A small tweak in your salary structure could make a bigger difference than you expect. With the new basic pay rule coming into focus, gratuity is one benefit that could see a clear shift.
In Part 1 of this series, we explained as the 50% wage rule reshapes salary structures. In this part, we take a closer look at what this change means for your long-term benefits, especially gratuity.
Under the revised wage definition, basic pay must account for at least 50% of total salary. This marks a clear shift from current industry practices, where companies often keep the basic component lower to allow room for allowances.
“As per industry practice, the Basic Wage is typically maintained at around 40% for lower-income group employees and 30% for higher-income group employees,” said Munab Ali Baik, Head of Compliance Advisory, at Core Integra, a leading labour law compliance and RegTech firm in India.
Since gratuity is calculated on basic salary, any increase here directly pushes up your long-term benefits. Baik breaks this down with simple examples.
For someone earning Rs 12 lakh a year, the change is fairly modest.
At present, with basic at 40%, the monthly basic comes to around Rs 40,000. This results in a gratuity contribution of about Rs 23,076 a year.
If the basic is raised to 50%, or Rs 50,000 per month, the gratuity increases to roughly Rs 28,846 annually, explains Baik. “This results in a net increase of Rs. 5,770 per annum, which is relatively minimal.”
In other words, the change is gradual and may not feel very noticeable in the short term.
The difference becomes more noticeable at higher salary levels.
For someone earning Rs 30 lakh annually, companies usually keep basic at about 30%, or Rs 75,000 per month. This results in a gratuity of roughly Rs 43,269 per year. With the new rule pushing basic to 50% (Rs 1.25 lakh per month), gratuity rises sharply to about Rs 72,115 annually, explains Baik.
“This leads to a net increase of Rs. 28,846 per annum, which is a significant impact, approximately 1% of the employee’s take-home pay,” he says.
The reason is quite simple. The lower your basic pay was, the bigger the adjustment when it is pushed to 50%.
“Accordingly, the lower the basic wage fixed earlier, the higher the impact will be,” Baik added.
This is why those with higher salaries, who typically have more structured allowances, may see a more noticeable shift.
The real impact of this shift plays out over time.
“Additionally, if the same employee completes 10 years of service, the employer is required to account for an increase of approximately 25% in gratuity liability in the books of accounts,” Baik says.
Simply put, a higher basic salary today means a larger gratuity payout later.
In the near term, your take-home pay could dip slightly because of higher contributions to benefits like PF and gratuity. But the trade-off is stronger financial security in the future.
Over time, salary structures are expected to become more standardised and transparent. For employees, it may take some getting used to, but the long-term gains could make it worth it.
(This is Part 2 of our 50% wage rule series. In the next edition, we’ll break down how this rule could still work in your favour.)