New Labour Law Gratuity Rules: 1-Year Eligibility, Implementation, and Employee Benefits

From November 21, 2025, India’s updated Labour Codes introduce significant changes to gratuity provisions, marking one of the biggest reforms in social security. These changes impact eligibility, fixed-term employees, and contract workers, as well as implications for employers.

Eligibility for Gratuity Under the New Rules:

The revised rules expand gratuity coverage to include fixed-term and contract employees, along with workers in the export sector:

• Fixed-term employees: Eligible after 1 year of continuous service (previously 5 years), with a minimum of 240 working days in the year.
• Contract employees: Now entitled to gratuity on par with permanent staff.
• Export sector fixed-term workers: Covered for gratuity, provident fund, and other social security benefits.

Note: The 5-year eligibility continues to apply for permanent employees.

How Gratuity Will Be Paid:

Gratuity is payable when an employee retires, resigns, or in the event of death or disability. If a nominee is designated, the gratuity is paid to them; otherwise, it goes to the employee’s legal heirs. For minors, the amount is deposited with the controlling authority for secure investment.

Fixed-Term vs Permanent Employees

Fixed-term employees have contracts with a predetermined end date, typically linked to a project or assignment, and are eligible for gratuity after 1 year of service. Permanent employees continue to follow the 5-year eligibility rule. Both categories must receive equal treatment in terms of wages and benefits during employment.

Benefits for Fixed-Term Employees

Fixed-term employees now enjoy similar rights and benefits as permanent staff, including:

• Financial security even after short-term employment
• Statutory parity with permanent employees
• Transparent employment terms with mandatory appointment letters

Impact on Employers

Under the new rules, employers can engage in direct hiring and formal employment but must update systems and policies to ensure compliance:

• Revise salary structures to reflect the expanded wage definition
• Release gratuity within 30 days to avoid penalties
• Provide gratuity, PF, and social security coverage to fixed-term and contract workers
• Monitor compliance across all sectors, including the export industry