India’s new labour laws, which came into effect on November 21, 2025, have brought major changes to how salaries, benefits, and workplace rules are handled.
One of the biggest updates is in gratuity — a key benefit many employees receive after years of service.
While the basic structure remains the same, some important changes could increase the amount employees receive.
The government has also clarified that these new rules apply only from November 21, 2025, and not to past service periods.
What Has Stayed the Same?
Even after the changes, the core rules of gratuity remain familiar.
Employees are still eligible for gratuity after 5 years of continuous service. It is paid when:
You retire
Resign
Reach superannuation
Face disablement
Or in case of death
The calculation method also remains unchanged. Gratuity is still based on your last drawn salary and years of service.
Fixed-Term Employees Get a Big Benefit
A major update is the inclusion of fixed-term employees.
Now, if a fixed-term employee completes at least 1 year of service, they are eligible for gratuity.
The amount will be calculated based on how long they worked.
However, there’s a catch — if the contract is less than one year (for example, 11 months), gratuity will not be applicable.
This change expands coverage and brings more workers under the gratuity benefit system.
How Gratuity Is Calculated
The formula for gratuity has not changed:
Gratuity=Last Drawn Wages×1526×Years of Service\text{Gratuity} = \text{Last Drawn Wages} \times \frac{15}{26} \times \text{Years of Service}
In simple terms, employees receive 15 days’ worth of salary for every completed year of service, based on their last drawn wages.
Employers are required to pay this amount within 30 days of it becoming due.
Why Your Gratuity May Increase
The biggest impact comes from a new definition of “wages.”
Under the updated rules:
Basic pay + dearness allowance + retaining allowance must make up at least 50% of total salary
If allowances (like HRA or special allowances) go beyond this limit, the extra portion is added back to wages for calculating benefits like gratuity.
This means:
Higher wage base
Higher gratuity payout
Earlier, many companies kept basic pay low to reduce payouts.
The new rule limits this practice, which could increase gratuity by 20% to 50% or more for long-term employees.
What Counts as Wages (and What Doesn’t)
For gratuity calculation, wages include:
Basic pay
Dearness allowance
Retaining allowance
But these are excluded:
Bonus
House Rent Allowance (HRA)
Employer’s EPF contribution
Conveyance and other benefits
What This Means for You
For employees, these changes are a big win.
More people are now eligible for gratuity, and payouts are likely to be higher.
For companies, it means increased costs and a need to rethink salary structures to stay compliant.
Overall, the new rules aim to make compensation more transparent and fair, while strengthening long-term financial benefits for workers.
