New Labour Codes 2025: Gratuity After Just 1 Year for Fixed-Term & Contract Workers
The four new Labour Codes (effective 21 November 2025) bring major social security reforms. The biggest win: fixed-term and contract employees now qualify for gratuity after just 1 year of continuous service (down from 5 years earlier). This benefits gig, contract, and flexible workers across sectors. The broader "wage" definition (at least 50% of CTC) also increases gratuity payouts. Use our Gratuity Calculator to estimate your updated entitlement.
Key Gratuity Changes Under Social Security Code 2020
- Eligibility: Reduced to 1 year for fixed-term/contract staff; proportional gratuity for incomplete years.
- Wage Base Expansion: Includes basic + DA + retaining allowance; excess allowances over 50% CTC added for fairer calculation.
- Tax-Free Limit: Remains ₹20 lakh (private sector); government employees fully exempt.
- Formula Unchanged: (Last drawn wage × 15/26 × completed years); now higher due to broader wage definition.
Example
Contract worker: ₹60,000 monthly wage, 2 years 3 months service → Eligible for ~₹69,000 gratuity (pro-rata).
Pro Tip: Employers must update policies — employees, keep service records handy. This reform aligns India with global standards for flexible workforce protection. Estimate your gratuity →