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 Info Bureau (PIB) launch on 21 November 2025 (PIB Launch ID: ADJ 2192524). This press word confirms that the 4 main Labour Codes, together with the Code on Social Safety, 2020are prepared for implementation and can come into power as soon as the Authorities notifies the date.
Among the many varied provisions, crucial and broadly mentioned change pertains to Gratuity—a retirement or exit profit that each salaried worker in India seems to be ahead to.
On this article, I’ll stroll you thru:
- How gratuity works underneath the present (previous) legislation
- What’s going to change underneath the brand new legislation
- Why fixed-term staff 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 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 Fee of Gratuity Act, 1972and within the FUTURE by the Code on Social Safety, 2020as soon as notified.
2. Previous Gratuity Legislation: Fee 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 staff
- Momentary staff
- Contract staff (if underneath employer supervision and management)
There is no such thing as a particular concession for fixed-term staff within the previous system.
2.2 Wage Definition (Previous Legislation)
Gratuity is calculated solely on Primary Wage + Dearness Allowance (DA).
This enables corporations 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 System Below Previous Legislation
The statutory method 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 method has remained the identical for many years.
Discuss with the entire particulars about this previous legislation on Gratuity at “Gratuity – New Restrict, Eligibility, System, 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 adjustments as soon as the brand new legislation is notified.
3.1 The Gratuity System: No Change
The method 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
Below the up to date “Wages Definition” (frequent to all labour codes):
- Wages = (Primary + 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 shall be compelled to maintain Primary at minimal 50% of CTC
- This can naturally improve the gratuity quantity
This is among the greatest monetary impacts of the brand new labour codes.
3.3 Mounted-Time period Staff 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 yr of service.
This was not accessible underneath the previous legislation.
Why that is necessary?
Earlier:
- A set-term worker working 2–3 years (on repeated 1-year contracts) obtained no gratuityuntil they accomplished 5 years.
Now:
- If the contract is 1 yr or extragratuity turns into payable.
It is a huge profit for workers in:
- IT sector
- Startups
- Manufacturing
- Gig and project-based industries
- EdTech
- Telecom
- Quick-duration ability contracts
Common staff, nevertheless, will proceed to observe the 5-year rule.
4. Previous vs New: Aspect-by-Aspect Comparability
| Characteristic | Previous Legislation (1972) | New Legislation (2020 Code) |
| System | Identical | Identical |
| Wage definition | Primary + YES | 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 yr |
| Influence on payout | Decrease | Greater as a result 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 yrhaving accomplished 10 years of service.
Previous Legislation State of affairs
- Primary = 35% of CTC = Rs.3,50,000
- Month-to-month Primary = Rs.29,167
Previous gratuity:
= 29,167 × 15/26 × 10 = Rs.1,68,101
New Legislation 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
Improve: ~43%
This instance clearly exhibits why the brand new legislation considerably will increase gratuity advantages.
6. Sensible Influence on Staff
6.1 Staff Profit the Most
- Greater gratuity as a result of greater wage definition
- Mounted-term employees get coated
- Wage structuring turns into extra employee-friendly
- Extra transparency and uniformity in compensation
6.2 Employers See Greater Prices
Corporations might must:
- Restructure wage elements
- Improve Primary wage
- Bear greater gratuity outflows
- Modify 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 immediately based mostly on the Authorities of India’s official press launch:
Press Info Bureau (PIB)
Launch ID: ADJ 2192524
Date: 21 November 2025
Title: “Labour Codes Prepared for Implementation”
Hyperlink: PIB Notification.
The PIB launch confirms:
- Social Safety Code, 2020 is ultimate
- Provisions associated to gratuity, wage definition, fixed-term staff are in place
- Implementation will observe notification by the Central Authorities
This makes the knowledge absolutely legitimate and dependable.
8. Closing Ideas
The gratuity reforms underneath 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 method stays the identical, the bottom (wages) turns into wider and stronger.
As we await the federal government to formally notify the implementation date, this PIB launch assures us that the brand new gratuity guidelines will definitely come. Staff ought to perceive these adjustments, and employers ought to put together for the monetary affect.
When carried out, these adjustments will deliver extra uniformity, equity, and predictability to worker compensation in India.
