Fixed-Term Employees to Get Gratuity After 1 Year Under New Labour Laws
The Union Government has introduced a major update to India’s labour laws, allowing fixed-term employees to get gratuity after just one year of service instead of the earlier five-year requirement. The Labour Ministry said the goal is to ensure better wages, stronger social security and improved health-related benefits for workers.
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Who Are Fixed-Term Employees
A fixed-term employee is hired under a contract with a clear end date or tied to a specific project. Until now, they could claim gratuity only after completing five years, similar to permanent staff.
Wider Worker Coverage
The new framework extends beyond formal jobs. It also includes informal workers, gig and platform workers, migrant labourers and women employees—bringing more people under essential social security safeguards.
Big Policy Shift
With the new labour codes in action, fixed-term employees will now be eligible for gratuity after completing just one year. The ministry explained that the intention is to place them on par with permanent employees in terms of salary structure, leave, medical benefits and other protections.
Encouraging Fair Hiring
By easing these rules, the government hopes companies will depend less on contract staffing and adopt more transparent, direct hiring practices.
Meaning of Gratuity
Gratuity is a lump-sum financial benefit employers give their staff as a gesture of appreciation for long-term service. Traditionally paid upon resignation, retirement or separation after five years, this benefit will now reach fixed-term employees much earlier—within one year—offering better financial stability.
Broader Coverage Areas
The Payment of Gratuity Act applies to a wide range of industries such as factories, ports, railways, oil fields and mines. While earlier discussions hinted at reducing eligibility to three years, the final decision to bring it down to one year marks a significant shift.
Gratuity Calculation
To calculate gratuity, employees can use the standard formula:
Last Drawn Salary × (15/26) × Number of Service Years
Here, the last drawn salary includes Basic Pay + Dearness Allowance.
For example, with a basic-plus-DA salary of ₹50,000 and five years of service, the gratuity amount becomes:
50,000 × (15/26) × 5 = Rs.1,44,230
Boost to Workforce Stability
This reform is expected to provide stronger financial security to employees while helping employers build a more stable and committed workforce.
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