New 1-year gratuity payment rule applies only to ‘fixed-term’ employees:The five-year ceiling remains the same for regular staff, say law experts

The government on Friday, 22 November 2025, notified that the number of continuous service years for employees to become eligible for gratuity payment has been reduced to one year from the current five years, aimed at strengthening welfare measures for the workers. Commenting on the new labour codes, law experts on Saturday clarified that the new rule applies only to ‘fixed-term’ employees and not regular staff members as widely reported in the media after the announcement. The experts stressed that the time limit for gratuity payment for regular employees (those on company payroll) remains five years. So, let’s understand what the new rule says and who benefits from it. Explained: What Is A Fixed-Term Employee? Fixed-term employees are those who are employed in an organisation for a fixed or specific period, but not on a permanent basis. Adil Ladha, Saraf Partners, explains, The service period requirement has been reduced but only for fixed-term employees. Section 53 of the new Social Security Code states that the requirement for 5 years continuous service shall not be necessary where termination of the employment is on expiration of fixed-term employment. One-Year Gratuity Rule Not For Regular Employees Ladha explains that the minimum period of service required to avail of gratuity benefits for regular employees remains five years under Section 53 of the new Social Security Code. Gaurav Makhijan, Head of Tax, Rödl Partner India, adds, The new rules do not change anything for permanent employees and they continue to get social security benefits with no change as far as gratuity eligibility is concerned. Himesh Thakur, Associate Partner, PSL Advocates Solicitors, says, For permanent (on-roll) employees, the law remains unchanged. They will still be eligible for gratuity only after completing five years of continuous service. Rohit Jain, Managing Partner, Singhania Co, states, The headline that “employees will get gratuity in 1 year” is partially true but widely misunderstood. It does not apply to every employee.For Regular/Permanent Employees, the eligibility still remains 5 years. For fixed-term employees (FTE), the eligibility has been reduced to 1 year. No Gratuity If You Are Fired From Job Under the provisions, if fixed-term employees are terminated from their job after completing one year of service, in that case, they will not be qualified for gratuity. Ladha adds, This is because, the provisions in the social security code, specify that the fixed-term employees will get gratuity only after completion of their term and not termination. This may mean that if the employee is fired or his contract is terminated by the organisation then, he might not get the gratuity amount despite working their for more than one year. This means that if the employee is dismissed or if the organization terminates their contract, they may not receive the gratuity amount, even if they have worked there for over a year. Ladha explains, For instance, if an FTE is hired for a fixed term of 3 years, then, he will be eligible for gratuity at the end of his term as he would have completed one year of service. Will The Revised Gratuity Rule Apply Retrospectively? To put it simply, will the employees who have already completed over a year of service be eligible for gratuity once the new rule is notified? Himesh Thakur, Associate Partner, PSL Advocates Solicitors, says Any fixed-term employee who has already completed one year with an organisation will become eligible for gratuity from the date the codes come into effect, even if that one year was completed before the notification. New Labour Codes Pave The Way For A Higher Gratuity Payout Thakur noted that under the newly notified labour codes, the revised definition of “wages” will lead to higher gratuity payouts for employees. Other Big Changes Introduced In The New Labour Codes Max 48 hours of work in a week: No employee will be required to work for more than eight hours in a six day work week system. While, in a five day work week mechanism, the maximum number of hours that employees are required to work would be 9.5 hours. Break time at workplace: The code also states that the power to fix the interval (break) time shall rest in the hands of the “Appropriate Government.” Overtime: The codes also make the limits of overtime hours more flexible. The “Appropriate Government” can stretch or contract the limit of overtime hours at its own will. Work overtime and get paid more: The employee can work overtime and has been given the right to be paid extra for working overtime. In some cases of overtime hours, the employee has been given the right to get double of “normal wage rate.” Creche facility for men workers: Earlier, only women workers with children under the age of six had the right to keep them at creche. Now, it will be the duty of the organisation to provide creche facility at the workplace location or at any other suitable location whether on its own or through partnership with any relevant firm to male workers also with children of age below six years. This is expected to help divorced men!