Gratuity Under the Labour Codes — Everything That Changed

The two changes that actually matter

First: fixed-term and contract employees gained a 1-year gratuity vesting threshold under the Code on Social Security, replacing a 5-year rule that most fixed-term staff never realistically reached. This is a straightforward eligibility EXPANSION — more employees now qualify.

Second, and less visible: the wage base used in the gratuity formula changed via the Code on Wages' 50%-excluded-allowances cap. Where a salary structure previously kept a large share of remuneration in HRA, special allowance, or similar excluded heads, the excess above the 50% mark is now added back into the wage base used for gratuity — meaning the SAME employee, SAME tenure, and SAME CTC can produce a HIGHER gratuity figure post-Codes than a basic-only calculation would have shown pre-Codes.

What stayed the same

The core formula (15/26 for covered establishments, 15/30 for non-covered, 7 days/season for seasonal), the permanent-employee 5-year threshold, the death/disability waiver, and the ₹20,00,000 tax-exemption ceiling all continue substantially unchanged from the pre-Codes Payment of Gratuity Act position — verify each of these hasn't been separately revised, since the ceiling in particular has seen periodic revision proposals.

What's still unsettled as of mid-2026

Central rules under the Labour Codes were published in draft form on 30 December 2025, with finalisation expected around 1 April 2026 — confirm whether that finalisation has since occurred and whether it changed any of the specific mechanics described here. State-level implementation also varies; several states have notified their own rules while others remain in process, so a single national position should not be asserted without checking the specific state a client operates in.