New Delhi, April 4: The new labor codes have changed gratuity rules, allowing certain eligible employees to claim gratuity after one year of continuous service, a reduction from the previous five-year rule.
The new labor codes, implemented in November 2025, make gratuity available sooner for fixed-term and contract workers on a pro rata basis. Permanent employees still need to complete five years of service to claim gratuity, while there are exceptions in cases of death or disability, according to a report from NDTV Profit.
Fixed-term employees are hired by companies for a specific period under a written contract, which may extend for one or two years. Gratuity for such employees will now be calculated on a pro rata basis, reflecting the duration of their service.
The new rules could broaden access to post-employment benefits for millions of workers in the formal sector in India. The new labor codes mandate that gratuity be based on wages, which must constitute at least 50% of an employee's total cost-to-company (CTC).
The labor ministry defines wages as: "All remuneration, whether by way of salaries, allowances, or otherwise, payable to a person employed, including basic pay, dearness allowance, and any retaining allowance."
Employees with lower past basic pay are therefore expected to see significant increases in their gratuity payouts.
Gratuity, mandated by law, is a lump-sum payment that an employee receives from the employer as a token of appreciation for their long-term service, typically after five years or retirement.
"Gratuity will be applicable from November 21, 2025, i.e., the date of enforcement of the Code. Establishments may make provisions according to accounting norms," the Ministry of Labor said in its FAQ documents.
Therefore, only employees who join a company on or after November 21, 2025, will be eligible to claim gratuity after completing one year of continuous service.
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