India’s new labour laws, effective from November 21, 2025, have brought major changes to employee benefits — especially gratuity. Under guidance from the Institute of Chartered Accountants of India (ICAI), employees leaving their jobs on or after this date are entitled to revised gratuity payouts, and companies must account for these changes immediately in their financial statements.
Whether you’re an employee planning a career move or an employer updating compliance, this compact guide explains the key changes in a clear, easy-to-read format.
Table of Contents
India’s Gratuity at a Glance: Old vs New Rules
| Aspect | Old Gratuity Rules | New Labour Code Rules (Post Nov 21, 2025) |
|---|---|---|
| Eligible Law | Payment of Gratuity Act, 1972 | New Labour Codes consolidate old laws. Wikipedia |
| Effective Date | N/A | November 21, 2025 |
| Gratuity Payable | Based on last drawn wages (basic + DA). Wikipedia | Still based on last drawn wages but with expanded wage definition and broader coverage. https://www.taxmann.com |
| Accounting Requirement | Accrual per old standards | Must recognise higher gratuity liability in Dec-quarter 2025 accounts; cannot defer. The Financial Express |
| Employee Eligibility | Usually after 5 years service | Includes enhanced benefits; fixed-term and contract workers get pro-rata gratuity. Abcaus |
🔎 What’s Changed Under the New Labour Laws?
🧑💼 Gratuity Eligibility Expanded
Under the earlier Payment of Gratuity Act, 1972, gratuity was payable if an employee worked continuously for five years. Wikipedia The new Labour Codes broaden criteria — especially for fixed-term and contract workers, who now qualify for gratuity on a pro-rata basis even before five years of service.
📈 Broader Definition of Wages
The definition of “wages” now includes components (like dearness allowance and certain allowances) that together make up at least 50% of total remuneration. That means gratuity payouts may increase, since they are calculated on a broader wage base. Abcaus
📅 Immediate Accounting Recognition
As per ICAI guidance, companies must account for the increased gratuity liability in their financial results for the quarter ending Dec 31, 2025. They cannot push this cost to the next financial year even if supporting state rules are pending.
🧠 Why This Matters
- 🧑💼 Employees Benefit: Greater coverage and possibly higher gratuity payouts for many workers, especially fixed-term and contract staff. Abcaus
- 🏢 Employers Must Adjust Accounting: Firms must update their salary and benefits accounting to reflect increased gratuity liabilities immediately. https://www.taxmann.com
- 📊 Financial Reporting Impact: Businesses may report higher employee-related costs in their Dec-quarter results due to these changes. SFC Today
❓FAQs
Q1. Do employees leaving after Nov 21, 2025 get more gratuity?
Yes — under the new codes, employees leaving on or after Nov 21 must be paid gratuity based on the expanded definition of wages, and fixed-term workers may benefit sooner.
Q2. Can companies delay recognising increased gratuity costs?
No — ICAI has clarified that higher gratuity liability must be recognised in the Dec 2025 financial results and cannot be deferred to later periods.
