Gratuity Now After 1 Year: New Labour Laws Come Into Effect From Nov 21; Check Who Benefits

The govt of India yesterday announced labour reform that will impact lakhs of employees across India. Under the new rules, the Union Government has officially reduced the minimum service requirement for gratuity eligibility from five years to just one year for fixed-term employees. The change comes into force from November 21, 2025, under India's newly implemented labour framework.

The Central govt brought about these changes to revamp the country's outdated labour system by consolidating 29 separate labour laws into four simplified Labour Codes in order to improve worker protection, social security & more.

What Has Changed Under the New Gratuity Rule

Until now, employees hired on fixed-term contracts could receive gratuity only after completing five continuous years of service under the Payment of Gratuity Act.

With the new Labour Codes in effect, the five-year clause no longer applies to fixed-term workers. They will now become eligible for gratuity after completing one year of employment in an organisation. The Labour Ministry clarified that this new change brings fixed-term employees closer to permanent staff benefits, preventing loss of entitlement for workers who frequently change roles or sectors.

New Gratuity Rule Impact On India's Workforce

The revised Gratuity rule is expected to significantly benefit employees in industries known for high attrition, including, IT and technology services, Retail and e-commerce, Start-ups and gig platforms & Hospitality and service sectors. It is being considered one of the most impactful labour benefits introduced in recent years.

Major advantages for workers include:

No loss of benefits due to shorter job tenures

Better financial cushioning during job transitions

Wider and predictable social security coverage

Increased formal employment as gratuity becomes universal

What Is Gratuity and Who Is Covered

Gratuity is a lump-sum payment offered by an employer as a gesture of appreciation for an employee's service. It is typically given at the time of resignation, retirement, or separation from the organisation. The Payment of Gratuity Act applies to a wide range of establishments, including factories, mines and oil fields, ports and railways & large commercial and industrial units.

Under the revised framework, fixed-term workers will not need to wait multiple years to access this benefit, making the system more inclusive and equitable.

Labour Codes: Other Major Reforms Introduced

According to the Government's update, the four implemented Codes are, the Code on Wages, Industrial Relations Code, Social Security Code, and Occupational Safety, Health and Working Conditions (OSHWC) Code

Some of the Key changes include:

• mandatory appointment letters for all categories of workers
• minimum wages applicable across every sector nationwide
• expanded ESIC coverage, including small units and gig workers
• free annual health check-ups for workers aged 40 and above
• women allowed to work in all roles and night shifts with safety measures
• single registration and single return filing for easier compliance

Credit: Goodreturns