Centre Plans Revision of Bonus and Gratuity Rules Under New Labour Codes

The Central government is preparing to revise the eligibility criteria and calculation methods for employee bonus and gratuity payouts as part of the transition to the new labour codes. The move comes nearly a decade after the last revision and is expected to benefit a larger section of formal-sector workers.

Bonus Eligibility Likely to Increase

Under the Code on Wages — which now incorporates the earlier Payment of Bonus Act — companies are required to pay an annual bonus to employees earning up to a wage limit notified by the government. Employers must pay at least 8.33% of annual salary or a government-declared minimum amount, whichever is higher. The maximum bonus is capped at 20% of wages, subject to the organisation’s allocable surplus.

The last revision took place in 2015, when the government increased:

Salary eligibility limit: from ₹10,000 to ₹21,000 per month

Bonus calculation ceiling: from ₹3,500 to ₹7,000 or the minimum wage (whichever is higher)

Officials say the existing limits no longer reflect current wage scales and inflation. The revised thresholds are expected to be announced soon. Once notified, state governments will be required to amend their own rules accordingly.

Gratuity Rules to See Major Changes

The government is also reshaping gratuity provisions under the Code on Social Security.

Currently, employees must complete five years of continuous service to become eligible for gratuity. The new code retains this requirement for permanent workers but introduces pro-rata gratuity for fixed-term employees (FTE).

This means workers on short-term or contractual employment will now receive gratuity based on period worked — even if their service is less than five years. For example, an FTE staff member leaving after one year will still qualify for a proportionate gratuity amount.

Mixed Reactions from Labour Groups

• Trade unions have expressed concerns that while some long-standing demands have finally been acknowledged, several provisions remain unfavourable to workers.
• AITUC General Secretary Amarjeet Kaur noted that unions have pushed for the removal of bonus ceilings and universal gratuity eligibility.
• “The government plans to revise ceilings but has not removed them. While it may claim these new rules are worker-friendly, the overall labour codes remain largely employer-oriented,” she said.
• She also highlighted issues such as easier dismissal procedures, expanded contractual hiring, and uncertainty surrounding social security funds.

Experts Say Policy Shift Follows Workforce Trends

Labour economist K.R. Shyam Sundar believes the gratuity reform reflects the increasing formalisation of contractual employment.

“Fixed-term employment has replaced regular job roles in many sectors. Extending gratuity to these workers appears to make such contract roles more appealing,” he said.

As India prepares to roll out the new labour codes, the announcement of revised bonus and gratuity limits is expected soon, potentially impacting millions of workers across public and private sectors.