New Labour Codes Bring Major Changes to Gratuity Rules: All Your Key Questions Answered

The Central Government has officially implemented the new Labour Codes from 21 November 2025, bringing several important changes for employees across the country. One of the most significant amendments relates to gratuity eligibility, a benefit traditionally available only after completing five years of continuous service.

Under the revised framework, the rule has been altered — and now, contract and fixed-term employees can claim gratuity after completing just one year of service. However, this relaxation does not apply to permanent employees, who must still complete at least five years to qualify.

To help you understand what has changed and who benefits from the new system, here is a comprehensive FAQ-style breakdown.

Does the new gratuity rule apply to permanent employees?

No. Permanent or regular employees will continue to receive gratuity only after completing a minimum of five years of employment, as per the earlier rule. The new one-year eligibility condition is exclusively applicable to fixed-term or specific categories of contractual workers.

Will non-permanent employees now be eligible for gratuity?

Yes, but with conditions.
According to the updated Labour Codes, the gratuity benefit has been extended to:

• Fixed-Term Employees (FTEs)

• Certain categories of contract workers

These employees will now be eligible for gratuity based on the duration of their service, even if it is less than five years. However, they must have completed at least one full year of employment to qualify.

This reform aims to offer social security to workers engaged in short-term roles, project-based assignments, or industries with high contractual employment.

Who exactly is considered a Fixed-Term Employee (FTE)?

A Fixed-Term Employee is someone hired under a formal contract for a specific duration. This period may be:

• 6 months

• 1 year

• 18 months

• Or any other fixed duration agreed upon in the employment contract

Despite being contractual, these employees are not treated as temporary workers. Instead, for the purpose of benefits such as gratuity, they are considered at par with regular employees — with the added provision of earlier eligibility.

If I leave the job after one year, will I receive gratuity?

It depends on your employment category.

✔ If you are a Fixed-Term Employee:

Yes. Under the new rules, you become eligible for gratuity after completing one year, regardless of whether you resign before the contract ends.

✘ If you are a permanent employee:

No. Permanent staff still need to complete a minimum of five years of continuous service to claim gratuity.

Has the gratuity calculation formula changed under the new Labour Codes?

No, the basic formula remains unchanged.
Gratuity is still calculated using:

Gratuity = (15 days’ wages × completed years of service)

However, what has changed is the definition of ‘wages’ under the new Labour Codes.
This revised definition could lead to a higher payout, as the base wage for calculation may increase depending on allowances and salary structure.

Thus, even though the formula stays the same, employees — especially those with higher basic pay components — may receive a larger gratuity amount than earlier.

What do these changes mean for employees?

The new rules significantly strengthen employee welfare, particularly for those in:

• Contract-based roles

• Project assignments

• Seasonal industries

• Fixed-term positions

By allowing gratuity eligibility after just one year, the government has expanded social security coverage to millions of contractual workers who were earlier excluded due to the five-year service condition.

Permanent employees continue under the old eligibility criteria, but may still benefit indirectly due to revised wage definitions increasing their expected gratuity amount.