Gratuity Calculator – Old vs New Labour Code

Old law vs new Code

Worked example

Basic + DA ₹30,000 and allowances ₹70,000 (total ₹1,00,000), 10 years of service. Old: ₹30,000 × 15 ÷ 26 × 10 = ₹1,73,077. New wage base is ₹50,000, so gratuity becomes ₹2,88,462 — about ₹1.15 lakh more.

How service years are counted

Only the final part-year matters. More than six months counts as a full year; six months or less is dropped. The cut-off is strict, so the day an employee leaves can change the payout by a full year's gratuity.

The Act treats a year as continuous if the employee worked at least 240 days in it (190 days for work below ground in a mine). Several High Courts have held that 4 years plus 240 days in the fifth year meets the 5-year condition. That comes from case law, not the text of the Act, so employers apply it unevenly.

Fixed-term employees

Before the Code, a fixed-term contract of two or three years never reached the 5-year mark, so these employees usually got no gratuity. The Code on Social Security makes them eligible after one year, on the same formula.

Example: a fixed-term engineer on ₹40,000 wages leaves after 2 years 7 months. The part-year is over six months, so 3 years count: ₹40,000 × 15 ÷ 26 × 3 = ₹69,231. Under the old Act the same employee would have received nothing.

The ₹20 lakh ceiling

Statutory gratuity cannot exceed ₹20 lakh, however long the service. An employee on ₹1,50,000 wages with 25 years works out to ₹21.63 lakh, so the statutory payout stops at ₹20 lakh. An employer can pay more under its own policy or contract; any excess over the income-tax exemption limit is taxed as salary.

Who is covered

• Any factory, mine, plantation, port, shop or other establishment that has employed 10 or more people on any day in the past 12 months.
• Coverage continues even if headcount later falls below 10.
• Death or disablement removes the minimum-service condition. Gratuity is then paid to the nominee, or to the heirs if there is no nomination.

When it must be paid, and when it can be withheld

The employer must pay within 30 days of the date gratuity becomes payable, usually the last working day. Late payment carries simple interest. An employee who is refused payment can apply to the controlling authority appointed under the Act for their area.

Gratuity can be forfeited only on termination for specific misconduct: wholly or partly for riotous or disorderly conduct or an offence involving moral turpitude, and up to the amount of the loss for wilful damage to the employer's property. A resignation, however short the notice, is not a ground for forfeiture.

Mistakes that change the number

• Dividing by 30 instead of 26. The Act uses 26 working days, which gives a higher amount than a 30-day month.
• Using average pay instead of last drawn wages. The formula uses wages for the last month worked.
• Leaving out DA. Dearness allowance is part of the wage base under both the old Act and the Code.
• Ignoring the add-back. Under the Code, if HRA, conveyance and other excluded allowances exceed half of pay, the excess joins the wage base. The 50% wage rule calculator shows the adjusted figure.

Working out a full exit? The full and final settlement calculator adds gratuity to notice pay, leave encashment and other dues.