India’s four new Labour Codes, which came into force on 21 November 2025, are set to reshape workplace rules for millions of employees. One of the most important changes relates to gratuity eligibility, especially for fixed-term employees. The long-standing requirement of five years remains for permanent staff, but fixed-term workers will now qualify after just one year, provided they complete at least 240 days of continuous service.
Under the updated framework, fixed-term workers will now be treated on par with permanent employees in terms of wages and most benefits. The only major difference relates to the qualifying period for gratuity. While permanent employees still need five years of continuous service, fixed-term employees become eligible after one year.
This change is significant, as it ensures that employees hired for short contracts are not left out of important financial benefits simply because their roles are project-based or time-limited.
The new Labour Codes also introduce a revised definition of wages. At least 50% of an employee’s total pay must now be categorised as “wages”. This means that the base salary used for calculating gratuity will increase for many workers. As a result, exit payouts are likely to be higher than before.
Employers must release gratuity within 30 days. If they miss this deadline, a 10% annual interest penalty will apply.
The distinction between fixed-term and permanent roles is now clearer. Fixed-term contracts have a specified end date, often linked to a project, while permanent roles continue indefinitely. Although both categories receive similar benefits during employment, gratuity for fixed-term staff will be calculated on a pro-rata basis depending on their contract duration.
The new rules also introduce wider reforms, such as expanded ESIC healthcare coverage, broader minimum wage protection, mandatory health check-ups for workers above 40, and more standardised documentation through compulsory appointment letters.
Gratuity is based on the employee’s last drawn basic salary plus dearness allowance.
Formula: Gratuity = Last drawn salary × 15/26 × Years of service
The maximum amount payable under the law is ₹20 lakh. Any amount above this limit is not permitted.
Read more: SEBI Partners with NFSU to Boost Forensic and Investigative Capabilities.
The new Labour Codes bring a major shift to India’s workplace framework. By reducing the gratuity requirement to one year for fixed-term employees, the government aims to offer better financial security to contract workers. At the same time, the revised wage structure and compliance rules will require organisations to adjust salary systems, documentation and contributions. Overall, the changes promote greater transparency, fair treatment and social security for a broader section of India’s workforce.
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Published on: Nov 26, 2025, 10:34 AM IST
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