The government has officially notified new gratuity regulations under the Payment of Gratuity Act, 1972, marking a major labour reform aimed at improving retirement benefits and ensuring fair treatment for workers across various sectors. One of the biggest advantages under the revised rule is that employees hired on a fixed-term contract will now become eligible for gratuity after completing just one year of continuous service.
Earlier, gratuity was only payable if an employee had worked for a minimum of five consecutive years before leaving the company. Due to shorter contract durations, thousands of fixed-term workers could not access this long-term financial benefit. The updated rule finally removes that barrier.
Relaxing the five-year minimum requirement is expected to bring major financial support for professionals working under fixed-tenure contracts, including roles becoming increasingly common across IT, service, retail, hospitality, and manufacturing industries.
Under the new code:
✔ Gratuity eligibility starts after 1 year of service
✔ Applies to fixed-term contract workers
✔ Employees leaving before 5 years can now also receive the payout
✔ Benefit amount is expected to be higher due to revised wage definition
Along with the eligibility change, the government has also broadened the definition of ‘wages’ used for gratuity calculations. This ensures that additional salary components are included while determining the final gratuity payout.
As a result, employees may now receive a larger amount than what they would have previously received under the old wage structure.
With this new labour rule coming into force, organisations will need to update several internal processes, including:
HR and payroll policies
Employee classification guidelines
Gratuity liability calculations
Contract terms and exit settlements
Since the eligibility window has been significantly shortened, the cost of statutory benefits may rise for employers, especially in sectors with high fixed-term hiring.
If you are a fixed-term employee:
✔ Review your contract details
✔ Check your employment tenure from your joining date
✔ Confirm gratuity eligibility with your HR team
✔ Track changes in salary structure and benefits
This reform provides more security and ensures fair compensation for workers even if they leave or their contract ends early.
Along with gratuity reforms, several new guidelines aim to support employee well-being and financial stability:
Annual free health check-up for all workers aged 40 years and above
Timely salary payments to reduce financial stress
Wider ESIC coverage, now voluntary for establishments with fewer than 10 employees
Mandatory ESIC if even one worker is involved in hazardous work environments
These updates push employers to build healthier, safer and more employee-friendly workplaces.
The latest labour code updates are being viewed as significant progress toward aligning India’s workplace laws with global standards. By expanding social security, improving wage fairness, and ensuring benefit accessibility for fixed-term workers, the government aims to strengthen the workforce and promote long-term job satisfaction.
For millions of employees working on short-term contracts—this rule change could finally bring the retirement benefits they deserve.
