In a major relief for workers, the new labour codes now allow certain employees to claim gratuity after just one year of continuous service, instead of the earlier five-year requirement. This gratuity rule change is expected to improve access to employee benefits across sectors.
Gratuity Rule Change: Who Can Claim After One Year?
The new labour codes implemented in November 2025 make gratuity available sooner for fixed-term and contract workers on a pro rata basis. Permanent employees still need to complete five years of service to claim gratuity, while there are exceptions in case of death or disability, a report from NDTV Profit said.
Fixed-term employees are hired by companies for a set period under a written contract, which may extend over a year or two. Gratuity for such employees will now be calculated on a pro rata basis, reflecting the duration of their service.
The new rules could broaden access to post-employment benefits for millions of formal sector workers in India. New labour codes mandate gratuity to be based on wages, which must make up at least 50 per cent of an employee’s total cost-to-company (CTC).
Gratuity Rule Change and Its Impact on Employees
The labour ministry defined wages as: “All remuneration whether by way of salaries, allowances or otherwise payable to a person employed, including basic pay, dearness allowance, retaining allowance, if any.”
Employees with a lower past basic pay are hence expected to see gratuity payouts rise significantly.
Gratuity mandated by law is a lump-sum payment an employee receives from the employer as a token of appreciation for long-term service, usually after five years or retirement.
“Gratuity will be applicable with effect from November 21, 2025 i.e. date of enforcement of the Code. Establishments may make provision as per accounting norms,” the Labour Ministry said in its FAQ documents.
Thus, only employees who join a company on or after November 21, 2025, will be eligible to claim gratuity after completing one year of continuous service.
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