The Indian government has introduced sweeping labour reforms, merging 29 old labour laws into four modern labour codes. One of the biggest changes hits gratuity rules, especially for fixed-term employees.
New Gratuity Rule: Just 1 Year of Service for Fixed-Term Employees
Under the previous Payment of Gratuity Act, a worker had to complete five years of continuous service to be eligible for gratuity. Now, with the new labour codes in effect from 21 November 2025, the government has reduced the minimum service requirement for fixed-term employees (FTEs) to just one full year.
This change brings FTEs nearly on par with permanent workers. The government says this will give more job security and better financial benefits to workers who are often tied to short-term contracts.
How Gratuity Will Be Calculated for Fixed-Term Staff?
The new rules ensure that fixed-term workers get a fair share of social security benefits, similar to permanent employees. According to experts, a fixed-term employee who works 240 days or more in a year is considered to have completed one year of service for gratuity eligibility.
Once eligible, the gratuity will be paid on a pro-rata basis — meaning it will be calculated proportionally to the period they worked under contract.
Who Gains Most from the Reform?
This rule change is especially good news for workers in industries where fixed-term hiring is common, for example, export manufacturing, media, IT, gig platforms, and construction.
Many of these workers switch jobs every year or work on short-term projects. Earlier, they had no realistic path to gratuity because they never completed five continuous years. The new labour codes also guarantee the same salary structure, leave, medical benefits, and social security for FTEs — just like regular employees.
Other Key Provisions Linked to Gratuity
The Social Security Code under the new labour laws explicitly defines gratuity for the first time in a unified way. In case a fixed-term contract ends early, as long as the employee has worked for a year (or 240 days), they become eligible.
The gratuity cap set by the law may also apply, which means there’s a maximum limit on how much gratuity a worker can receive.
Boosting Social Security for ‘Disposable’ Workers
Fixed-term jobs are often criticized for being “disposable labour” — workers come in for a short stint, do the work, and leave without long-term benefits. With this change, the government is signalling a new direction: building social security into temporary work, not just permanent jobs.
This could encourage companies to hire more formally and responsibly. It could also help reduce abuse of short-term contracts, as workers now know they will be rewarded even after a short assignment.
