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New Labour Codes Gratuity Rule: Complete Guide to Latest Changes (2025 Update)

new labour codes gratuity rule

The new labour codes gratuity rule is one of the most discussed topics in India today, especially among salaried employees and HR professionals. With the introduction of the four new labour codes—Wage Code, Social Security Code, Industrial Relations Code, and Occupational Safety Code—the government has redefined multiple aspects of employee rights, benefits, and workplace regulations. Among these, the biggest curiosity among employees is about the new labour codes gratuity rule and how it impacts gratuity eligibility, amount, and employer obligations.

This article breaks down everything you need to know about the new labour codes gratuity rule, how gratuity calculation changes, who becomes eligible, and how it benefits employees under the new wage structure.

What Is the New Labour Codes Gratuity Rule?

The new labour codes gratuity rule refers to the upgraded gratuity provisions under the Social Security Code, 2020, which aims to expand employee benefits and ensure fair compensation. The new rule introduces major changes such as fixed-term employee eligibility, possible reduction of five-year limit, and higher gratuity payout due to the new wage structure.

Under the new labour laws, the term “wages” is more standardized, impacting gratuity significantly. Since gratuity is calculated on basic pay, the revised wage structure directly increases the final gratuity amount for most employees.

Why Is the New Labour Codes Gratuity Rule Trending?

The new labour codes gratuity rule is trending because of these major reasons:

Higher basic pay leads to higher gratuity payment.
Fixed-term employees become eligible for gratuity without completing 5 years.
The new wage definition increases employer liability.
Employees want clarity on how this affects their salary structure in 2025 and beyond.
HR teams and companies are preparing for the shift in financial planning and payroll systems.

With the government’s focus on modernizing labour laws, the new labour codes gratuity rule plays a key role in strengthening employee welfare and social security.

Key Highlights of the New Labour Codes Gratuity Rule

Here are the most important features of the new labour codes gratuity rule:

1. Gratuity Eligibility May Change

The traditional rule requires 5 years of continuous service.
However, under the new labour framework:

Fixed-term employees will receive gratuity even if they do not complete 5 years.
Eligibility could be based on tenure of contract, making it a major benefit for contract workers.

2. Higher Gratuity Payout

Due to the government’s rule that basic salary must be at least 50% of CTC, gratuity calculation changes.

Higher basic pay = Higher gratuity under the new labour codes gratuity rule.

3. Standardized Definition of Wages

The Wage Code mandates a uniform wage structure. This means:

Allowances cannot exceed 50% of total pay
Basic pay must be at least 50%

This directly increases the gratuity amount employees receive upon resignation, retirement, or termination.

4. Gratuity for Platform Employees & Gig Workers

Under the Social Security Code:

Gig workers
Platform workers
Independent contractors

may receive additional social security benefits, though clarity on gratuity for these groups is still evolving.

How Gratuity Is Calculated Under the New Labour Codes Gratuity Rule

The formula remains the same but the numbers change because of the revised wage structure.

Gratuity Formula

Gratuity = (15/26) × Last Drawn Basic Salary × Years of Service

Because basic salary is increasing under the new code, the final gratuity amount becomes higher.

Example Calculation (New Wage Structure)

Old Basic Salary = ₹20,000
New Basic Salary (after wage code) = ₹30,000
Years of Service = 10

Old Gratuity = ₹1,15,385
New Gratuity = ₹1,73,077

This proves that the new labour codes gratuity rule increases employee benefits significantly.

Gratuity Rule Changes for Fixed-Term Employees

One of the biggest reforms in the new labour codes gratuity rule is the eligibility for fixed-term employees.

Fixed-term employees get gratuity:

Even without 5 years of service
Based on monthly or yearly contract duration
Equivalent to permanent employees for gratuity calculations

This is a huge benefit for sectors like IT, manufacturing, media, gig work, and contract-based industries.

Impact of the New Labour Codes Gratuity Rule on Employees

The new labour codes gratuity rule impacts both current and future employees:

Benefits for Employees

Higher gratuity payout
Better retirement benefits
More transparency in wage structure
Contract workers get included in benefits
Stronger social security support under the new codes

Impact on Take-Home Salary

Because basic wage increases, take-home salary may decrease slightly. This is due to:

Higher PF contribution
Higher gratuity calculation base
More structured salary under new wage code

But long-term benefits increase significantly, making the new structure more favourable.

Impact on Employers

Companies need to adjust to the new labour codes gratuity rule by:

Redesigning salary structures
Increasing gratuity financial reserves
Updating payroll and HRMS systems
Accounting for higher employee benefit liability

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FAQs

1. What is the new labour codes gratuity rule in India?

The new labour codes gratuity rule under the Social Security Code 2020 revises eligibility, wage calculations, and benefits. It increases gratuity due to a higher basic wage and includes fixed-term employees under gratuity coverage.

2. Do employees still need 5 years of service for gratuity?

Under the new rule, permanent employees still need 5 years of continuous service, but fixed-term employees can receive gratuity even without 5 years, based on their contract duration.

3. How does the new wage code affect gratuity calculation?

The new wage code requires basic salary = 50% of total CTC, which increases the gratuity amount, because gratuity is calculated on basic wages.

4. Will the new gratuity rules reduce my take-home salary?

Yes, take-home may slightly reduce due to higher basic salary, PF contribution, and benefits, but long-term gains like higher gratuity and retirement benefits increase significantly.

5. Are gig workers and platform workers included in the new gratuity rules?

The Social Security Code introduces new protections and benefits for gig and platform workers. However, gratuity-specific rules for gig workers are still under review.

6. When will the new labour codes gratuity rule come into full effect?

The government is expected to implement the complete labour codes soon, as preparations for payroll restructuring and compliance are already underway.

Conclusion

The new labour codes gratuity rule marks a major shift in India’s labour reform journey. It ensures stronger financial security for employees, especially through increased gratuity amounts and expanded eligibility. With improved transparency and standardized wage definitions, this reform benefits both long-term and fixed-term workers.

As we move closer to full implementation of the new labour codes across India, the new labour codes gratuity rule will play a central role in shaping employee benefits and social security. Employees should stay informed about these changes, and employers must begin restructuring payroll systems to meet the new compliance standards.

Rakesh Arroju