For many employees, gratuity is a financial cushion built over years of service, rather than merely a retirement benefit. With the introduction of the new labour Codes, one question is being raised by offices and HR in the same way: will employees actually receive higher gratuity? A recent change in Gratuity eligibility is directly linked to how salaries are now defined and structured. Both employers and employees need to know this information
because it affects long-term savings, payroll planning, and workforce policies.

Much of the new framework simplifies older labour laws but also subtly remakes how gratuity is calculated.

Understanding the Revised Wage Definition

One of the biggest shifts under the new labour Codes is the Revised wage definition. Earlier, many salary structures were allowance-heavy, which kept the “basic wage” portion relatively low. Since gratuity is calculated based on basic wages, this often-meant smaller payouts.

Under the revised rules, at least 50% of an employee’s total remuneration must be classified as wages. This change increases the base on which gratuity is calculated.

What this means in practical terms:

• Higher basic wage components for many employees
• Increased contribution calculations tied to salary structure
• Potentially larger gratuity payouts over time
• Need for companies to restructure payroll systems

For employees with long service tenures, this adjustment can translate into improved end-of-service benefits.

Fixed-Term Gratuity Benefits Expand Coverage

Another important reform is the introduction of Fixed-term gratuity benefits. Earlier, gratuity was typically available only after five years of continuous service. The updated framework allows fixed-term employees to receive gratuity on a pro-rata basis, even if they have not completed five years.

This creates a more inclusive system where contractual employees are not left out.

Key implications include:

• Equal recognition of fixed-term employees
• Fairer benefit distribution across employment types
• Improved employee retention and morale
• Stronger compliance expectations for organizations

This shift signals a move toward greater workforce equity under the new labour Codes.

Will Employees Actually Receive Higher Gratuity

The structure would indicate bigger payouts, but the real impact hinges on how organizations redesign their compensation models. Employers may rebalance allowances and benefits to align with compliance requirements. However, because gratuity calculations are tied to the Revised wage definition, many employees are likely to see a gradual increase in their long-term benefits.

For organizations, that translates to looking ahead. Payroll restructuring, cost forecasting, and legal compliance must be handled carefully to avoid financial strain.

Companies that proactively prepare tend to experience smoother transitions and stronger employee trust.

The Employer’s Side of the Adjustment

From an employer’s perspective, the Gratuity eligibility change is not just a compliance checkbox. It requires:

• Updating payroll frameworks
• Reviewing employment contracts
• Budgeting for increased long-term liabilities
• Strengthening HR documentation

Organizations that delay preparation might get bogged down in operational confusion or compliance risks. By planning and managing, such factors can be managed for employee welfare as well as business sustainability.

How Kapgrow Supports Compliance Readiness

Navigating labour law reforms can feel complex, especially when financial planning and employee relations are involved. This is where Kapgrow plays a practical role. By helping organizations understand wage restructuring and compliance strategy, Kapgrow enables
businesses to adapt smoothly to regulatory changes.

Their expertise supports:

• Payroll restructuring guidance
• Compliance audits and advisory
• HR policy alignment with new regulations
• Training for internal HR teams

With professional guidance, companies can treat regulatory change as an opportunity to strengthen their systems.

The Gratuity eligibility change under the new labour Codes does create an important difference to improving the benefits of employees and providing fairer pay for work. Although the actual increase in gratuity depends on the organization and salary design, the new framework encourages stronger long-term savings for workers. Providing early preparation to employers and consulting expertise from partners like Kapgrow ensures the
transition remains smooth, compliant, and sustainable for the future.