India enforced the four major Labour Codes on November 21, 2025, which are the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the safety, health, and working conditions code. They replace the previous 29 labour laws and among them the reform around gratuity is significant—the gratuity being one of the major benefits that workers receive.
Fixed-Term Employment And Gratuity Change
An undeniably visible change that comes with the new labour laws is the official acknowledgment of Fixed-Term Employment (FTE). Through this scheme, the employers can recruit workers on a contract basis for a time period that is already decided beforehand. It is of great significance that now FTEs will be entitled to gratuity after merely one year of employment, which is a huge and remarkable reduction from the prior five-year condition.
The government states that this measures up: workers on fixed terms will enjoy the same privileges as regular employees when it comes to paid leave, medical care, and social-security contributions. The change is aimed at promoting direct hiring and discouraging the use of the less secure contract staffing to a high degree.
What Is Gratuity?
Gratuity is the one-time payment made by the employer to the employee as a sign of appreciation for the employee’s long-term service. This system used to require an employee to have worked continuously for five years in the same place to qualify for gratuity. Now, however, for fixed-term workers, the requirement drops to just one year under the new Codes.
Moreover, the calculation base for gratuity has increased: as per the updated Code on Wages, the amount for gratuity (and other social security benefits like provident fund and bonus) will now be determined on the basis of a larger portion of pay, possibly making gratuity more generous than before.
Wider Implications & Who Benefits
The reform bring a big step forward for the sectors mentioned above that rely on fixed-term contracts a lot, like manufacturing, exports, IT, media and other project-based areas. It is very likely that many of them will be changing their jobs more frequently, and the previous regulations would mean that those workers during their entire employment period would not even be able to accumulate gratuity. This new rule has guaranteed that these workers receive a financial benefit equivalent to that of a permanent employee even if the period of employment is shorter. The government by equalizing FTEs with the permanent employees in terms of gratuity, leave and social security wants to cut down the issue of job fluidity within contract labor and at the same time promote the hiring of stable employees.
Gratuity Cap And Other Protections
The new changes also keep the tax-free gratuity cap of ₹20 lakh, which means that the employees’ gratuity payment is exempt from taxation if it is within this limit. In addition to gratuity, the other principal protections of labor have been made even more secure under the new codes. For example, workers are now ensured to be paid twice for the overtime they do and the leave entitlement has been made more generous (one day of leave for every 20 days worked).
