Gratuity Rules: The government implemented new labor codes effective Friday, November 22, 2025. The new rules also include provisions regarding gratuity. According to the new rules, the number of years of continuous service required for employees to be eligible for gratuity payments has been reduced from the current five years to one year, with the aim of strengthening welfare measures for workers. However, there’s a catch. This rule doesn’t apply to permanent employees.
Under the new rules, fixed-term employees will be eligible for gratuity after one year of employment . A fixed-term employee is someone who is hired under a contract that has a pre-determined end date or that ends upon the completion of a specific task or project.
Who will get gratuity in 1 year?
Under the Payment of Gratuity Act, fixed-term employees were previously eligible for gratuity only after completing five years of continuous service at a particular location. With the implementation of the new labor code, this tenure requirement has been relaxed for fixed-term employees (FTEs). Such employees will now be eligible for gratuity after completing just one year of service. The ministry clarified that the purpose of this change is to bring fixed-term workers at par with their permanent counterparts.
They will still get gratuity only after 5 years
The service period requirement has been reduced, but only for fixed-term employees. Section 53 of the new Social Security Code states that the five-year continuous service requirement will not be applicable if the fixed-term employment ends upon termination.
The new rules have not changed anything for permanent employees and they will continue to receive social security benefits, but as far as gratuity eligibility is concerned, there has been no change.
There is no change in the law for permanent (on-roll) employees. They will be eligible for gratuity only after completing five years of continuous service.
What is gratuity?
Many people don’t know the meaning of gratuity. Let’s find out what it is. Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for long-term loyal service. This payment is typically made upon retirement, resignation, or disability after completing at least five years with the company. It is governed by laws such as India’s Payment of Gratuity Act, 1972.
It serves as a financial benefit to provide post-employment stability. Calculated based on salary and years of service, it serves as a reward for commitment and a cushion for the future.
What is the formula for calculating gratuity?
The standard gratuity calculation formula for employees covered under the Gratuity Act of India is: (Last Drawn Salary × 15/26 × Number of Years of Service), where “Last Drawn Salary” includes Basic + Dearness Allowance.
For example, if an employee has worked in a company for five years and his final basic-plus-DA salary is Rs 50,000, the gratuity will be: 50,000*(15/26)* 5 = Rs 1,44,230.