A gratuity is a one-time payment authorised by labour regulations that employers provide to workers in recognition of their long service, usually upon retirement, resignation or death.
The new Labour Codes, which got into effect on November 21, 2025, abolish the five-year waiting period for eligible employees to claim gratuities. Fixed-term employees can now get the benefit after just one year of continuous employment, which is a major change from decades-old regulations.
On November 21, 2025, the Indian government integrated 29 labour laws into four comprehensive labour codes that addressed wages, social security, industrial relations and occupational safety.
What has changed?
Fixed-term employees are now eligible for gratuities under the new system after just one year of continued service. For these workers, the gratuity will be determined pro rata, taking into account the length of their actual employment.
Additionally, the government has made it clear that the new regulations do not apply retroactively. According to the Labour Ministry’s FAQ documents, only workers who join a company on or after November 21, 2025, will be qualified to receive a gratuity following a year of continuous employment.
When gratuities are paid and how are they calculated?
The gratuity must be paid by the employer within 30 days of the date it becomes overdue. Gratuity must be paid at the rate of 15 days’ salary for each full year of service, subject to the upper limit specified by the central government. Currently, the maximum tax-free gratuity is Rs 25 lakh for central government employees and Rs 20 lakh for private employees.
Who is eligible and who is not?
Although there are exceptions in the event of death or disability, permanent employees must nevertheless complete five years of service in order to be eligible for a gratuity. Particularly, fixed-term workers engaged under a written contract for a predetermined amount of time are subject to the new one-year requirement.
Fixed-term contracts, in which employees are employed for particular projects or a predetermined period of time, are prevalent in industries like information technology, infrastructure, manufacturing, and retail. Employees under such contracts who started on or after November 21, 2025, now have a much more substantial safety net than they did previously.