- New labour codes allow some employees to receive gratuity after one year of continuous service
- Gratuity rules take effect from November 21, 2025, for employees joining on or after this date
- One-year gratuity mainly applies to fixed-term and contract workers on a pro-rata basis
The new labour codes have changed gratuity rules. Now, certain eligible employees can get their gratuity after just one year of continuous service instead of the mandated five-year period.
Gratuity is a lump-sum payment from an employer to an employee, as a token of appreciation for their long-term service, usually after five years or retirement. This financial reward for “loyalty” is mandated by law.
ALSO READ: How Do Labour Codes Change Your Salary? Overtime, Gratuity, Leave Norms Explained
However, in November 2025, the government implemented new labour codes for the Indian workforce, introducing changes in the payment of gratuity.
With this rule, now more workers will be able to claim gratuity sooner, making post-employment benefits more accessible for millions of formal sector workers in India.
What Is The New Rule?
The new labour codes now allow certain employees to get gratuity after one year of continuous service. Earlier, there was confusion about whether this change was retrospective. However, the government has clarified that the new gratuity rules are applicable from Nov. 21, 2025.
“Gratuity will be applicable with effect from Nov. 21, 2025 i.e. date of enforcement of the Code. Establishments may make provision as per accounting norms,” the Labour Ministry said in one of its FAQ documents.
This means that only employees who join a company on or after the new labour codes implementation from Nov. 21, 2025, will be eligible for gratuity after completing one year of continuous service.
Which Employees Are Eligible?
The one-year gratuity rule does not apply to all employees. The revised rule is meant for fixed-term and contract workers on a pro rata basis. Permanent employees usually still need to complete five years of service to claim gratuity. There are exception rules in case of death or disability.
Fixed-term employees are hired by the companies for a set period under a written contract. This may stretch over a year or two. For such employees, their gratuity will now be calculated on a pro rata basis, reflecting the duration of their service.
Under the new rules, gratuity will be based on wages, which now must make up at least 50% of an employee's total cost-to-company (CTC).
The labour ministry now defines wages as: “All remuneration whether by way of salaries, allowances or otherwise payable to a person employed. This includes: Basic pay, Dearness allowance, Retaining allowance, if any.”
Also Read: Germany Turns To India Amid Workforce Gap As Labour Crisis Deepens
This means that employees with a lower past basic pay could see gratuity payouts rise significantly.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
