##New VS Old Gratuity ( Under New Labour Code 2025)

 

New vs Old Gratuity Law Under Labour Codes 2025

Gratuity is one of the most important retirement and exit benefits for employees in India. Earlier, gratuity was mainly governed by old labour laws, but now it has been reshaped under the new labour code framework.

The biggest question people ask is:
 Has gratuity changed from 5 years to 1 year for everyone?

The simple answer is No — but there are important changes.

 

What Was the Old Gratuity Rule?

Earlier, under old labour law system:

• Employee had to work minimum 5 years continuous service
• Only after 5 years, gratuity became payable
• Fixed-term or contract employees rarely got gratuity because most contracts ended before 5 years

Earlier system treated gratuity as:
➡ Reward for long service
➡ Loyalty benefit

Under earlier law, fixed-term employees also generally needed 5 years service to get gratuity.

 

What Is the New Gratuity Rule Under Labour Codes 2025?

The new labour reforms made an important change mainly for Fixed-Term Employees (FTEs).

Major Change

 Fixed-term employees can get gratuity after 1 year of service
 Permanent employees still need 5 years service

Government introduced this change to give equal benefits to contract workers and permanent workers.

The reform ensures fixed-term employees:

• Get same benefits as permanent employees
• Get gratuity even if they work only short-term contracts

 

 Legal Detail

Many people think:

 Everyone will get gratuity after 1 year

But legally correct position is:

 One year rule mainly applies to fixed-term employment
Five year rule continues for permanent employees

 

New Concept: Pro-Rata Gratuity

Under new law:

• Fixed-term employees get gratuity proportionately
• If contract ends after 1 year → gratuity payable

Some interpretations also consider 240 days continuous work in a year as qualifying service.

 

Wage Definition Change

New labour code also changed wage definition.

Now:

• Wages must be around 50% of total salary
• This may increase gratuity amount because calculation base increases

From lawyer view, this is a financial impact change, not just eligibility change.

 

 

 

 

 

Difference

Point	Old Law	New Labour Code
Eligibility	5 years for almost everyone	1 year for fixed-term employees
Permanent Employees	5 years	Still 5 years
Fixed-Term Employees	Mostly excluded	Included after 1 year
Wage Base	Basic + DA mostly	Expanded wage definition
Philosophy	Reward long service	Provide social security

 

Why Government Changed Gratuity Rule?

From policy and legal perspective:

Protect Contract Workforce

Earlier, companies used repeated short contracts → no gratuity liability.
Now, that gap is reduced.

 Promote Fair Treatment

Fixed-term employees now get:

• Same salary structure
• Same social security
• Same benefit protection

Strengthen Social Security System

New labour system focuses more on worker protection, not only long-term loyalty.

Impact on Employers

From compliance perspective:

 Must plan gratuity cost for fixed-term staff
 Payroll restructuring may be needed
 Higher long-term liability possible

Impact on Employees

Positive

 More employees covered
 Faster eligibility for contract workers
 Possibly higher gratuity amount

Limitation

 Permanent employees still must complete 5 years

Legal Perspective:

From legal policy angle, gratuity is slowly shifting from:

➡ Loyalty reward
To
➡ Social security right

This is a major shift in Indian labour philosophy.

The new system tries to balance:

• Employer flexibility
• Employee financial protection

The new labour code does not remove gratuity rules — it expands gratuity coverage.

The biggest change is:
 Fixed-term employees are now protected
 Permanent employees mostly continue under old eligibility timeline

Gratuity is becoming more inclusive, not necessarily faster for everyone.