Employee benefits
What changed for gratuity under the new Labour Codes?
From 21 November 2025, gratuity is governed by the Code on Social Security, 2020, which replaced the Payment of Gratuity Act, 1972. Two changes matter most. Fixed-term employees now qualify after one year instead of five. And the wages used to work out gratuity must be at least half of total pay, so companies that kept basic pay low will see gratuity rise.
In short
- The Code on Social Security, 2020 replaced the 1972 Gratuity Act.
- Fixed-term employees qualify after one year.
- The wage base is at least half of total pay.
- For many employers, gratuity liability rises.
Why does gratuity go up for many employees?
Because of the new definition of wages. Gratuity is worked out on basic pay, DA and retaining allowance. If the allowances excluded from wages add up to more than half of total remuneration, the excess is added back. So the wage base is now the higher of basic plus DA, or half of total pay. Where basic was a small share of pay, gratuity rises.
What changed for fixed-term employees?
They now qualify for gratuity after one year of service, instead of five. For businesses that use fixed-term contracts, this creates a gratuity liability much earlier than before.
What should employers do now?
| Area | What to check |
|---|---|
| Salary structure | Whether basic plus DA is below half of total pay |
| Fixed-term staff | Gratuity now accrues after one year |
| Funding | Whether the gratuity fund or group gratuity policy reflects the higher liability |
| Accounts | The liability booked against the new wage base |
Our group gratuity page explains how employers fund the liability.
Frequently asked questions
Has the gratuity law changed in India?
Yes. From 21 November 2025, gratuity is governed by the Code on Social Security, 2020.
Do fixed-term employees get gratuity?
Yes, after one year of service under the Code on Social Security.
Will my gratuity increase under the new Labour Codes?
It may, if your basic plus DA was less than half of your total pay, because the wage base is now at least half of total pay.
What happens when you talk to us
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A note on this page. Everything here is general information, not legal or tax advice, and nothing is an offer. Gratuity rules are as understood at the review date under the Code on Social Security, 2020, in force from 21 November 2025, and state positions can differ. For advice about your situation, talk to us.