New labour laws: Know how gratuity rules change for fixed-term employees

New Delhi: The Union government on Friday announced a major reform of India’s labour framework, consolidating 29 existing laws into four simplified labour codes. Among the key changes, fixed-term employees (FTEs) will now be entitled to gratuity after just one year of service, instead of the previous five-year requirement.

The overhaul aims to ensure better wages, wider social security coverage, and improved health protections for workers across sectors, including informal, gig, migrant, and women employees.

Under the updated rules, FTEs will also receive the same salary structure, leave, medical benefits, and social security measures as permanent employees. The government expects the reforms to reduce dependence on contract staffing and encourage direct hiring.

What is gratuity?

Gratuity is a financial benefit paid by employers as a token of appreciation for service. Previously, employees needed five years of continuous service to qualify. Under the new framework, fixed-term employees can claim it after one year, providing greater financial security.

How to calculate gratuity?

The amount is calculated as:

Last Drawn Salary × 15/26 × Number of Years of Service

The changes are expected to strengthen financial protection for employees and improve workforce stability for employers.