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 Data Bureau (PIB) launch on 21 November 2025 (PIB Launch ID: PRID 2192524). This press notice 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 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 underneath the present (previous) legislation
- What is going to change underneath the brand new legislation
- Why fixed-term workers 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 rationalization aimed toward serving to workers, 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Outdated vs New Gratuity Guidelines Underneath the Social Safety Code 2020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 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. Outdated Gratuity Legislation: Cost of Gratuity Act, 1972 (Present System)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 circumstances, the 5-year rule doesn’t apply.
This rule applies to:
- Everlasting workers
- Non permanent workers
- Contract workers (if underneath employer supervision and management)
There isn’t a particular concession for fixed-term workers within the previous system.
2.2 Wage Definition (Outdated Legislation)
Gratuity is calculated solely on Fundamental Wage + Dearness Allowance (DA).
This enables firms to maintain the Fundamental wage low (25–40%) and distribute the remaining CTC as allowances (HRA, particular allowance, bonus, and so on.), which reduces gratuity payouts.
2.3 Formulation Underneath Outdated Legislation
The statutory components 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 components has remained the identical for many years.
Check with the whole particulars about this previous legislation on Gratuity at “Gratuity – New Restrict, Eligibility, Formulation, Taxation and Calculator“.
3. New Gratuity Legislation 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 Formulation: 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 Whole Wage
Underneath the up to date “Wages Definition” (frequent to all labour codes):
- Wages = (Fundamental + DA + Retaining Allowance)
- All allowances mixed can not exceed 50% of whole wage (CTC).
- If allowances are greater than 50%, the surplus is added again to wages.
This implies:
- Corporations will probably be compelled to maintain Fundamental at minimal 50% of CTC
- This may 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 workers turn out to be eligible for gratuity after finishing simply 1 yr of service.
This was not obtainable underneath the previous legislation.
Why that is necessary?
Earlier:
- A set-term worker working 2–3 years (on repeated 1-year contracts) acquired no gratuity, except they accomplished 5 years.
Now:
- If the contract is 1 yr 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
- Brief-duration ability contracts
Common workers, nonetheless, will proceed to comply with the 5-year rule.
4. Outdated vs New: Aspect-by-Aspect Comparability
| Function | Outdated Legislation (1972) | New Legislation (2020 Code) |
| Formulation | Identical | Identical |
| Wage definition | Fundamental + DA | Fundamental + DA should be 50% of whole CTC |
| Eligibility (Common workers) | 5 years | 5 years |
| Eligibility (Mounted-term workers) | No particular provision | Gratuity after 1 yr |
| Impression on payout | Decrease | Greater as a result of wider wage definition |
| Wage structuring flexibility | Excessive | Restricted to guard workers |
| 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 yr, having accomplished 10 years of service.
Outdated Legislation State of affairs
- Fundamental = 35% of CTC = Rs.3,50,000
- Month-to-month Fundamental = Rs.29,167
Outdated gratuity:
= 29,167 × 15/26 × 10 = Rs.1,68,101
New Legislation State of affairs (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 Impression on Workers
6.1 Workers Profit the Most
- Greater gratuity as a result of greater 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
Corporations could must:
- Restructure wage elements
- Improve Fundamental wage
- Bear greater gratuity outflows
- Regulate payroll and HR insurance policies
That is one motive 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 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 workers are in place
- Implementation will comply with notification by the Central Authorities
This makes the knowledge totally legitimate and dependable.
8. Ultimate Ideas
The gratuity reforms underneath the Social Safety Code, 2020 are among the most employee-friendly adjustments in recent times. The 2 greatest advantages are:
1. Obligatory 50% wage definition – Greater gratuity payouts
2. One-year eligibility for fixed-term workers – Expanded protection
Whereas the components stays the identical, the bottom (wages) turns into wider and stronger.
As we look forward 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 impression.
When carried out, these adjustments will carry extra uniformity, equity, and predictability to worker compensation in India.
