Revised Labour Codes Enable Gratuity Claims After One Year of Service
Synopsis
The newly implemented labour codes now permit eligible workers to claim gratuity after just one year of continuous service, a significant change from the previous five-year rule. This legislation opens the door to millions of formal sector employees in India to access essential post-employment benefits sooner.
Key Takeaways
New rules allow gratuity claims after one year of service.
Fixed-term workers can benefit from pro rata gratuity.
Permanent employees still require five years for gratuity unless in specific circumstances.
Gratuity is based on at least 50% of CTC.
Effective date for new rules is November 21, 2025.
New Delhi, April 4 (NationPress) The recent changes in labour laws have revamped the gratuity provisions, enabling specific eligible employees to receive gratuity after just one year of continuous employment, a reduction from the previous five-year requirement.
These new labour codes, which came into effect on November 21, 2025, allow fixed-term and contract workers to claim gratuity on a pro rata basis. Permanent employees, however, still must fulfill the five-year service requirement, except in cases of death or disability, according to a report from NDTV Profit.
Fixed-term employees are contracted for a specified duration, which may last from one to two years. Gratuity for these workers will now be computed based on their service duration, allowing for a more equitable distribution of benefits.
This legislative change is likely to expand access to post-employment benefits for millions of formal sector workers across India. According to the new labour codes, gratuity will be determined based on wages, which are required to constitute at least 50% of the total cost-to-company (CTC) for an employee.
The labour ministry has defined wages as: “All remuneration whether in the form of salaries, allowances or otherwise payable to a person employed, including basic pay, dearness allowance, retaining allowance, if applicable.”
Employees with a lower historical basic pay can expect significant increases in their gratuity payments.
Gratuity, mandated by law, is a lump-sum payment that employees receive from their employer as a gesture of appreciation for long-term service, typically after five years or upon retirement.
“Gratuity will be effective from November 21, 2025, marking the enforcement date of the Code. Establishments are encouraged to make provisions in accordance with accounting standards,” the Labour Ministry stated in its FAQ documents.
Consequently, only employees who commence their employment on or after November 21, 2025, will be eligible to claim gratuity after completing one year of uninterrupted service.
aar/pk
Point of View
The revised labour codes represent a progressive step towards enhancing workers' rights and benefits in India. By reducing the gratuity eligibility period, the government aims to provide better financial security for employees, particularly in a rapidly changing job market.
NationPress
13 Jul 2026
Frequently Asked Questions
What are the new gratuity rules under the labour codes?
The new labour codes allow eligible employees to claim gratuity after one year of continuous service, down from the previous five years.
When do the new gratuity rules take effect?
The new rules will be effective from November 21, 2025.
Who is eligible for gratuity under the new codes?
Fixed-term and contract workers can claim gratuity on a pro rata basis after one year, while permanent employees still need five years, with exceptions for death or disability.
How is gratuity calculated for fixed-term employees?
Gratuity for fixed-term employees will be calculated based on the duration of their service on a pro rata basis.
What is the minimum wage percentage for gratuity eligibility?
Wages must constitute at least 50% of the employee's total cost-to-company (CTC) for gratuity eligibility.
