A major highlight of the new labour codes is the introduction of gratuity eligibility after just one year of service. At first glance, it appears to be a sweeping benefit for all salaried employees. However, the provision comes with an important limitation: the one-year gratuity entitlement applies only to employees hired on fixed-term contracts. Permanent or regular staff members will continue under the existing five-year eligibility rule, making this new benefit exclusive to India’s expanding fixed-term workforce.
Fixed-term employment refers to a work arrangement in which an employee is hired on a written contract for a clearly defined period. Once the contract duration ends, the employment automatically concludes without requiring any termination procedures. This employment model is widely used in industries where manpower needs fluctuate throughout the year, such as manufacturing, textiles, construction, IT services, media production, logistics, hospitality and export-linked sectors. These industries rely heavily on short-term or project-based hiring to match their varying operational demands.
Under the new labour codes, fixed-term workers must now receive the same wages, working hours, leave entitlements and social-security protections as permanent employees. This is meant to prevent employers from treating them as disposable or secondary labour. The government intends for fixed-term roles to become part of the formal and protected workforce rather than a loophole used to avoid long-term obligations.
Gratuity itself is a lump-sum financial reward that employers pay to employees as recognition for long-term service. Under the older legal framework, workers were required to complete five continuous years with the same employer to qualify. For fixed-term workers, whose contracts typically lasted only a year or two, this requirement made gratuity practically unattainable. As a result, a large portion of India’s workforce — despite being formally employed — was shut out of a key financial benefit.
The new labour codes change this by allowing fixed-term employees to become eligible for gratuity after one full year of continuous service, even if their employment ends with the expiration of the contract. Permanent employees, on the other hand, must still meet the five-year threshold; the shorter one-year rule exists solely to accommodate the nature of fixed-term work. The government argues that if fixed-term staff are expected to deliver output equivalent to permanent workers, then they deserve commensurate social-security benefits.
This update closes a long-standing gap in India’s labour landscape, ensuring that contract-based workers are no longer excluded from meaningful financial support. The industries that rely most heavily on one-year or project-based staffing — such as export manufacturing, apparel units, construction, IT, media, and digital production — are likely to feel the biggest impact. Workers who never had a realistic chance of reaching five years with a single employer will now be able to receive gratuity upon completion of a one-year or 18-month contract, greatly improving their financial security.
Ultimately, this reform aligns with the broader objective of the new labour codes: modernising outdated labour laws, expanding social-security coverage, and making India’s diverse workforce — including fixed-term employees — more secure and more equitably protected.
