No More Waiting 5 Years! Find Out Who Qualifies for Gratuity After Just 1 Year Under the New Labour Code
New Labour Code: Under the new Labour Code of 2026, fixed-term employees will now be eligible for gratuity after just one year of service. Additionally, due to the new wage structure (the '50% Basic' rule), the gratuity amount for all employees is expected to increase by 20–50%.
New Labour Code: For salaried individuals in India, 'gratuity' is no longer merely a retirement benefit. The new Labour Code, set to come into effect on November 21, 2025, has overhauled decades-old regulations. Now, the 'type' of your employment and the 'structure' of your salary will determine exactly how much money ends up in your pocket.
The Biggest Change: 5 Years vs. 1 Year
Until now, 5 years of continuous service was mandatory to qualify for gratuity; however, the rules have now been bifurcated into two categories:
Fixed-Term Employees (Contractual): If you are on a fixed-term contract, you will now be entitled to gratuity after completing just one year of service. This will be disbursed on a 'pro-rata' basis (in proportion to the duration of work).
Permanent Employees: For you, the existing 5-year rule still applies. This means that completing 5 years of service remains a prerequisite to receive benefits upon resignation or retirement.
Why Will Your Gratuity Increase?
According to the new regulations, it is now mandatory for at least 50% of your total CTC (Cost to Company) to constitute 'Wages' (Basic Pay + Dearness Allowance).
The Old Method: Companies typically kept the 'Basic Pay' component low to minimize their gratuity liability.
The New Method: If the total allowances exceed the 50% threshold, the excess amount will be added to your Basic Pay. This will effectively increase your calculation base, potentially leading to a 20% to 50% rise in your gratuity payout. Calculation Formula
The formula will remain the same; however, the final amount will increase due to the change in the 'salary' structure.
Gratuity: Old vs. New Rules (FY 2026-27)
| Feature | Old Rule | New Rule (2026) |
|---|---|---|
| Contract Worker | Minimum 5 years required | Only 1 year required |
| Permanent Worker | Minimum 5 years required | Minimum 5 years required |
| Salary Calculation | Basic + DA (lower portion) | Minimum 50% of CTC (mandatory) |
| Payment Time Limit | 30 days | 30 days (legal right) |
| Impact | Lower gratuity payout | 20–50% higher payout |
