The 50% Salary Puzzle: Why Two Employees With the Same CTC Can Have Different Gratuity Bases

The 50% Salary Puzzle: Why Two Employees With the Same CTC Can Have Different Gratuity Bases

Oct 22, 2026

Two employees can earn ₹12 lakh a year, work in the same company, and receive different gratuity calculations. The reason may sit inside their salary structure, not their job title. The 50% wage rule under India’s new Labour Codes has made this distinction important for employers. 

At Mithras Consultants, we help businesses understand how salary components affect employee benefit liabilities. This article explores the calculation behind the rule and explains why CTC alone cannot tell the complete story.

The 50% Wage Rule Changes the Salary Conversation

The Code on Wages, 2019 introduced a revised definition of wages for statutory calculations. The Ministry of Labour and Employment confirmed its application to gratuity from 21 November 2025.

The rule requires employers to examine the relationship between basic pay, allowances, and total remuneration. When specified allowances exceed 50% of remuneration, the excess amount gets added to wages.

This distinction matters because employers may structure the same CTC through different salary components.

Consider two employees with identical annual CTC:

• Employee A: Receives a higher basic salary and smaller allowances.
• Employee B: Receives a lower basic salary and larger allowances.

Both employees may have the same annual package. Their statutory wage bases can still differ.

The key question is not simply how much an employee earns. The question is how the employer structures that remuneration under the applicable wage definition.

Why the Same CTC Can Produce Different Gratuity Bases

CTC includes several components that do not necessarily form part of the wage base used for statutory calculations. Employers must examine each component under the applicable provisions.

The Code on Wages defines wages through specified inclusions and exclusions. The 50% rule addresses certain allowances and benefits, while gratuity and retrenchment compensation receive separate treatment.

A Simple Salary Comparison

Consider this illustrative example of two employees earning the same annual CTC.

The example assumes that the listed allowances fall within the applicable wage definition.

Employee A has basic pay and DA equal to 50% of monthly CTC. Employee B has a lower basic salary and higher allowances.

Under the 50% rule, employers must assess whether the specified allowances exceed the permitted threshold. Any excess may be added back to wages.

The Gratuity Calculation: Where the Difference Appears

The gratuity formula uses the employee’s eligible wages and completed service.

For employees covered by the Payment of Gratuity Act, the standard formula is:

Gratuity=(Last Drawn Wages×15×Years of Service)/26

The formula uses 15 days’ wages for each completed year of service, subject to the applicable rules.

Let us use the illustrative wage figures from the previous section.

Employee A

• Monthly eligible wages: ₹50,000
• Completed service: 10 years
• Gratuity: ₹50,000 × 15 × 10 ÷ 26
• Illustrative gratuity: ₹2,88,462

Employee B

• Monthly eligible wages: ₹50,000
• Completed service: 10 years
• Gratuity: ₹50,000 × 15 × 10 ÷ 26
• Illustrative gratuity: ₹2,88,462

Actual gratuity depends on the applicable law, eligible wages, service period, and relevant employment conditions.

Why Payroll Teams Need More Than the CTC Sheet

A CTC sheet shows how an employer structures compensation. An actuarial valuation examines the financial obligation arising from employee benefits.

Mithras Consultants provides actuarial valuation services for gratuity, leave encashment, and other employee benefits under applicable accounting standards.

Payroll and finance teams should review the following areas when assessing the impact of wage restructuring:

• Salary Components: Identify basic pay, DA, allowances, and other remuneration.
• Wage Definition: Apply the relevant statutory inclusions and exclusions.
• Employee Data: Check salary, age, service, and employment details.
• Accounting Standards: Assess the liability under AS 15 or Ind AS 19, where applicable.
• Actuarial Assumptions: Review discount rates, attrition, and salary escalation.

The Actuarial Impact of Changing Salary Structures

A salary structure change can affect gratuity liabilities even when total CTC remains unchanged.

The impact depends on the eligible wage base and the assumptions used in actuarial valuation. The discount rate, salary growth, and employee turnover can influence the reported liability.

For example, a company may revise allowances while retaining the same annual CTC. The revised structure can change the statutory wage base for eligible employees.

The company must then assess whether its gratuity provision requires adjustment.

What Employers Should Review

• Employee Categories: Compare salary structures across departments and grades.
• Historical Data: Examine past salary changes and employee movements.
• Future Liabilities: Assess the effect on projected gratuity obligations.
• Financial Reporting: Review the impact under applicable accounting standards.

The objective is to connect payroll decisions with the financial obligations that follow.

How Mithras Consultants Helps Businesses Assess Employee Benefit Liabilities

Mithras Consultants is an independent actuarial and insurance consultancy firm serving clients across India and other markets. Its services include gratuity valuation, employee benefit valuation, actuarial reporting, and insurance advisory.

The firm helps businesses assess employee benefit liabilities through structured actuarial analysis. Its work covers valuation under the Payment of Gratuity Act, AS 15, Ind AS 19, and IAS 19.

Our approach focuses on understanding the client’s employee data, salary structure, and financial reporting requirements.

Conclusion

The 50% wage rule changes how employers need to read salary structures. Two employees with the same CTC can have different statutory wage bases because their salary components may differ. 

The final gratuity calculation depends on the applicable wage definition, eligible remuneration, and completed service. Employers should examine these factors before estimating employee benefit liabilities. 

At Mithras Consultants, we help businesses assess gratuity and employee benefit obligations through actuarial valuation and financial analysis.

Need help with gratuity valuation or employee benefit liabilities?

Contact us to discuss your requirements.

• Call: +91-9212375418
• Email: info@mithrasconsultants.com