Gratuity rules have changed, but how is it calculated? How much will you receive if you leave your job after three years?

Gratuity Calculation: The government has issued new gratuity rules under the Payment of Gratuity Act, 1972, aimed at enhancing retirement benefits and bringing greater transparency to gratuity calculations. These changes are particularly important for fixed-term employees, who will now have better financial security upon leaving their jobs. With these reforms, the government hopes to ensure fair and consistent gratuity payments across sectors.

These changes are part of four labor codes – the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Occupational Safety, Health and Working Conditions Code, 2020 – which the government notified on November 21, 2025. The government claims that the new labor laws will simplify 29 existing labor laws.

How is gratuity calculated?
Gratuity is an essential benefit for employees who work for a long time in an organization. It is a reward from the employer for the employee's loyalty and service. Under the Payment of Gratuity Act, 1972, companies with 10 or more employees are legally required to pay gratuity. This rule applies to both private and government sectors. Previously, this rule required employees to complete five years of continuous service to receive gratuity. However, with the implementation of the four new labor codes on November 21st, this limit has been reduced to one year. This means that even if you work for one year and then leave, the company will still pay you gratuity. Let's learn how it's calculated.

Gratuity = (Last Salary x 15 x Years of Service) / 26

This calculation is based on 15 days' salary for each completed year of service, with 26 working days in a month. "Last Drawn Salary" includes basic salary and dearness allowance. If the employee worked for more than six months in the last year, it is rounded up to the next full year for calculation purposes.

How much gratuity will you receive for 1 year of service?
Suppose you worked for one year and left the job, and your last salary was ₹30,000. Your gratuity will be calculated accordingly. We're calculating this below.

Gratuity = (30,000 * 15 * 1) / 26

Gratuity = ₹17,307

For a salary of ₹30,000, you would receive ₹17,307 as gratuity for one year of service.

How much gratuity will you receive for 3 years of service?
Suppose your salary in the last year of your three-year job is ₹40,000, then the gratuity calculation will be as follows:

Gratuity = (40,000 * 15 * 3) / 26

Gratuity = ₹69,230

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