In a major clarification for employees and organisations, the government has confirmed that gratuity provisions under the new labour codes will come into effect from November 21, 2025. This announcement resolves earlier confusion, as many had expected the rollout to begin in April 2026.
No Retrospective Application
The government has clearly stated that the new gratuity rules will not be applied retrospectively. This means the revised calculation method will only apply to service periods after the effective date. Employees leaving their jobs will have their gratuity calculated based on their last drawn salary, ensuring a transparent and predictable process.
Reason Behind the Confusion
The uncertainty arose due to overlapping timelines. While the labour codes were initially scheduled for implementation in November 2025, draft rules were issued later, and full implementation was expected by April 2026. This led to the assumption that gratuity provisions would also follow the later date. The latest clarification confirms November 2025 as the official start.
Impact of Revised Wage Definition
Under the updated framework, gratuity calculations will be aligned with a new definition of wages under the Social Security Code. Only specific components of salary will be included, while certain allowances will be excluded. However, if allowances exceed 50 percent of the total salary, the excess portion will be added to the wage component. This change may affect the overall gratuity amount and could increase contributions toward benefits such as provident fund.
Relief for Fixed-Term Employees
One of the most significant changes is for fixed-term employees. Under the new rules, employees working on contracts will become eligible for gratuity after completing just one year of service. Previously, a minimum of five years of continuous service was required, making this a major step toward expanding employee benefits.
Conclusion
The clarification brings much-needed certainty and reflects a shift toward a more structured and inclusive labour system. By streamlining rules and extending benefits to a wider workforce, the new gratuity provisions aim to strengthen financial security for employees while helping organisations prepare for compliance.
