Gratuity Rules 2026: The government has introduced a significant change to gratuity regulations. Employees will now qualify for gratuity after just one year of employment, whereas previously, a minimum of five years of continuous service was required. This new rule will come into effect on November 21, 2025, in accordance with the updated Labor Codes.
The government has specified that this new guideline will only apply to employees who start working after November 21, 2025. Therefore, the previous requirement of five years of service will still be in place for those who were employed before this date.
What is gratuity?
Gratuity is essentially a form of appreciation given to employees, which can provide significant financial support when they leave their job.
Who stands to gain from this?
It’s crucial to understand that the one-year eligibility rule does not apply to everyone:
Fixed-term employees (FTE): Those hired on a contract basis for a specific duration (like 1 or 2 years) will now be eligible for gratuity after one year of service.
Contract workers: They will also receive gratuity benefits on a pro-rata basis.
Regular/Permanent Employees: Permanent staff will still need to meet the standard five-year service requirement, except in cases of death or disability.
When will this rule take effect?
The government has confirmed that this regulation will be effective starting November 21, 2025, meaning that employees who are hired after this date will be governed by the one-year gratuity rule.
Changes in Gratuity Calculation
Gratuity calculations will now factor in basic salary, dearness allowance (DA),and retaining allowance, with their total needing to be at least 50 percent of the CTC (Cost to Company).
While the previous regulations capped the basic salary at 30 percent, the new rules, with a 50 percent cap, could potentially increase gratuity by around 66 percent. Experts suggest that the lump sum gratuity received upon an employee’s departure will now be greater than before, as the new calculation will incorporate both the basic salary and allowances.