Gratuity Rules Revised: What Private Employees Need to Know After December 2025

Private sector employees have made the most of the new labour codes, which came into effect in December 2025. Fixed-term contract workers now need to complete just one year of uninterrupted service in order to be entitled to gratuity, while the previous requirement was five years. The new amendment to the Social Security Code 2020 has profoundly increased the number of people who can receive this benefit. The calculation formula is still the same:

Gratuity = (Last drawn salary × 15/26 × Years of service), with the salary consisting of basic pay and dearness allowance (DA).

Key Eligibility Rules

Now, private employees working in places with over ten workers will be able to get gratuity after one year of service for fixed-term contracts, while employees in permanent positions will still be under the five-year rule, except when their employment is terminated early. The formula will apply for exactly one year period (no partial rounding) directly without the capping at 1 full year extra. The maximum gratuity amount, which is ₹20 lakh, is tax-free; the excess amount is taxable.

Calculation Examples

For the last drawn salary of Rs 35,000 (basic + DA) after one year: 

Gratuity = (35,000 × 15/26 × 1) ≈ Rs 20,192. For Rs 70,000 salary: (70,000 × 15/26 × 1) ≈ Rs 40,385. Use online calculators for accuracy, assuming no DA changes.

Formula Breakdown

The 15/26 factor is the same as 15 days’ wages each month (26 working days). First, multiply the last drawn salary by 15, then divide by 26, and then by the service years. The employer must make the payment within 30 days of the employee’s exit; otherwise, a simple interest of 10% will be charged for delays.

Practical Tips

Make sure you check with HR your company’s Gratuity Act coverage. Fixed-term workers are those who gain the most from the 1-year rule, which is also a support for employees in the gig economy. It is important to monitor service continuity since interruptions that last longer than the specified days will result in the disqualification of the period.