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⚠️ New Labour Codes: Gratuity Costs Set to Rise from FY25–26

Two major changes under the Social Security Code and Wage Code will significantly impact how organisations account for and fund gratuity:

1️⃣ Fixed-Term Employees Become Gratuity-Eligible Earlier

FTEs will now receive pro-rata gratuity on contract completion, even without completing 5 years.
Effectively, gratuity begins accruing from Year 1.

Impact:
✔ Larger eligible population
✔ Higher Current Service Cost (CSC)
✔ Higher year-end liability (DBO)
✔ Need for separate decrement assumptions for FTEs

2️⃣ Unified “Wage” Definition Increases Gratuity Salary Base

The 50% rule under the Wage Code ensures allowances cannot exceed half of total remuneration.
If they do, the excess becomes part of “wages” — directly increasing the gratuity base.

Impact:
✔ Higher benefit salary
✔ Higher DBO + CSC for allowance-heavy pay structures
✔ Potential one-time gain/loss if companies rebalance pay mid-year