Why 26 days matters
The Payment of Gratuity Act treats gratuity as a statutory obligation, not a discretionary payment. For employees on monthly wages, the Act requires calculating "fifteen days' wages" as part of the gratuity formula. Whether to divide by 26 or 30 directly affects the daily wage figure and, therefore, the total gratuity amount.
Using 30 assumes a five-day work week spread evenly across all calendar days. Using 26 reflects the actual number of working days in a typical month—52 weeks divided by 2, minus public holidays and weekly offs. The Court's choice of 26 aligns with how Indian workplaces actually function.
Consider an employee earning Rs. 50,000 per month. Dividing by 30 yields a daily wage of Rs. 1,667. Dividing by 26 yields Rs. 1,923. For an employee with 35 years of service, this difference multiplies across the entire gratuity calculation. The Supreme Court's ruling ensures the calculation reflects genuine working patterns, not an artificial calendar-based average.
Courts reinforce gratuity as protective law
This ruling does not stand alone. In September 2026, the Allahabad High Court ordered gratuity payment with 6% interest to a retired teacher who had continued working until age 62 instead of retiring at 60. The High Court explicitly treated gratuity as a beneficial scheme intended to protect eligible employees. Continuing employment beyond the prescribed retirement age with the employer's permission does not disqualify a worker from gratuity.
The Supreme Court in State of Uttar Pradesh and Others v. Smt. Priyanka (2022) declined to interfere with the grant of death-cum-retirement gratuity, reinforcing that the benefit protects those entitled to it. These decisions, read together with the October 2026 ruling on wage calculation, show courts interpreting the Act in favour of workers.
Yet this protective stance has limits. The Supreme Court has clarified that gratuity can be forfeited for misconduct involving moral turpitude, even without a criminal conviction, provided the misconduct is established through disciplinary proceedings. In Western Coal Fields Ltd. v. Manohar Govinda Fulzele, 2025 INSC 233, the Court upheld forfeiture after misconduct was established through fair procedure. Employers must issue a reasoned decision and follow due process, but the absence of criminal conviction does not shield an employee from losing gratuity if serious misconduct is proven.
Principal employer liability for contract workers
A principal employer is not liable to pay gratuity to workers engaged through a contractor unless a direct employer-employee relationship exists. In M/s Oil and Natural Gas Corporation Ltd. v. Suryakand D. Lad & Ors., decided on September 9, 2026, the Supreme Court set aside a Bombay High Court order that had held ONGC liable for contractor workers' gratuity.
The judgment clarified that the Controlling Authority under the Payment of Gratuity Act has limited jurisdiction to compute gratuity amounts but cannot determine who is liable to pay it. The Court also noted that gratuity is distinct from "wages" under Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970. A principal employer's statutory responsibility for wages does not extend to gratuity obligations toward contract workers.
For employees directly hired by their employer, the October 2026 ruling on wage calculation applies squarely. The 26-day divisor ensures they receive the full benefit the Act intends.
Payroll systems need revision
Organisations with long-service employees must now review their gratuity calculation policies. Any existing calculations using a 30-day divisor will need revision. For employees who have already retired or separated, organisations should consider whether recalculation and adjustment payments are required, depending on the specific employment agreements and any settlement terms.
The ruling applies across public and private sectors. State governments, public sector undertakings, and private companies all fall within the scope of the Payment of Gratuity Act. HR teams should verify their gratuity calculation spreadsheets and payroll systems use 26 as the divisor for monthly-rated employees.
Employees approaching retirement should request a gratuity calculation from their employer using the correct methodology. Those with long service records—particularly those with 35 or more years—benefit from a calculation method that more accurately reflects their actual working days.
What happens next
The Supreme Court's October 9, 2026 ruling does not create a new obligation; it clarifies how an existing obligation must be met. The Payment of Gratuity Act has required employers to pay gratuity since 1972. What changed on October 9 is the settled method for calculating it for monthly-wage employees. Courts across India will now apply this standard consistently.
Employers who have been using 30 as the divisor must correct their approach going forward. Employees who believe their gratuity was miscalculated may have grounds to seek recalculation or adjustment. Disputes over gratuity calculation will now be resolved by reference to this Supreme Court clarification, reducing litigation and uncertainty. The ruling reinforces that gratuity is a statutory benefit designed to protect workers after long service, providing genuine financial security for employees transitioning from employment to retirement.
