Perceive the brand new gratuity guidelines below the Social Safety Code 2020. Examine outdated vs new guidelines with eligibility, wage adjustments and PIB replace dated 21 Feb 2025.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 Data Bureau (PIB) launch on 21 November 2025 (PIB Launch ID: PRID 2192524). This press observe 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 varied provisions, an important and extensively 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- How gratuity works below the present (outdated) legislation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- Comparability of outdated vs new guidelines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
This can be a easy, simple, and easy-to-understand clarification geared toward serving to staff, HR professionals, and monetary planners.
Outdated vs New Gratuity Guidelines Underneath the Social Safety Code 2020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. Outdated Gratuity Regulation: Cost of Gratuity Act, 1972 (Present System)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 Right here is how the outdated legislation works.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 circumstances, the 5-year rule doesn’t apply.
This rule applies to:
- Everlasting staff
- Short-term staff
- Contract staff (if below employer supervision and management)
There isn’t a particular concession for fixed-term staff within the outdated system.
2.2 Wage Definition (Outdated Regulation)
Gratuity is calculated solely on Primary Wage + Dearness Allowance (DA).
This enables firms to maintain the Primary wage low (25–40%) and distribute the remaining CTC as allowances (HRA, particular allowance, bonus, and so on.), which reduces gratuity payouts.
2.3 Components Underneath Outdated Regulation
The statutory components for gratuity is:
Gratuity = (Primary + DA) × 15/26 × Variety of Accomplished Years
The place:
- 15 = 15 days’ wages
- 26 = variety of working days in a month
This components has remained the identical for many years.
Check with the entire particulars about this outdated legislation on Gratuity at “Gratuity – New Restrict, Eligibility, Components, Taxation and Calculator“.
3. New Gratuity Regulation Underneath 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 adjustments as soon as the brand new legislation is notified.
3.1 The Gratuity Components: No Change
The components 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 = (Primary + 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 compelled to maintain Primary at minimal 50% of CTC
- It will naturally enhance the gratuity quantity
This is likely one of the greatest 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 into eligible for gratuity after finishing simply 1 12 months of service.
This was not out there below the outdated legislation.
Why that is essential?
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.
This can be a large profit for workers in:
- IT sector
- Startups
- Manufacturing
- Gig and project-based industries
- EdTech
- Telecom
- Brief-duration talent contracts
Common staff, nonetheless, will proceed to comply with the 5-year rule.
4. Outdated vs New: Aspect-by-Aspect Comparability
| Function | Outdated Regulation (1972) | New Regulation (2020 Code) |
| Components | Identical | Identical |
| Wage definition | Primary + DA | Primary + 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 12 months |
| Affect on payout | Decrease | Greater resulting from wider wage definition |
| Wage structuring flexibility | Excessive | Restricted to guard staff |
| Allowances cap | Not relevant | Allowances capped at 50% of CTC |
5. Instance: Outdated 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.
Outdated Regulation State of affairs
- Primary = 35% of CTC = Rs.3,50,000
- Month-to-month Primary = Rs.29,167
Outdated gratuity:
= 29,167 × 15/26 × 10 = Rs.1,68,101
New Regulation State of affairs (Necessary 50% Wage Rule)
- Primary = 50% of CTC = Rs.5,00,000
- Month-to-month Primary = Rs.41,667
New gratuity:
= 41,667 × 15/26 × 10 = Rs.2,40,396
Enhance: ~43%
This instance clearly exhibits why the brand new legislation considerably will increase gratuity advantages.
6. Sensible Affect on Workers
6.1 Workers Profit the Most
- Greater gratuity resulting from larger wage definition
- Mounted-term staff get lined
- Wage structuring turns into extra employee-friendly
- Extra transparency and uniformity in compensation
6.2 Employers See Greater Prices
Firms could must:
- Restructure wage parts
- Enhance Primary wage
- Bear larger gratuity outflows
- Modify payroll and HR insurance policies
That is one cause the implementation has been delayed.
7. Official Supply: PIB Affirmation
The small print talked about above are instantly primarily based 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 last
- Provisions associated to gratuity, wage definition, fixed-term staff are in place
- Implementation will comply with notification by the Central Authorities
This makes the data totally legitimate and dependable.
8. Remaining Ideas
The gratuity reforms below the Social Safety Code, 2020 are a number of the most employee-friendly adjustments lately. The 2 greatest advantages are:
1. Necessary 50% wage definition – Greater gratuity payouts
2. One-year eligibility for fixed-term staff – Expanded protection
Whereas the components stays the identical, the bottom (wages) turns into wider and stronger.
As we look ahead to 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 influence.
When carried out, these adjustments will convey extra uniformity, equity, and predictability to worker compensation in India.
