For millions of employees across India, gratuity has been an important financial benefit, providing a lump sum payment upon leaving an organization after long years of service. Traditionally, employees were eligible for gratuity only after completing five years of continuous service with a company. However, recent changes under the New Labour Codes are set to transform this landscape.
Key Change in Gratuity Rules
Under the updated labour regulations:
- Eligibility Period Reduced: Employees can now claim gratuity after just one year of continuous service, instead of the earlier five-year requirement.
- Applies to All Employees: The change applies across private and public sector organizations covered under the Payment of Gratuity Act, 1972.
- Purpose: This amendment aims to provide quicker financial support to employees, particularly those who change jobs more frequently in today’s dynamic job market.
How Gratuity is Calculated
Even with the reduced eligibility period, gratuity will continue to be calculated based on the last drawn salary and number of years of service. The formula generally remains:
Gratuity=(Last drawn salary × 15/26) × Number of years of service\text{Gratuity} = \text{(Last drawn salary × 15/26) × Number of years of service}Gratuity=(Last drawn salary × 15/26) × Number of years of service
- Last Drawn Salary: Basic pay + dearness allowance
- 15/26: Represents 15 days of salary for each completed year of service (26 working days per month)
Benefits of the New Rule
Early Financial Security: Employees can access gratuity sooner, helping in emergencies or major life events.
Encourages job Flexibility: Employees changing jobs before five years are no longer deprived of gratuity benefits.
Support for Gig and contract Workers: Many modern workplaces employ short-term or contractual staff, who will now be eligible for gratuity after one year.
What Employers Need to Know
- Employers must update their payroll and HR systems to reflect the new eligibility.
- Proper communication with employees is essential to avoid confusion about the revised rules.
- Compliance with the Payment of Gratuity Act and Labour Codes is mandatory to prevent legal issues.
Conclusion
The new labour codes’ change in gratuity rules is a significant step toward improving employee welfare and financial security. By reducing the eligibility period from five years to one year, the government has made it easier for employees to benefit from gratuity, reflecting the evolving nature of India’s workforce and job market.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
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