The announcement of India’s new labour codes had raised hopes among millions of private-sector employees that workplace benefits would soon become more employee-friendly. One of the most widely discussed provisions was the proposed change in gratuity rules, under which fixed-term employees would become eligible for gratuity after completing just one year of service. However, despite this change being part of the new labour framework, employees are still not legally entitled to gratuity after one year. The traditional five-year continuous service rule continues to apply.
So why hasn’t the new rule come into effect yet? The answer lies in how labour laws are implemented in India.
Under the existing Payment of Gratuity Act, an employee becomes eligible for gratuity only after completing at least five years of continuous service with the same employer. This rule has been in place for decades and applies to most private-sector and organised-sector employees.
As job patterns evolved and fixed-term and contract-based employment increased, the government felt that workers needed access to social security benefits at an earlier stage of their careers. This led to the inclusion of a one-year gratuity provision for fixed-term employees in the new labour codes.
The new labour codes propose that fixed-term employees should receive gratuity proportionate to their period of service, even if they have worked for just one year. The idea was to ensure fair treatment for employees who are hired on contracts and may not remain with one employer long enough to complete five years.
This provision was widely welcomed, as it promised to bring a major shift in employee benefits and improve social security coverage in a rapidly changing job market.
Despite being announced, the new rule has not been implemented on the ground. The primary reason is that labour laws in India fall under the Concurrent List of the Constitution. This means that while the central government can pass laws, state governments are responsible for framing and notifying their own rules to enforce those laws.
Until individual states notify the rules under the new labour codes, companies are not legally bound to implement the new provisions. As a result, the old gratuity law requiring five years of continuous service remains in force.
Since most state governments have not yet finalised and notified their labour rules, companies continue to operate under the existing legal framework. From an employer’s perspective, implementing the new gratuity provision without clear state-level rules could lead to compliance issues, audit objections, or future legal disputes.
Many organisations also fear that premature implementation could create confusion around retrospective payments or regulatory scrutiny. To avoid potential liabilities, companies prefer to wait for formal notifications from state authorities.
The Ministry of Labour has clarified that under the new labour codes, fixed-term employees who complete one year of service should be eligible for gratuity for that period. However, the ministry has also acknowledged that until states notify the relevant rules, this provision remains a policy intention rather than a legally enforceable right.
In simple terms, the rule exists on paper but lacks legal backing at the implementation level.
The delay is not limited to gratuity alone. Several other important reforms proposed under the new labour codes are also pending due to the same reason. These include changes in salary structures, social security benefits for gig and platform workers, revised working hour norms, overtime regulations, and rules related to hiring and retrenchment.
The real impact of these reforms will only be visible once states complete the rule-making process and formally implement the codes.
Experts believe that political, social, and economic considerations are behind the delay. State governments are carefully evaluating feedback from trade unions, industry bodies, and the MSME sector. While some states have released draft rules, in most cases the process is still at the consultation and review stage.
States are trying to balance worker welfare with industry concerns, which has slowed down the rollout.
For employees, the key takeaway is clear: the one-year gratuity provision is not yet a legal entitlement. Until state governments notify and enforce the new labour rules, companies are not required to follow the revised gratuity norms.
For now, the five-year continuous service rule remains applicable across most of the country. Employees, especially those on fixed-term or contract roles, should not assume gratuity eligibility after one year until official notifications are issued.
While the new labour codes promise significant reforms, their benefits—including the one-year gratuity rule—will only materialise once states complete the implementation process. Until then, employees will have to rely on the existing gratuity framework, and any real change will depend on how quickly states move forward with notifying their labour rules.
