Gratuity eligibility reduced to 1 year of service under revamped labour codes
The revised framework is intended to enhance wages, expand social security coverage, and improve workplace health protections for workers across the country, according to the Union Labour Ministry
Key features of the policy change
The Central Government has notified a key restructuring of the labour laws, amalgamating 29 different laws into four simplified labour codes. Among the major changes that have been proposed is that fixed-term employees will be entitled to gratuity on completing just one year of service, which was earlier five years. This will make sure that fixed-term employees enjoy similar benefits as permanent employees, providing them greater economic security and more inclusive social protection.
Workers who will benefit and overall impact
The new labour framework covers fixed-term employees, gig and platform workers, unorganized sector laborers, migrant workers, and women in all sectors. By reducing the gratuity eligibility period, the government aims to provide support to employees in job roles that are often not very secure for a long term. Another positive outcome of this reform could be that companies might lessen their reliance on contract staffing and move toward more clear and stable hiring practices.
Gratuity Rules and Calculation Method
While the Payment of Gratuity Act earlier demanded continuous service of at least five years for an employee to be qualified, the formula for calculation has remained the same: Gratuity = Last Drawn Salary × (15/26) × Years of Service. Suppose an employee draws a basic salary plus DA of ₹50,000 and has 5 years of service; he would get approximately ₹1,44,230. The new rule is likely to enhance retention and offer better financial support during career transitions.
