Govt rejects industry demand for gratuity relief under labour codes

Labour ministry has declined industry demand for grandfathering in gratuity rules, citing lack of provision in the original labour codes passed by Parliament

Industry bodies have urged the labour ministry to allow grandfathering provisions in gratuity payments as part of evolving labour norms, but the proposal has not been accepted, according to people aware of the discussions.

 

The demand from employers comes amid concerns over a potential increase in gratuity liabilities if revised norms are applied uniformly across the workforce.

 

Industry representatives have argued that any changes to eligibility criteria or benefit calculations could significantly raise costs for companies. 

 

Grandfathering, in this context, refers to allowing existing employees to continue under the current gratuity framework, while revised rules would apply only to future hires or future accruals.

 

Employers say this approach would help ease the transition to a new regime by avoiding a sudden financial impact on firms, while still enabling the government to implement reforms.

 

However, the labour ministry has conveyed that grandfathering cannot be incorporated in the rules as it is not part of the original labour Codes passed by Parliament, the people said. This effectively limits the scope for introducing grandfathering at the rule-making stage.

 

Under the Code on Social Security, 2020, gratuity provisions have been expanded to cover fixed-term employees, who become eligible after completing one year of service instead of the earlier five-year requirement.

 

The code also changes the definition of wages by limiting allowances, which could increase the base used to calculate gratuity and, in turn, raise payouts in some cases.

 

Many companies reported a hit to their December-quarter profits due to higher provisioning for gratuity and related employee benefits under the evolving labour framework.

 

Tata Consultancy Services saw a statutory impact of ₹2,128 crore, with ₹1,816 crore due to gratuity payouts.

 

Infosys took a hit of ₹1,289 crore, and HCLTech about ₹956 crore, while Wipro reported a ₹303-crore impact.

 

Bharti Airtel also recorded a ₹257-crore provision, with these one-time charges weighing on margins and net profit.

 

Several industry bodies representing both large firms as well as micro, small, and medium enterprises (MSMEs) are still in talks with the government for further clarifications regarding the new codes. However, it is unlikely that the final rules will have significant changes from the draft rules that were released in December 2025 for public consultation, according to ministry officials and stakeholders. 

 

This comes at a time when the rollout of the labour Codes remains incomplete, with the final rules yet to be notified. The codes were implemented from November 2025, and draft rules were released towards the end of December. While the codes are already in force, the final rules are meant to provide further operational clarity but have since been delayed. 

 

The government had earlier indicated that the final rules would be notified by the end of FY26. However, with final notification still pending, employers say companies are operating under evolving provisions which create gaps in clarity.