India has rolled out significant reforms with the New Labour Laws Gratuity, and one of the standout changes is the New Gratuity Rule. This new rule has sparked quite a bit of conversation among employees, HR teams, companies, and contract workers alike. The central government has revamped the way and timing of gratuity payments, making the system more adaptable and, in some cases, more beneficial for workers. I
n this article, we’ll dive into the reasons behind the rule change, when it officially took effect, the advantages and drawbacks, who stands to gain the most, and what this all means for the workforce in India.
What Is Gratuity?
Gratuity is a financial perk that employers give to employees as a token of appreciation for their long-term commitment and hard work. It’s essentially a way for companies to say “thank you” for loyalty and dedication.
Old Rule (Before the Reform):
- To qualify for gratuity, employees had to have at least 5 years of continuous service.
- Only those who were permanent or full-time could receive it.
However, the New Labour Codes have updated this requirement for certain workers.
What Has Changed Under the New Labour Laws Gratuity (2025)?
The government has made one major change:
ixed-term employees can now enjoy gratuity after just one year of service. Previously, they had to wait five years, just like permanent staff. So, what exactly is a Fixed-Term Employee? It’s someone hired for a specific period, whether that’s three months, six months, or a year.
The five-year rule still applies to:
- Permanent employees
- Regular, long-term staff
So, this change is a significant win for contract workers and fixed-term staff!
When Was This Change Announced?
The change was announced in November 2025, along with the implementation of the four New Labour Laws Gratuity
Here’s the text we’re looking at: Social security:
- Wages
- Industrial relations
- Occupational safety
The gratuity update is part of the Social Security Code.
Why Did the Government Make This Change?
The government introduced this change for several reasons:
Here’s the text we’re looking at:
1. To Protect Contract Workers:
In the past, companies would hire workers on short-term contracts and dodge giving them gratuity. Now, even if someone works for just a year, they’re entitled to gratuity.
2. To Increase Job Security
Millions of workers in India are engaged in:
- Contract work
- Outsourcing
- Fixed-term projects This New Labour Laws Gratuity offers them some much-needed financial security.
3. To Stop Misuse of the 5-Year Rule:
Many companies used to replace employees before they hit the 5-year mark to sidestep gratuity payments.
4. To Enhance Social Security for Youth & Gig Workers:
A significant portion of India’s workforce is young and employed in temporary positions. They will now benefit from improved social security measures.
Benefits of the New Labour Laws Gratuity rule
The reform brings multiple advantages:
A. Benefits for Employees
1. Faster Eligibility
No need to wait 5 years if you are on a fixed-term contract.
2. More Financial Safety
Workers get money even after 12 months of service.
3. Better Job Satisfaction
Employees feel supported and valued.
4. Less Exploitation
Companies cannot fire employees before 5 years just to save money.
5. More Social Security
With improved wage definition under the new labour laws 2025, gratuity may increase over time.
B. Benefits for the Overall Economy
- Encourages fair hiring
- Makes India more labour-friendly
- Improves productivity
- Supports contract and gig economy workers
Disadvantages / Drawbacks of the New Rule
Although the rule has many benefits, there are also some challenges.
A. For Companies:
1. Increased Costs
Companies are now required to pay gratuity more often.
2. Less Flexibility in Hiring
Businesses will think twice before bringing on contract-based staff.
3. HR & Accounting Pressure
They need to keep separate records for calculating gratuity for fixed-term employees.
B. For Employees
1. Take-Home Salary Might Decrease
With the new definition of “wages” in the labor codes, contributions to PF, ESIC, and Gratuity could rise, which means your take-home salary might take a hit.
2. Only Fixed-Term Employees Are Eligible for the 1-Year Benefit
Permanent employees still have to wait 5 years to qualify.
Who Gets the Most Relief from the New Gratuity Rule?
1. The Big Winners
These employees are now eligible for gratuity after just one year on the job.
2. Contract Workers
Those brought on for specific projects or timeframes now enjoy financial security.
3. Youth & Freshers
Young workers often take on short-term positions, but they can now access benefits more quickly.
4. Workers in Private Companies
The private sector employs a lot of fixed-term staff, so they’re seeing immediate support.
5. Gig & Platform Workers (Indirectly)
Upcoming regulations might also bring gratuity-like benefits to gig workers in the future.
How Will Gratuity Be Calculated After the New Rule?
The formula remains the same:
Gratuity = (15 ÷ 26) × Last Drawn Salary × Number of Years
But now a 1-year fixed-term contract = 1 completed year for gratuity.
Also, under the new wage definition:
“Wages” include Basic Pay + DA
So gratuity amount may increase for many workers.
Impact on the Indian Workforce
The gratuity reform is set to bring about several long-term changes:
1. Increased Respect for Temporary Workers
Contract workers will enjoy benefits that are almost on par with those of permanent employees.
2. Companies Will Adjust Salary Structures
To keep costs in check, businesses might boost allowances and rethink their pay structures.
3. Enhanced Employee Loyalty
With better job security comes improved performance and stability.
4. Greater Savings for Employees
Gratuity is tax-free up to ₹20 lakh.
Final Summary
The New Labour Laws Gratuity 2025 marks a significant shift aimed at enhancing the social security of workers in India, particularly those on fixed-term contracts. While this change may raise costs for businesses, it also introduces much-needed fairness, transparency, and financial security for countless contract workers.
To put it simply: Now, temporary workers will receive the same respect and benefits that were once reserved for permanent employees. Stay connected with us for more latest news, important updates, and simple explanations on trending topics. Keep following to never miss any important information.
FAQ
1. What is the new labour laws gratuity rule in India?
The new rule proposes reducing the minimum gratuity period from 5 years to a shorter duration, making more employees eligible.
2. Why was the gratuity law changed?
It aims to provide better financial security to employees and align labour laws with modern employment practices.
3. Who will benefit from the new labour laws gratuity changes?
Employees working in private companies, contract roles, and gig/platform workers may benefit the most as eligibility becomes easier.
4. Will the new gratuity rules increase company expenses?
Yes. Companies may face higher financial liability because more workers will qualify for gratuity.
5. When will the new labour laws gratuity rules be implemented?
The laws have been approved but will be enforced once the Central Government officially notifies the implementation date.