Gratuity Eligibility Reduced to One Year Under New Labour Rules
India’s labour law overhaul has introduced a key change that allows fixed-term employees to receive gratuity after completing just one year of service. Earlier, gratuity eligibility required a minimum of five years of continuous employment. The change took effect on 21 November 2025 and marks one of the biggest updates to employee welfare rules in years.
Fixed-term workers to get benefits at par with permanent staff
The new rules bring fixed-term contract employees on par with permanent employees in terms of social security and benefits. Apart from gratuity, fixed-term staff will now receive medical coverage, earned leave, and other statutory entitlements similar to full-time workers. The government has also clarified that gratuity will apply proportionately based on the duration of employment beyond the one-year threshold.
Wider social security coverage
The labour code reforms consolidate 29 older labour laws into four major codes covering wages, industrial relations, social security and occupational safety. The revamped framework expands social security to gig workers and platform workers, formalises fixed-term contracts, and makes written appointment letters mandatory. The new definition of wages now includes more salary components, affecting PF and bonus calculations across industries.
Impact on employers
Companies across sectors are expected to revise HR policies, update payroll systems and adjust contract structures to comply with the new eligibility norms. The inclusion of additional wage components may increase employer contributions to social security, prompting many firms to recalibrate cost structures. Experts believe the reform will improve job security for India’s large temporary workforce.
