The Indian workforce is buzzing with questions. Since November 21, 2025, when the new labour codes became legally effective, the rules of employment have shifted fundamentally (1). If you have been reading the news in January 2026, you have likely seen headlines promising gratuity after just one year of service. But does this apply to everyone? Does it change your salary? And how does it affect your long-term savings?
Confusion is natural when major policies change. For decades, "five years" was the magic number for gratuity. Now, with the New Gratuity Rules 2025 / 2026, that number has changed, but only for some.
In this guide, we will decode the fine print of the new labour laws. We will explain the 50% wage rule gratuity impact, clarify the Gratuity eligibility after 1 year, and help you understand exactly what you are owed. Whether you are a permanent employee, a contract worker, or an employer trying to stay compliant, this is everything you need to know.
The Big Headline: Gratuity Eligibility After 1 Year
For the longest time, gratuity was a reward for loyalty. You joined a company, stayed for five continuous years, and left with a lump sum payment. It was simple. However, the modern job market is different. People switch jobs faster, and the "gig economy" is growing. The government recognized this and introduced a massive shift in the Gratuity eligibility after 1 year rule.
Who Gets Gratuity After 1 Year?
This is the most common point of confusion. The new rule does not mean every employee in India gets gratuity after 12 months. The reduced timeline specifically targets:
1. Fixed-Term Employees (FTEs): These are employees hired for a specific period (e.g., a 2-year contract). Under the old rules, if you worked for 2 years and left, you got zero gratuity because you didn't hit the 5-year mark. Now, Gratuity for fixed‑term employees / FTE gratuity rules mandate that if you complete one year of service, you are entitled to gratuity on a pro-rata basis (2).
2. Contract Workers: Similarly, Contract worker gratuity eligibility has been aligned with FTEs. If you are on a contract, the new codes ensure you don't lose out on social security benefits just because your tenure is short (3).
3. Gig and Platform Workers: For the first time, Gratuity for gig / flexible / export sector workers is being discussed seriously under social security codes, offering them a safety net they never had before (2).
What About Permanent Employees?
If you are a regular, full-time employee on the company rolls, you might be asking: "Do I get my money after one year too?"
The short answer is: No.
Gratuity for permanent employees remains largely unchanged regarding the vesting period. You still need to complete five continuous years of service to be eligible for gratuity (3). This distinction is crucial because widespread misinformation suggests everyone is now eligible after one year. The logic is that permanent employees have job security that FTEs do not, so the "loyalty" threshold of 5 years still applies to them.
The "50% Wage Rule": The Hidden Game Changer
While the "1-year rule" gets the headlines, the 50% wage rule gratuity change is what will actually impact your bank account the most. This rule fundamentally changes how your gratuity is calculated, potentially increasing your payout significantly.
What is the New Wage Definition?
Historically, companies in India structured salaries to lower their own costs. They would keep the "Basic Salary" low (often 30-40% of the total income) and pile up the rest in "Allowances" (like House Rent Allowance, Special Allowance, Conveyance, etc.). Why? Because statutory benefits like Provident Fund (PF) and Gratuity are calculated on the "Basic" salary. A lower Basic meant a lower gratuity payout for the employer.
The New wage definition for gratuity stops this practice.
Under the new labour codes:
- The Rule: "Wages" (Basic Pay + Dearness Allowance + Retaining Allowance) must constitute at least 50% of your total Cost to Company (CTC) (4).
- The Impact: If your Basic Salary is currently less than 50% of your total CTC, your employer is legally required to increase your Basic Pay to meet that 50% threshold.
Why Does This Matter?
Because Gratuity calculation under new labour code depends on this "Wage" figure.
Example:
Imagine your total monthly salary (CTC) is ₹1,00,000.
- Old Structure: Your Basic Pay might have been ₹30,000. Gratuity was calculated on ₹30,000.
- New Structure (50% Rule): Your Basic Pay must be at least ₹50,000. Gratuity is now calculated on ₹50,000.
This seemingly small technicality automatically boosts your gratuity capability by nearly 66% in this scenario. This is why you will see people searching for Will gratuity increase under new wage rules?, the answer is a resounding yes for many (5).
How Gratuity is Calculated Under New Labour Codes
You don't need to be a mathematician to figure this out, but you do need the right formula. Many employees are currently looking for a Gratuity calculator 2026 updated rules to check their new numbers.
The Formula
The core formula for calculating gratuity remains:
Gratuity = (15 ÷ 26) × Last Drawn Wages × Years of Service
- 15/26: Represents 15 days of wages for every completed year of service (based on a 26-day work month).
- Last Drawn Wages: This is the figure that has changed due to the 50% rule.
- Years of Service: For FTEs, this can now be as low as 1 year. For permanent staff, it remains 5+.
Calculation Example: Old vs. New
Let’s look at a practical scenario for a permanent employee with 10 years of service and a monthly CTC of ₹1,00,000.
Scenario A: Old Rules (Pre-Nov 2025)
- CTC: ₹1,00,000
- Basic Salary (Old norm, approx 30%): ₹30,000
- Calculation: (15 / 26) x 30,000 x 10
- Total Gratuity: ₹1,73,076
Scenario B: New Rules (2026)
- CTC: ₹1,00,000
- Basic Salary (New 50% Mandate): ₹50,000
- Calculation: (15 / 26) x 50,000 x 10
- Total Gratuity: ₹2,88,461
The Difference: You gain over ₹1.15 Lakh simply because of the new wage definition. This is why understanding How gratuity is calculated under new labour codes is vital for your financial planning.
Does My Salary Structure Change?
This is the most pressing question for HR departments right now: Does my salary structure change due to new gratuity rules?
Yes, it likely will. If your company was paying you a low Basic salary to save on PF and gratuity costs, they must restructure your pay (4).
The Trade-off: Take-Home vs. Savings
While your gratuity and PF corpus will grow, your monthly "in-hand" salary might dip slightly.
- Why? Provident Fund (PF) is also calculated as 12% of your Basic Wages.
- The Shift: When your Basic Salary goes up to meet the 50% rule, your PF contribution (deducted from your salary) also goes up.
- The Result: You take home less cash every month, but your forced savings (PF and Gratuity) increase.
This is a shift from "cash now" to "security later." For Gratuity impact on CTC under new labour law, this restructuring forces employers to set aside more money for your future, ensuring better retirement readiness.
Gratuity Payout Rules 2026: Faster and Stricter
Another major win for employees in the new code is the speed of settlement. Under the Gratuity payout rules 2026, the timeline for Full & Final (F&F) settlements has been tightened.
The New Timeline
Previously, employees often waited weeks or even months to receive their final dues after resigning. The new codes mandate that wages and settlements must be paid within two working days of the employee's exit in many cases (6).
This puts pressure on employers to have their funds ready. They can no longer treat gratuity as a "pay when we can" liability. This is where the Impact on employers & payouts becomes critical. Companies without a funded gratuity pot will struggle to meet these fast payout mandates, leading to legal penalties.
Impact on Employers: The Liability Spike
For business owners and HR leaders, the new rules are a wake-up call. The combination of the 50% wage rule and 1-year eligibility for FTEs creates a "double whammy" of increased liability.
1. Higher Base: You are paying gratuity on a higher salary base (50% of CTC).
2. More People: You are paying gratuity to a wider pool of people (FTEs and contract workers who stay >1 year).
This surge in liability must be managed smartly. Paying these huge sums directly from the company's working capital (cash flow) when an employee leaves is risky. It can disrupt business operations.
The Solution: Group Gratuity Plans
This is where ABSLI steps in. A Group Gratuity Plan allows employers to fund their gratuity liability systematically.
- Tax Efficiency: Contributions to an approved gratuity fund are tax-deductible business expenses.
- Interest Earnings: The money doesn't just sit there; it earns returns, reducing the actual cost to the employer over time.
- Compliance: Having a funded scheme ensures you can meet the Gratuity payout rules 2026 without delaying employee settlements or facing penalties.
Conclusion: A New Era of Social Security
The implementation of the new labour codes in late 2025 marked a turning point for Indian employment. The New Gratuity Rules 2025 / 2026 are designed to protect the modern worker, ensuring that gig workers, contract staff, and fixed-term employees are not left behind.
For employees, this means better financial security and a higher "cost of leaving" for employers. For employers, it means a need for better financial planning and adherence to the 50% wage rule gratuity.
Whether you are calculating your future payout or planning your company's budget, the key takeaway is that gratuity is no longer just a "loyalty bonus", it is a robust right.
Are you an employer worried about the rising gratuity liability? Or an employee checking if your payout is safe? Aditya Birla Sun Life Insurance (ABSLI) offers comprehensive Group Gratuity Plans that help businesses manage these new liabilities effortlessly while ensuring employees get their dues on time.
Secure your workforce's future today with ABSLI.
February 5, 2026
5 mins read
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