
It is a easy, easy, and easy-to-understand clarification aimed toward serving to staff, HR professionals, and monetary planners.
Previous vs New Gratuity Guidelines Below 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 dying 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 Right here is how the outdated legislation works.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 below employer supervision and management)
There is no such thing as a particular concession for fixed-term staff within the outdated system.
2.2 Wage Definition (Previous Legislation)
Gratuity is calculated solely on Fundamental Wage + Dearness Allowance (DA).
This permits firms 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 Components Below 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.
Check with the whole particulars about this outdated legislation on Gratuity at “Gratuity – New Restrict, Eligibility, Components, Taxation and Calculator“.
3. New Gratuity Legislation Below the Code on Social Safety, 2020 (But to Be Applied)
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 modifications as soon as the brand new legislation is notified.
3.1 The Gratuity Components: No Change
The formulation stays precisely the identical:
Gratuity = Wages × 15/26 × Years of Service
Nevertheless…
The definition of “Wages” modifications drastically — and that is the sport changer.
3.2 New Definition: Wages Should Be 50% of Complete Wage
Below the up to date “Wages Definition” (frequent to all labour codes):
- Wages = (Fundamental + DA + Retaining Allowance)
- All allowances mixed can’t exceed 50% of whole wage (CTC).
- If allowances are greater than 50%, the surplus is added again to wages.
This implies:
- Firms might be pressured to maintain Fundamental at minimal 50% of CTC
- This can naturally enhance the gratuity quantity
This is without doubt one of the largest monetary impacts of the brand new labour codes.
3.3 Mounted-Time period Workers Get a Main Profit
For the primary time in Indian labour legislation, the brand new Code introduces a particular profit:
Mounted-term staff turn out to be eligible for gratuity after finishing simply 1 yr of service.
This was not out there below the outdated legislation.
Why that is necessary?
Earlier:
- A hard and fast-term worker working 2–3 years (on repeated 1-year contracts) obtained no gratuity, until they accomplished 5 years.
Now:
- If the contract is 1 yr or extra, gratuity turns into payable.
It is a huge profit for workers in:
- IT sector
- Startups
- Manufacturing
- Gig and project-based industries
- EdTech
- Telecom
- Brief-duration talent contracts
Common staff, nevertheless, will proceed to comply with the 5-year rule.
4. Previous vs New: Facet-by-Facet Comparability
| Characteristic | Previous Legislation (1972) | New Legislation (2020 Code) |
| Components | Similar | Similar |
| Wage definition | Fundamental + DA | Fundamental + DA have to be 50% of whole CTC |
| Eligibility (Common staff) | 5 years | 5 years |
| Eligibility (Mounted-term staff) | No particular provision | Gratuity after 1 yr |
| Influence on payout | Decrease | Increased as a consequence of 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 yr, having accomplished 10 years of service.
Previous Legislation State of affairs
- 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 State of affairs (Necessary 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
- Increased gratuity as a consequence of increased wage definition
- Mounted-term employees get coated
- Wage structuring turns into extra employee-friendly
- Extra transparency and uniformity in compensation
6.2 Employers See Increased Prices
Firms could must:
- Restructure wage elements
- Improve Fundamental wage
- Bear increased 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 based mostly on the Authorities of India’s official press launch:
Press Data 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 closing
- 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. Ultimate Ideas
The gratuity reforms below the Social Safety Code, 2020 are a few of the most employee-friendly modifications in recent times. The 2 largest advantages are:
1. Necessary 50% wage definition – Increased 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 watch for 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 modifications, and employers ought to put together for the monetary influence.
When carried out, these modifications will carry extra uniformity, equity, and predictability to worker compensation in India.
