The Union government has introduced a sweeping overhaul of India’s labour framework, consolidating 29 separate laws into four streamlined labour codes, and one of the most notable changes concerns the eligibility rules for gratuity. Fixed-term employees across all sectors will now qualify for gratuity after completing just one year of service with an organisation, instead of having to work a mandatory five years as previously required under the Payment of Gratuity Act. According to the Union Labour Ministry, the restructuring aims to provide workers with better wages, wider access to social-security benefits, and stronger health-related protections, reflecting the evolving nature of India’s workforce.
A fixed-term employee is defined as someone employed for a pre-decided duration under a written contract that ends upon the completion of a particular project or the expiration of the specified period. This type of employment is increasingly common in industries driven by seasonal demands or project-based workloads. The government’s reforms extend not only to fixed-term employees but also to gig workers, platform workers, migrant labourers, contract staff, and women employees, ensuring that categories historically left outside formal safety nets are now included under the labour codes.
The shift in gratuity eligibility marks one of the most impactful components of the reform. Previously, the five-year continuous service requirement made gratuity virtually unattainable for fixed-term workers, who often operate on one-year or two-year contracts. Under the new structure, however, these workers will receive gratuity benefits after one year of continuous employment, enabling them to access financial support much more easily during job transitions.
The Labour Ministry clarified that the intention behind this change is to bring fixed-term employees closer to permanent staff in terms of protections and entitlements. With the codes now in force, fixed-term workers will receive the same salary structures, leave benefits, medical coverage, and social-security provisions as regular employees. Officials expect the reforms to discourage excessive dependence on casual or contract staffing and promote more transparent hiring practices.
Gratuity itself is a lump-sum financial benefit that employers pay workers as a gesture of appreciation for long-term service. Traditionally, this payment was made when an employee resigned, retired, or otherwise left an organisation after completing the mandatory five-year tenure. The revised rules now make this important benefit more accessible, helping provide a safety cushion for employees who often shift jobs due to the nature of fixed-term work. The Payment of Gratuity Act applies to a wide range of establishments, including mines, factories, ports, oil fields, and railways.
For example, an employee earning a final basic-plus-DA salary of ₹50,000 after five years of service would receive gratuity amounting to ₹1,44,230. The new rules are expected to enhance financial security for workers while improving workforce stability and retention for employers.
