Will gratuity increase for employees as the definition of wages changes under new labour codes?

In this article, we take a look at the new definition of wages/salary, whether gratuity could increase under the new labour codes, and other key takeaways for employees:

The Code on Social Security mandates a uniform definition of wages, which now includes basic pay, dearness allowance, and retaining allowance. It also mandates the calculation of gratuity, pension, and social security benefits based on 50% of total remuneration (or such percentage as may be notified).

"'Wages' now include basic pay, dearness allowance, and retaining allowance; 50% of the total remuneration (or such percentage as may be notified) shall be added back to compute wages, ensuring consistency in calculating gratuity, pension, and social security benefits," the Press Information Bureau said in an explainer on new labour codes.

Currently, gratuity is calculated as per the following formula:

Further, the wage considered for calculating gratuity by employers is a small part of the CTC at present.

However, the new labour code mandates 50% of total remuneration to be considered as wages for calculating gratuity, pension and other social security benefits.

This means, gratuity can increase if the definition of wages mandated by the labour code is implemented by employers.

However, we need to wait for further clarification from the government on this matter before reaching a conclusion.

Other key highlights of the labour codes for employees

• A five-year limit has been set for initiating EPF inquiries and recovery proceedings, to be completed within two years (extendable by one). Suo-moto reopening of cases has been abolished, ensuring timely resolution.

• Employers appealing EPFO orders now need to deposit only 25% of the assessed amount (down from 40–70%), reducing financial burden and ensuring ease of business and access to justice.