New Labour Codes: Employees to Get Gratuity After Just 1 Year Instead of 5 as Government Overhauls India’s Workforce Framework
In a major policy shift that could benefit millions of workers, the Union government has announced that employees will now be eligible to receive gratuity after completing just one year of service instead of the earlier mandatory five-year requirement.
New Delhi, November 22: In a major policy shift that could benefit millions of workers, the Union government has announced that employees will now be eligible to receive gratuity after completing just one year of service instead of the earlier mandatory five-year requirement. The announcement came as part of a sweeping overhaul of India’s labour laws, under which 29 existing legislations have been merged into four simplified labour codes.
According to the Union Labour Ministry, the restructuring aims to provide better wages, wider social security, improved working conditions and stronger health-related safeguards for workers across all sectors.
Eligibility Relaxed for Fixed-Term Employees
A key highlight of the reform concerns fixed-term employees (FTEs). Under the new labour codes, FTEs will be eligible for gratuity after completing only one year of service with an organisation. This marks a significant departure from the previous provision under the Payment of Gratuity Act, which mandated a minimum of five continuous years of service for eligibility. India Is an Emerging Model of Growth, Says PM Narendra Modi.
A fixed-term employee is one hired under a contract with a predetermined end date or tied to the completion of a specific task or project. The Labour Ministry clarified that the reform is intended to ensure parity between fixed-term and permanent employees. With this change, fixed-term workers will now receive the same salary structure, leave facilities, medical benefits and social security protections as regular staff. PM Narendra Modi Exudes Confidence That 21st Century Is Going to Be India’s Century.
Part of Broader Labour Market Reforms
The revised rules extend to informal workers, gig and platform workers, migrant labourers and women employees. The government expects that reducing the gratuity tenure will discourage the widespread dependence on contract staffing and promote more structured, direct hiring by employers.
Earlier, speculation suggested that the eligibility period might be reduced to three years. However, the final decision to bring it down to just one year for fixed-term employees represents a far more transformative step.
What Is Gratuity?
Gratuity is a lump-sum financial benefit paid by an employer to an employee as a token of appreciation for long-term service. Traditionally, this payment was made upon resignation, retirement or separation from an organisation after completing the mandatory five-year service period. With the new framework, fixed-term employees will not have to wait for such extended durations, offering them a crucial financial cushion during transitions.
The Payment of Gratuity Act covers a wide range of establishments, including factories, mines, oil fields, ports, railways and more.
How to Calculate Your Gratuity
The gratuity amount is determined using a standard formula:
Last Drawn Salary × (15/26) × Number of Years of Service
Here, the last drawn salary includes Basic Pay and Dearness Allowance.
For example, if an employee served for five years with a final basic-plus-DA salary of INR 50,000, their gratuity would be:
50,000 × (15/26) × 5 = INR 1,44,230
The updated gratuity framework is expected to offer greater financial security to employees while encouraging more stable workforce practices among employers. The new labour codes mark a significant step toward aligning India’s labour ecosystem with global standards and supporting a more equitable work environment.
(The above story first appeared on LatestLY on Nov 22, 2025 08:09 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).