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Gratuity Calculation Under New Labour Laws: Formula, How To Calculate Gratuity As Per Your Salary
Gratuity In New Labour Law
One of the major highlights of the new Labour Law 2025 is the Uniform Definition of Wages. As per the latest revision, Wages now include basic pay, dearness allowance, and retaining allowance; 50% of the total remuneration (or such percentage as may be notified) shall be added back to compute wages, ensuring consistency in calculating gratuity, pension, and social security benefits.
What Is Gratuity?
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Gratuity is the amount given to employees as a token of appreciation for their long and dedicated service, usually after completing a minimum of five years with the company. It is governed by the Payment of Gratuity Act, 1972.
To Whom Gratuity Act Apply?
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The Gratuity Act covers factories, mines, oil fields, plantations, ports, railways, motor transport businesses, companies, and any shop or establishment that has 10 or more employees.
Gratuity Calculation For Private Employees
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The gratuity rules have been revised twice under the updated Labour Code. Firstly, while permanent employees must still complete five years of service to qualify, contractual or fixed-term employees can now receive gratuity after only one year of employment. Secondly, wages will now be calculated by including basic pay, dearness allowance and retaining allowance with 50 percent of the overall remuneration added back into the wage computation.
Formula For Calculating Gratuity
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The formula for gratuity calculation is: last salary x years of service x 15/26 The final salary: Includes basic salary, dearness allowance and commission Working days: 26 working days of the employee are considered in a month 15-day average: The calculation is based on the salary for 15 days.
Gratuity Amount
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To calculate the gratuity amount, let us assume the employee’s final salary is Rs 30,000 and the length of service is 5 years. Last salary of the employee: Rs 30,000 Calculation: Rs 30,000 x 5 x (15/26) The total gratuity amount: Rs 86,538.46
If Not Registered Under Gratuity Payment Act
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If the company is not covered under the Gratuity Payment Act, the calculation rules can differ. The employee receives an amount equal to half of their monthly salary every year. The month is considered to be 30 days.
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