The landscape of labour in India experienced a revolutionary change on the 21st of November 2025, marking the Government’s enactment of the much-awaited new labour codes which brought to an end the long-standing practice of having 29 different laws regarding labour enacted over the years, by unifying them into four straightforward frameworks. One of the reforms, among the new measures, the Gratuity Rules 2025, is the most powerful change which will affect both the employers and the employees to a great extent.
The new provisions change the interpretations of eligibility for gratuity and its calculation, hence the provision is made roomier and the amount is made significant for the workers in financial terms while at the same time the organisations are subjected to heavier compliance and cost responsibilities.
Gratuity Rules 2025 Key Highlights
- Relaxed Eligibility: Fixed-term employees can now claim gratuity after one year of service instead of five years, as was the case in the past.
- Broader Wage Definition: For the purpose of gratuity calculation, treating at least 50% of Cost to Company (CTC) as wages is mandatory.
- Gratuity Amounts Increased: Gratuity payments are likely to increase by a large percentage owing to the widened wage base.
- Employer Liability Has Been Increased: Businesses are expected to budget more for gratuity and in terms of manpower.
- Variations at the State Level: The final implementation is subject to the rules laid down by the state, thus leading to a phased and perhaps unequal rollout.
What Has Changed Compared to Previous Rules
| Aspect | Old Rule | New Rule (2025) | Impact |
|---|---|---|---|
| Eligibility | 5 years of continuous service | 1 year for fixed-term employees | More employees qualify |
| Wage Definition | Basic pay + DA | Minimum 50% of CTC (excluding allowances) | Higher gratuity payout |
| Coverage | Permanent employees only | Permanent + fixed-term workers | Wider social security |
| Employer Cost | Moderate | Higher due to expanded wage base | Increased compliance burden |
| Implementation | Uniform central rule | State-dependent rollout | Initial confusion |
Why the New Gratuity Rules Matter
Gratuity is not simply a retirement benefit—it is a dual reward for service and loyalty. Many contract and fixed-term workers up until now were kept out of the picture because they seldom completed the five-year requirement with a single employer. Thanks to the reforms of 2025 this loophole has been closed, and even the short-term employee will not be left without social security.
To the employees, this means:
- Quick eligibility
- More money
- Being in a better position financially after leaving the job
To the employers, it means:
- Higher gratuity provisions
- Increased manpower costs
- Need for a more strategic payroll structuring and long-term planning
Impact on Salary Structure and CTC
The new rules come with the implementation of the necessary 50% wage component in CTC which will be one of the largest implications. An employer who can no longer maintain a low basic salary while paying high on allowances as a way of compensating will be forced to calculate gratuity based on wages, hence it will raise the gratuity payable that year for each year of service.
Over the long term of service even a slight increase in the wage base can result in several thousands of rupees more in gratuity payments.
Expert Views
Labour law professionals have characterized Gratuity Rules 2025 as a revolutionary reform and have equated it with bringing India closer to the global labour market. The trade unions have also released welcoming remarks about the action, the union calls it a long-awaited move for the employees on contracts or fixed terms.
On the other hand, the employers are asking the government for:
- Clear guidance on the handling of past service
- Consistent implementation across states
- Sufficient period for transitioning to new salary structures
Challenges Ahead
It is generally agreed that the reform has good intentions, yet it is still not free from challenges:
- The reform will exacerbate the already tight financial conditions of MSMEs and labour-intensive industries
- Compliance complications during the transition period
- The differences in implementation across states will result in confusion
Conclusion
The Gratuity Rules 2025 are indeed a milestone moment in India’s labour regulation. The Government has by reducing the eligibility period to just one year for fixed-term workers and enlarging the scope of the wage definition, made the gratuity more encompassing, equitable and significant.
The employee has got the social security and retirement benefit as a clear win. The employer has got the planning and compliance of the workforce to require the same greater financial discipline and transparency as a reminder.