Key Takeaways
- Gratuity eligibility reduced from 5 years to just 1 year for fixed-term employees
- 29 labour laws consolidated into four simplified codes
- Fixed-term workers get equal benefits as permanent staff
- Reforms cover informal, gig, platform and migrant workers
In a landmark labour reform, the Union government has slashed the gratuity eligibility period from five years to just one year for fixed-term employees. The announcement came as part of a major overhaul that consolidates 29 existing labour laws into four simplified codes.
The reforms aim to ensure better wages, wider social security coverage and improved health protections for workers across all sectors, including informal workers, gig and platform workers, migrant labourers and women employees.
End of 5-Year Waiting Period
Under the previous Payment of Gratuity Act, employees became eligible for gratuity only after completing five years of continuous service. The new labour codes have relaxed this requirement specifically for Fixed Term Employees (FTEs), who can now qualify after just one year of service.
The Labour Ministry clarified that this change aims to bring fixed-term workers at par with their permanent counterparts. FTEs will now be entitled to the same salary structure, leave facilities, medical benefits and social security measures as regular employees.
The government expects these changes to reduce excessive dependence on contract staffing and encourage more transparent, direct hiring by companies.
Understanding Gratuity Benefits
Gratuity is a financial benefit paid by employers as appreciation for long-term service. Traditionally, this lump-sum amount was provided when employees resigned, retired or separated after completing the mandatory five-year service period.
With the revised framework, fixed-term contract employees won’t need to wait five years. They’ll receive gratuity after just one year of service, making the benefit more accessible and providing better financial security during job transitions.
The Payment of Gratuity Act covers factories, mines, oil fields, ports, railways and various other establishments.
How to Calculate Your Gratuity
The gratuity amount is calculated using a standard formula:
Last Drawn Salary × (15/26) × Number of years of service
Last drawn salary includes Basic Pay and Dearness Allowance.
Example: If an employee served for five years with a final basic-plus-DA salary of ₹50,000, the gratuity would be:
50,000 × (15/26) × 5 = ₹1,44,230
The revised policy is expected to provide greater financial security to employees while improving workforce stability for employers across India.
