Fixed-Term Workers to Receive Gratuity After Just One Year Under New Labour Rules
Fixed-Term Workers to Receive Gratuity After Just One Year Under New Labour Rules
India’s labour laws have undergone a major transformation, offering significant benefits to fixed-term employees across sectors. The Union government recently consolidated 29 labour regulations into four simplified labour codes, aiming to improve wages, social security, and health protections for workers. One of the most notable changes is the eligibility for gratuity, which now applies to fixed-term employees after just one year of service instead of the earlier five-year requirement.
Equality for Fixed-Term Employees
Fixed-term employees—those engaged on contracts with predetermined end dates or for specific projects—have historically faced disparities in benefits compared to permanent staff. Under the revised Payment of Gratuity Act, these employees will now enjoy the same perks as regular workers, including salary structures, leave entitlements, medical coverage, and other social security benefits.
By reducing the gratuity eligibility period to one year, the government hopes to encourage direct hiring and reduce overreliance on contract-based staffing. This move also ensures that workers on temporary contracts are recognized for their contributions without having to wait for years to access financial benefits.
Understanding Gratuity
Gratuity is a lump-sum payment made by employers as a token of appreciation for an employee’s service. Traditionally, employees had to complete five continuous years before claiming this benefit, but under the new rules, fixed-term employees can receive gratuity much sooner. The Payment of Gratuity Act covers various sectors, including factories, mines, ports, oilfields, and railways, ensuring wide applicability.
Earlier discussions considered reducing the eligibility period to three years, but the government’s latest decision allows for a far shorter waiting time, making this a significant step forward for contract workers.
How Gratuity is Calculated
Gratuity amounts are determined using a simple formula:
Gratuity = (Last Drawn Salary × 15 ÷ 26) × Number of Years of Service
Here, “Last Drawn Salary” includes Basic Pay and Dearness Allowance (DA). For instance, if an employee’s final salary is Rs 50,000 and they have served five years, the gratuity would be:
50,000 × (15 ÷ 26) × 5 = Rs 1,44,230
This formula ensures that employees receive a fair reward based on their duration of service and salary.
