New labour codes allow some employees to claim gratuity after one year

India’s new labour codes allow certain fixed-term and contract employees to claim gratuity after one year of continuous service, instead of five years earlier. The rules, effective November 21, 2025, aim to expand post-employment benefits for formal sector workers.

New Delhi: The new labour codes have changed gratuity rules, allowing certain eligible employees to claim gratuity after one year of continuous service, cut down from the erstwhile rule of five-year period.

The new labour codes implemented in November 2025, makes gratuity available sooner for fixed-term and contract workers on a pro rata basis. Permanent employees still need to complete five years of service to claim gratuity, while there are exceptions in case of death or disability, a report from NDTV Profit said.

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Fixed-term employees are hired by the companies for a set period under a written contract. Which may extend over a year or two. Gratuity for such employees will now be calculated on a pro rata basis, reflecting the duration of their service.

The new rules could broaden access to post-employment benefits for millions of formal sector workers in India. New labour codes mandate gratuity to be based on wages, which must make up at least 50 per cent of an employee’s total cost-to-company (CTC).

The labour ministry defined wages as: “All remuneration whether by way of salaries, allowances or otherwise payable to a person employed, including basic pay, dearness allowance, retaining allowance, if any.”

Employees with a lower past basic pay are hence expected to see gratuity payouts rise significantly.

Gratuity mandated by law, is a lump-sum payment an employee receives from the employer, as a token of appreciation for their long-term service, usually after five years or retirement.

“Gratuity will be applicable with effect from November 21, 2025 i.e. date of enforcement of the Code. Establishments may make provision as per accounting norms,” the Labour Ministry said in its FAQ documents.

Thus, only employees who join a company on or after November 21, 2025, will be eligible to claim gratuity after completing one year of continuous service.