The Code on Social Security, 2020 keeps the shape of the Payment of Gratuity Act but changes three things that matter to provisioning: who qualifies, what the wage base is, and how working journalists and fixed-term employees are treated.
The headline change is fixed-term employment. A fixed-term employee becomes eligible for gratuity on a pro-rata basis on completing the fixed term, without the five-year continuous service requirement. For employers who use fixed-term contracts at scale, gratuity moves from a long-tail liability to a recurring one, and the provision must be built into contract costing.
The wage base changes because gratuity is computed on 'wages' as defined in the Code, and that definition carries the same 50% construct as the Code on Wages. Where a CTC is allowance-heavy, the deemed add-back lifts the gratuity base, and with it the accrued liability for existing service.
The five-year continuous service rule continues for other employees, with the familiar exceptions for death and disablement. Continuous service computation, including the treatment of interruptions, remains an area where disputes turn on records — attendance and leave data, not policy documents.
For finance teams the practical step is an actuarial revaluation using the widened wage base and the fixed-term population separately identified. A straight-line uplift on last year's number will understate the liability for any employer with a meaningful fixed-term headcount.
Key takeaways
- Fixed-term employees accrue pro-rata gratuity without the five-year rule.
- The wage base widens with the 50% construct.
- Revalue actuarially; do not uplift last year's provision.