New Gratuity Rules From 21 November 2025: Big Boost in Payouts as ‘Wages’ Must Be 50% of CTC
From 21 November 2025, the new labour code is set to bring one of the biggest changes to an employee’s retirement benefits — a sharp rise in gratuity payouts. The updated rules redefine how “wages” are calculated and shorten the eligibility period for fixed-term workers.
For crores of salaried employees, this update directly affects long-term savings, retirement planning and the take-home income they receive every month.
What Has Changed in the New Gratuity System?
The government has introduced two major reforms:
1. Basic Salary Must Be Minimum 50% of CTC
Under the new labour code, employers must ensure that basic pay forms at least 50% of the total Cost to Company (CTC). If allowances exceed 50%, the extra amount automatically gets added to “wages,” raising the gratuity base calculation.
Earlier:
Gratuity = Based only on Basic Pay + DA
Now:
Gratuity = Basic Pay + DA + Excess Allowances Over 50% of CTC
This single change increases gratuity for almost every employee working in the private sector.
2. Fixed-Term Employees Get Gratuity After Just 1 Year
Until now, gratuity was paid only after 5 years of continuous service with the same employer.
Under the new system:
- Permanent employees → still need 5 years
- Fixed-term/contract employees → eligible after 1 year, on a pro-rata basis
This is a massive relief for contractual workers who frequently change companies.
Why the New Rules Matter
The biggest financial impact comes from the new definition of wages. Since basic salary becomes larger, gratuity naturally increases without employees needing to negotiate anything with HR.
Key Benefits for Employees
- Bigger gratuity payouts
- Retirement corpus grows faster
- Contract workers gain financial protection
- More transparency in salary structure
- Improved long-term social security
How Gratuity Is Calculated (Simple Explanation)
The government uses a standard calculation formula:
Formula:
Gratuity = (Last Drawn Wages × 15/26) × Total Years of Service
Where:
- 15 = 15 days’ salary for each year of service
- 26 = 26 working days in a month (4 Sundays removed)
Example: How Much Extra You Earn Under New Rules
Case Study: Employee With ₹70,000 Monthly Salary
- Basic Salary = ₹30,000
- Allowances = ₹40,000
- 50% of CTC = ₹35,000
- Allowances exceed by = ₹5,000 → added to wages
Wage for calculation = 30,000 + 5,000 = ₹35,000
New Rule Gratuity
15/26 × (35,000 × 10) = ₹2,01,923
Old Rule Gratuity
15/26 × (30,000 × 10) = ₹1,73,076
Direct Benefit: ₹28,847 More
Gratuity Without 5 Years of Service
The 5-year rule does not apply in cases of:
- Death of employee
- Permanent disability
- Fixed-term contracts (after completing the contract period)
Families also receive gratuity even if the employee had not completed full service tenure.
How Much More Gratuity Will You Get? (By CTC)
Due to the 50% wage rule, expected increases are:
| Annual CTC | Old Gratuity (Approx.) | New Gratuity (Approx.) |
|---|---|---|
| ₹6 lakh | ~₹14,430 | ~₹19,000 |
| ₹12 lakh | ~₹28,860 | ~₹37,999 |
| ₹24 lakh | ~₹57,720 | ~₹75,998 |
Employees across salary slabs will see a noticeable jump in their final payout.
Why Take-Home Salary May Reduce
With basic pay increasing to meet the 50% requirement:
- PF contribution increases
- Gratuity base increases
- Employer contributions rise
This may slightly reduce monthly in-hand salary, but significantly improves retirement savings and social security.
Important Highlights (At a Glance)
- New gratuity rules effective 21 Nov 2025
- Basic salary must be at least 50% of CTC
- Higher gratuity payout for all employees
- Contract workers eligible after 1 year
- Better retirement and social security benefits
- Gratuity paid even without 5 years in special cases
Final Takeaway
The 2025 labour code aims to push India towards a more employee-friendly and transparent work environment. Although take-home salary may slightly dip, the long-term gains in gratuity, PF and retirement corpus far outweigh the short-term impact.
If you’re a salaried employee, this update ensures higher financial protection, better benefits and a stronger future safety net.