Formula used
Gratuity under the Payment of Gratuity Act is fifteen days of wages for every completed year of service, where a month is treated as twenty-six working days. The payout is therefore last drawn wages divided by twenty-six, multiplied by fifteen, multiplied by completed years of service. What the labour codes change is not the formula but the wage base it runs on: once basic plus dearness allowance is lifted to at least half of cash remuneration, the same years of service produce a larger payout. Two eligibility rules matter alongside the arithmetic. Permanent employees generally qualify after five years of continuous service, while fixed-term employees accrue gratuity from one year. The statutory ceiling holds the payable amount at twenty lakh rupees however large the calculated figure becomes.
Example calculation
Consider an employee with ten completed years of service, basic plus DA of Rs 30,000 a month and gross cash pay of Rs 1,00,000. On the current wage base the calculation gives Rs 30,000 divided by 26, multiplied by 15, multiplied by 10 — about Rs 1.73 lakh. Once wages are lifted to half of cash pay, the base becomes Rs 50,000 and the same ten years produce about Rs 2.88 lakh. The formula never changed; only the wage base did. The difference of roughly Rs 1.15 lakh is the value of the revised definition to this employee.
How to use this calculator
- Enter your current basic plus dearness allowance from your latest payslip.
- Enter your monthly gross cash pay, adding every allowance but excluding employer PF.
- Enter the years of service you have completed, counting six months or more as a full year.
- Tick the fixed-term box if you are on a fixed-term contract rather than permanent employment.
- Compare the payout on your current wages with the payout on the revised wage base.
- Check the capped figure if your calculated gratuity exceeds twenty lakh rupees.
Important assumptions
- Gratuity accrues at fifteen days of wages for each completed year, using a twenty-six day month.
- The revised wage base is the greater of your current basic and half of your cash remuneration.
- Permanent employees qualify after five years and fixed-term employees after one year.
- The statutory ceiling holds the payable amount at twenty lakh rupees.
- Your employer is covered by the Payment of Gratuity Act.
Common mistakes to avoid
- Using gross salary rather than basic plus dearness allowance as the wage base.
- Assuming the revised base applies only to years worked after the change, when gratuity runs on last drawn wages.
- Forgetting the twenty lakh ceiling when service and salary are both long and high.
- Treating the five-year rule as absolute, when fixed-term employees accrue from one year.
- Overlooking that employers outside the Act may use a thirty-day divisor and different terms.
The formula did not change — the base did
Almost every explanation of gratuity focuses on the fifteen-by-twenty-six formula, which is unchanged. The consequential change in the labour codes sits one step earlier, in what counts as wages. Because gratuity runs on last drawn wages rather than on an average, a revised base applies retrospectively to every completed year of service. An employee with fifteen years behind them sees the higher base applied to all fifteen, which is why the effect on long-serving staff is much larger than the monthly numbers suggest.
- Fifteen days of wages for each completed year, on a twenty-six day month.
- Last drawn wages, not an average across service.
- A higher base therefore lifts the payout for past years too.
Source and methodology
Last reviewed: August 2026
This calculator uses the formula and assumptions described on this page. Gratuity under the Payment of Gratuity Act is fifteen days of wages for every completed year of service, where a month is treated as twenty-six working days. Values are calculated in-browser from user-entered inputs and are not saved by default. Verify tax, regulatory, lender, scheme or product rules with the relevant official source where applicable.
Calculation version: labour-code-gratuity-2026.1 · Facts checked: 2026-08-25
Next review trigger: Any notification changing the gratuity formula, the eligibility period, or the twenty lakh ceiling.
Educational estimate only. RupeeKit does not provide personalized financial, investment, legal, tax or loan advice.
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When this tool is useful
- When you want a fast estimate before making a financial or salary decision.
- When you want to compare different assumptions in seconds.
- When you want to understand the formula behind the result.