New Labour Codes: Fixed-Term Employees Now Eligible for Gratuity After Just 1 Year:

New Labour Codes: Fixed-Term Employees Now Eligible for Gratuity After Just 1 Year The government recently introduced the new labour codes to the labour laws on November 21, 2025. This code brings major changes to how employees receive bonuses, gratuity, and other benefits. One key change is that fixed-term employees are now eligible for gratuity after just one year of service, instead of having to wait five years. The definition of 'wages' has been expanded to include additional components, increasing gratuity payouts. Let us understand this change in detail.

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Fixed-Term Employees

Usually, all employees are engaged under a contract. If your employment contract outlines an end date, such as 1 year or 2 years, then such employees are known as fixed-term employees. These employees are on a contractual basis, and those who are employed without any end date or specific duration are known as permanent employees.

How Fixed-Term Employees Are Different From Full-Time Employees?

The main difference between the fixed-term employees and the regular on-roll employees is the duration of their employment. While the fixed-term employees are employed for a specific period of time, the full-time employees do not have any predetermined end date.

What Are the Changes in Gratuity Rules?

Until now, the fixed-term employees were required to complete a service of 5 years to be eligible to receive the gratuity at the time of leaving the company. This means that the employees on the fixed-term contracts had to lose out on the gratuity under the previous requirement if their tenure ended earlier. However, under the Social Security Code, the minimum eligibility duration to receive gratuity is one year for the fixed-term employees. However, it must be noted that this one-year eligibility condition is applicable only to the fixed-term employees. For the permanent or regular on-roll employees, the eligibility condition for gratuity remains unchanged, i.e., the gratuity qualification is still five years. The aim of this new code is to ensure that the fixed-term employees are fairly treated, as they might not stay long enough to meet the five-year requirement.

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As per the new labour code, the fixed-term employees are eligible for gratuity on a pro-rata basis even if they are employed for less than five years. The new labour code requires the fixed-term employees to complete not less than 240 days of continuous service from the date of the commencement of their employment, and not strictly after completing one year of service. However, for the permanent employees, the rules remain unchanged, but there are still some small differences under the new code. These employees are required to serve for a minimum of 4 years and 240 days from the date of their joining, and not strictly after 5 years of service. With the new rules, the employers are required to pay the gratuity within 30 days. If they fail to do the same, a 10% annual interest will be imposed.