Overhaul of Employee Benefits in 2025 India’s new Labour Code, in effect from November 21, 2025, marks the country’s biggest reform of employment laws in decades. Replacing 29 legacy statutes with four streamlined codes, the new rules modernize wages, workplace safety, industrial relations, and social security. The major change for salaried employees is the gratuity benefit—now dramatically more accessible and valuable under a single, nationwide framework. 1. Eligibility Slashed: One Year for Fixed-Term Employees The headline reform is that fixed-term employees—that is, contract workers hired for a specific term—can now claim gratuity after just one year of continuous service. This is a dramatic reduction from the previous five-year requirement under the Payment of Gratuity Act, 1972. Who Benefits? Contract staff, project hires, and employees in sectors with high turnover (IT, start-ups, F&B, services). When applicable? Any fixed-term contract ending after November 21, 2025. Permanent Employees: The five-year rule persists for full-time staff, so only fixed-term employees get the reduced eligibility. Example: An employee finishes a 12-month project contract and now receives gratuity, which wasn’t possible before. AI-Image 2. Wages for Gratuity Calculation: Minimum 50% of CTC The new Labour Code tightens the wage definition for gratuity computation: eligible salary (now called “wages”) must make up at least 50% of the total Cost to Company (CTC). This closes loopholes where employers reduced basic salary and paid allowances, diminishing employee benefits. What counts as ‘wages’? Basic pay plus Dearness Allowance (DA), and the law adds back any allowances exceeding 50% of CTC to the wage base. Implication: Much larger gratuity pay-outs, especially for those with low basic/DA but high allowances. Example Calculation: Salary Component Amount (₹) % of CTC Basic + DA 3,50,000 35% Allowances 6,50,000 65% Total CTC 10,00,000 100% With the update: Excess allowances (₹6,50,000 – ₹5,00,000 = ₹1,50,000) must be added to “wages”—increasing gratuity by about 42% for a typical mid-level employee. AI-Image 3. Mandatory Timely Pay-out with Interest on Delay Employers are now strictly required to disburse gratuity payments within 30 days of employment termination or contract completion. If not, a 10% annual interest penalty is imposed, enforceable by law. Benefit: Employees receive dues promptly, avoiding years-long delays typical of old disputes. Employer Impact: Stringent accountability for payroll and compliance teams. Legal Recourse: Employees may seek redressal via new Labour Courts if payment is delayed. AI-Image 4. Expanded Coverage, Equal Benefits, and Statutory Compliance The revised codes guarantee that fixed-term employees now enjoy equal social security benefits as permanent staff, including leave, medical benefits, and full access to ESI/EPF. This means that India’s workforce—across factories, IT, services, start-ups, and more—is universally covered under one regulatory umbrella. Broader Employee Pool: Millions of short-term workers and gig staffers now fall under formalized pension and gratuity rules. Maximum Gratuity Cap: The statutory ceiling remains at ₹20 lakh per employee, ensuring large pay-outs for long-serving staff. Accounting and Financial Planning: Companies must immediately adjust liabilities and recognize additional gratuity costs in financial statements per Ind AS 19/AS 15, reflecting much higher obligations. AI-Image Practical Implications for Salaried Employees Salary Restructuring If your basic pay is low and allowances are high, expect your employer to reshuffle salary components to comply with the 50% wage threshold. This can lead to greater social security, but may affect your take-home pay due to increased PF and gratuity deductions. Gratuity Calculation: Formula Refresher Gratuity=15 / 26×Eligible Salary × Years of Service AI-Image Where eligible salary now includes a higher base as per Labour Code. Immediate Actions for Employees Review your appointment letter/CTC breakup for compliance with the new rule. Check if you are categorized as a fixed-term employee (for 1-year eligibility). If terminating or shifting jobs post November 21, claim your gratuity within 30 days. Employer Checklist Audit all existing contracts for new eligibility. Update payroll software and internal accounting for new salary structure and interest liabilities. Communicate changes proactively to employees for transparency. Labour Code Reforms: Background & Timeline Origin: The overhaul is part of “Ease of Doing Business” and “worker protection” reforms driven by the Ministry of Labour & Employment. Codes: Social Security, Wages, Industrial Relations, and Occupational Safety. Effective Date: November 21, 2025 (Central rules); state adoption underway. Real World Examples & Case Studies IT Sector IT services and start-ups with high contract churn see major windfalls for newly eli