Labour Reforms: Gratuity Eligibility Reduced From Five Years To One

Fixed-term employees will become eligible for gratuity after one year of continuous service, instead of the previous five years, the Central government announced on Friday, as part of extensive labour reforms.

The definition of 'wages' has been expanded to include additional components. Gratuity itself will now count for the purposes of computing wages under the Payment of Gratuity Act, 1972.

The broader wage definition means gratuity payouts may also be calculated on a higher base, benefiting employees by increasing the quantum.

Moreover, export sector fixed term workers must receive gratuity, provident fund (PF), and other social security benefits, the new rules mandate.

The government implemented the four Labour Codes — the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 — with effect from Nov. 21, rationalising 29 existing labour laws.

After public feedback, proper rules under the Labour Codes will be notified. During transition, the relevant provisions of the existing labour Acts and their respective rules, regulations, notifications, standards, schemes, etc. will continue to remain in force.

The implementation of the four Labour Codes addresses long-pending need to move beyond colonial-era structures and align with modern global trends, according to the government.

"Together, these Codes empower both workers and enterprises, building a workforce that is protected, productive and aligned with the evolving world of work — paving the way for a more resilient, competitive and self-reliant nation," a statement said.

Among the notable provisions under the new law is mandatory appointment letters to all workers, compulsory social security coverage for gig and platform workers, free annual health checkup for workers above the age of 40 years and permitting women to work at night and in all types of work across all establishments, subject to their consent and required safety measures.