News

Gratuity Now Payable After Just 1 Year — But Only for Fixed-Term Employees

Salary-Tools Team · 6 October 2026

For decades, one number defined whether an exiting employee walked away with a gratuity payout or nothing at all: 5 years of continuous service. Leave at 4 years and 11 months, and the traditional rule meant zero gratuity, no matter how long you'd worked. Under the Code on Social Security, 2020 — in force since 21 November 2025 as part of India's four new Labour Codes — that changes for one specific category of employee.

Who actually benefits

The new 1-year rule applies specifically to fixed-term employees — those hired for a defined period, such as a 1- or 2-year contract. If a fixed-term employee's contract ends (or they resign) after completing at least 1 year of service, they're now entitled to gratuity, calculated proportionately (pro-rata) for the period actually served.

Permanent, full-time employees are not covered by this change. The traditional 5-year continuous-service requirement still applies to them under the same law. This has drawn some criticism from labour experts questioning why the benefit isn't universal, but as things stand, the 1-year rule is specifically a Fixed-Term Employment (FTE) provision.

Why this matters

Fixed-term contracts have become increasingly common in India — project-based hiring, seasonal roles, and short-duration contracts have historically left workers with no long-term financial cushion when their contract simply ended, regardless of how many contract cycles they'd worked through with the same employer. This change is part of a broader formalisation of fixed-term employment under the Labour Codes, which also requires fixed-term employees to receive wages, hours, and other statutory benefits (like EPF and ESI) proportionate to permanent employees doing similar work.

It can extend beyond your direct payroll, too

Employment lawyers tracking this change note that the 1-year rule isn't necessarily limited to employees on a company's own payroll — it can also apply to outsourced or vendor-hired contract workers, depending on who is legally treated as their "employer" for gratuity purposes. Under the Payment of Gratuity Act framework carried into the new Code, "employee" has historically included people employed through a contractor, not just those directly on a company's own rolls.

What this means if you're on a fixed-term contract

If you're currently on, or have recently exited, a fixed-term contract of a year or more, it's worth checking with your employer's HR team whether gratuity is due to you under this rule — this is a genuinely new entitlement that many fixed-term workers, and even some employers, may not yet be tracking correctly.