New Gratuity Rules 2025: 4 things salaried employees must know about updated Labour Code guidelines

The rollout of the four Labour Codes marks one of the biggest overhauls in India’s social security framework, specially when it comes to gratuity for employees of certain sectors. These new provisions aim to widen the safety net for workers, simplify eligibility criteria, and reduce the number of years for contract staff and fixed-term workers to be eligible for gratuity.

The four Labour Codes include the Code on Wages (2019), Industrial Relations Code (2020), Social Security Code (2020), and the Occupational Safety, Health and Working Conditions (OSHWC) Code (2020).

Gratuity News Rules: 4 things to know

1. Gratuity service year eligibility reduced to 1 year for fixed-term employees

The central government has reduced the minimum service period for fixed-term employees to be eligible for gratuity. Earlier, five years of continuous service was mandatory to qualify for gratuity. Under the new rules, fixed-term employees become eligible after just one year of continuous employment, making the benefit far more accessible.


Also read: These workers will get gratuity after 1 year instead of 5 years; more benefits for other workers under new labour codes

2. Contract workers to get gratuity benefits similar to permanent employees

Principal employers are now responsible for providing social security coverage, including gratuity, to contract staff engaged through contractors.

Also read: New Labour Law 2025 salary calculator: Here's how CTC of Rs 7 lakh, Rs 10 lakh and Rs 15 lakh will change

3. Contract workers to get gratuity after 1 year of service

For contract workers too, the government has reduced continuous service years from 5 to 1 as the eligibility for gratuity.

4. Gratuity extended to export sector fixed-term workers

Fixed-term employees in the export sector will also come under the gratuity framework. In addition to gratuity, they will be entitled to provident fund (PF) and other social security benefits.

Also read: Is gratuity part of CTC? See what latest labour code rules say

What is gratuity?

Gratuity is a statutory benefit governed by the Payment of Gratuity Act 1972. It is a financial incentive given by an organisation to its employees in appreciation of their long-term contributions to the company. It serves as a monetary token of gratitude for an employee's years of commitment and devotion. The amount is disbursed when an employee retires, resigns, or separates from the organisation, offering a financial cushion for the next phase of life.

How is gratuity calculated ?

Gratuity payouts are determined based on the Payment of Gratuity Act, 1972. As per Section 4(2) of the Act, gratuity payable is equal to the last-drawn monthly wage×15/ 26×completed years of service.

Basic salary and DA are mostly revised with every revision in the cost to company salary. Gratuity is payable on the last-drawn basic salary, including dearness allowance, which keeps changing as the employee progresses through the ranks.