Gratuity payouts may rise up to 50% under new labour rules

Employees with long service tenures could see their gratuity payouts rise by up to 30% to 50% under revised labour regulations and updated gratuity rules that came into effect from November 21, 2025.

The changes introduce key modifications to the calculation of wages and expand eligibility, particularly benefiting fixed-term employees, who are now entitled to gratuity provided they complete at least one year of continuous service.

Under the new provisions, fixed-term employees who complete one year will be eligible for gratuity proportionate to their tenure. However, those with service periods shorter than one year, such as eight to eleven months, will not qualify for the benefit.

The revised rules do not apply retrospectively and are limited to employees covered after their implementation date. For regular employees, the existing requirement of five years of continuous service to qualify for gratuity remains unchanged, except in cases such as retirement, resignation, death or disability, where gratuity may be paid even if the five-year threshold is not met.

The method of calculating gratuity has largely been retained. It continues to be computed on the basis of 15 days’ wages for each completed year of service, typically amounting to around two and a half months’ salary in five years.

However, the definition of ‘wages’ has been revised. Gratuity will now be calculated by considering basic pay along with dearness allowance and retaining allowance, ensuring that these components constitute at least 50% of the total salary.

Allowances such as house rent, conveyance, bonus and commission have been excluded from the calculation. Importantly, if such excluded components exceed 50% of the total salary, the excess amount will be added back to wages for the purpose of computing gratuity.

Officials said this ‘50% rule’ is a key feature of the reform, aimed at ensuring a fairer and more transparent calculation of terminal benefits.