Most employees don’t think about gratuity until they resign, retire, or switch jobs. It feels distant. Almost abstract. But here’s the surprising part: under the New Gratuity Rules 2025, many workers—especially fixed-term and contract employees—could earn gratuity much sooner and in higher amounts than before.
On November 21, 2025, the Indian government rolled out four new Labour Codes. Tucked inside them is a major shift in how gratuity works. And yes, it directly affects your paycheck math and long-term security.
Fixed-Term Employees Get Gratuity Faster
Earlier, gratuity was simple but strict. Complete five years of continuous service, or get nothing. This was tough for fixed-term employees who worked on yearly contracts, often renewed but never “permanent.”
That’s changed.
Under the New Gratuity Rules 2025, fixed-term employees qualify for gratuity after just one year of continuous service. One year. That’s it.
Think about it. If you’re on a two-year contract and move on, you don’t walk away empty-handed anymore. You leave with a financial cushion. It’s a big step toward fairness in today’s job market, where long-term permanency is no longer guaranteed.
A Bigger Salary Base Means Higher Gratuity
Here’s where things get interesting.
The new Labour Codes redefine “wages.” Now, basic pay plus dearness allowance must be at least 50% of total CTC. Earlier, companies kept basic pay low and stuffed salaries with allowances to reduce gratuity payouts.
That loophole is closing.
Since gratuity is calculated using last drawn wages, a broader wage base means higher payouts for many employees. The formula stays the same:
(Last drawn wages × 15 / 26) × years of service
But the number going into it just got bigger.
Contract and Gig Workers Enter the Conversation
Another important shift under the New Gratuity Rules 2025 is accountability.
Principal employers are now responsible for paying gratuity to eligible contract workers, even if they’re hired through contractors. This reduces disputes and delays, which were common earlier.
The codes also open the door for gig and platform workers to be included in social security frameworks. While exact gratuity rules for them are still pending notifications, the intent is clear: coverage is expanding.
Tax Limits Stay the Same (For Now)
Good news on the tax front.
The tax-free gratuity limit remains ₹20 lakh for private-sector employees. If employers delay payment beyond the allowed time, they must pay interest. This pushes companies to settle dues faster instead of dragging their feet.
Why This Matters More Than You Think
Jobs today change fast. Roles shift. Contracts end. The New Gratuity Rules 2025 acknowledge this reality.
They reward service earlier, increase payout potential, and reduce inequality between permanent and non-permanent workers. Over time, this could quietly boost retirement savings for millions.
Sometimes, policy changes don’t scream for attention. They simply work in your favor.
Frequently Asked Questions
Does the one-year gratuity rule apply to all employees?
No. The one-year eligibility applies specifically to fixed-term employees. Permanent employees still need five years of continuous service to qualify for gratuity.
Will my gratuity amount definitely increase under the new rules?
Not always, but many employees will benefit. Since wages must form at least 50% of CTC, gratuity calculations may use a higher base salary than before.
When do the New Gratuity Rules 2025 take effect?
The rules came into force on November 21, 2025. However, some provisions, especially for gig workers, may roll out gradually through notifications.