Gratuity: The implementation of the new Labor Code has brought revolutionary changes to gratuity rules. Gratuity benefits are now available after just one year of continuous service, instead of five. Find out how much gratuity you’ll receive in one year for a basic salary of ₹34,500 and ₹45,500, and what the number 26 means in gratuity calculations.
Gratuity will now be available for one year of service
With the implementation of the new Labor Code, employees’ biggest concern regarding gratuity has been resolved. Previously, employees had to complete at least five years of continuous service with a company to receive gratuity. However, this time limit has now been reduced to just one year. This means that you are now eligible for gratuity even after just one year of service.
This change is a major financial support, especially for young professionals and contract workers who frequently change jobs. However, to receive gratuity, the employee must have worked for the company for one consecutive year without any long breaks. For example, if an employee completes more than 11 months of service, or six months of service, it is considered a full year and will be eligible for gratuity.
Simple Gratuity Calculation Formula
Gratuity calculation is straightforward to understand because the formula is predefined. This is an extremely important step to maintain transparency among employees.
This formula is used to determine the gratuity amount:
Gratuity = Last Basic Pay * (15/26) * Total Years of Service
Why is 26 in the formula
Employees often don’t understand the significance of the number 26 in the calculation. According to the new Labor Code, an average of 26 working days is considered in a month, as that is the number of actual working days excluding weekly holidays. The value of ’15’ represents 15 days’ salary, which is the basis for gratuity payment.
How much gratuity will be received for 1 year of service
After the implementation of the new rule, employees are receiving direct financial benefits even for short tenures. Let’s understand how much gratuity you can receive after 1 year of service with the examples below (assuming dearness allowance (DA) is also included in the basic salary):
At a basic salary of ₹34,500
If your basic salary is ₹34,500 and DA is zero, you will receive a gratuity of approximately ₹19,904 for 1 year of service.
At a basic salary of ₹45,500
If your basic salary is ₹45,500 and DA is zero, after 1 year of service, you will receive a substantial gratuity amount of approximately ₹26,250 from the company.
This change is unprecedented for those who previously did not receive any benefits due to not completing 5 years. This amount is completely tax-free, reducing a major burden on employees.