Perceive the brand new gratuity guidelines beneath the Social Safety Code 2020. Examine previous 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 Info 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 varied provisions, a very powerful and broadly mentioned change pertains to Gratuity—a retirement or exit profit that each salaried worker in India seems ahead to.
On this article, I’ll stroll you thru:
- How gratuity works beneath the present (previous) regulation
- What’s going to change beneath the brand new regulation
- Why fixed-term workers get a significant profit
- How the brand new “50% wage rule” will increase gratuity
- Comparability of previous vs new guidelines
- A sensible instance
- Official authorities supply
This can be a easy, simple, and easy-to-understand clarification aimed toward serving to workers, HR professionals, and monetary planners.
Previous 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. Previous 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 previous regulation 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
- Short-term workers
- Contract workers (if beneath employer supervision and management)
There isn’t any particular concession for fixed-term workers within the previous system.
2.2 Wage Definition (Previous 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 Method Underneath Previous Regulation
The statutory formulation 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 formulation has remained the identical for many years.
Consult with the entire particulars about this previous regulation on Gratuity at “Gratuity – New Restrict, Eligibility, Method, 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 modifications as soon as the brand new regulation is notified.
3.1 The Gratuity Method: No Change
The formulation stays precisely the identical:
Gratuity = Wages × 15/26 × Years of Service
Nonetheless…
The definition of “Wages” modifications 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 = (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:
- Firms will likely be compelled to maintain Primary at minimal 50% of CTC
- It will naturally improve the gratuity quantity
This is among the largest monetary impacts of the brand new labour codes.
3.3 Fastened-Time period Workers Get a Main Profit
For the primary time in Indian labour regulation, the brand new Code introduces a particular profit:
Fastened-term workers develop into eligible for gratuity after finishing simply 1 12 months of service.
This was not obtainable beneath the previous regulation.
Why that is vital?
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 12 months or extra, gratuity turns into payable.
This can be a huge profit for workers in:
- IT sector
- Startups
- Manufacturing
- Gig and project-based industries
- EdTech
- Telecom
- Quick-duration talent contracts
Common workers, nonetheless, will proceed to observe the 5-year rule.
4. Previous vs New: Aspect-by-Aspect Comparability
| Characteristic | Previous Regulation (1972) | New Regulation (2020 Code) |
| Method | Similar | Similar |
| Wage definition | Primary + DA | Primary + DA should be 50% of whole CTC |
| Eligibility (Common workers) | 5 years | 5 years |
| Eligibility (Fastened-term workers) | No particular provision | Gratuity after 1 12 months |
| Impression on payout | Decrease | Larger attributable to wider wage definition |
| Wage structuring flexibility | Excessive | Restricted to guard workers |
| 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 12 months, having accomplished 10 years of service.
Previous Regulation 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 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
Improve: ~43%
This instance clearly reveals why the brand new regulation considerably will increase gratuity advantages.
6. Sensible Impression on Workers
6.1 Workers Profit the Most
- Larger gratuity attributable to greater wage definition
- Fastened-term employees get coated
- Wage structuring turns into extra employee-friendly
- Extra transparency and uniformity in compensation
6.2 Employers See Larger Prices
Firms could must:
- Restructure wage elements
- Improve Primary wage
- Bear greater gratuity outflows
- Regulate 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 straight primarily based on the Authorities of India’s official press launch:
Press Info 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 ultimate
- Provisions associated to gratuity, wage definition, fixed-term workers are in place
- Implementation will observe notification by the Central Authorities
This makes the data totally legitimate and dependable.
8. Ultimate Ideas
The gratuity reforms beneath 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 – Larger gratuity payouts
2. One-year eligibility for fixed-term workers – Expanded protection
Whereas the formulation 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. Workers ought to perceive these modifications, and employers ought to put together for the monetary impression.
When applied, these modifications will carry extra uniformity, equity, and predictability to worker compensation in India.
