New Gratuity Rule: Employees Now Eligible After Just One Year – Fixed-Term Staff to Benefit Too

Gratuity After One Year
The Government of India has introduced major reforms in labor laws, effective from 21 November 2025. Under the new regulations, employees are eligible for gratuity after just one year of service, replacing the earlier five-year requirement. This change also benefits fixed-term employees, who will now receive gratuity even if their contract is shorter than five years.

Fixed-Term Employees to Get Full Benefits

According to the new rules, fixed-term employees will enjoy the same rights and benefits as permanent staff, including leave, medical facilities, social security, and salary protections. The government expects this move to encourage companies to hire employees directly rather than relying heavily on contracts.

What is Gratuity?

Gratuity is a financial reward paid by companies to employees for their service and dedication. Previously, employees had to work for five years to qualify. Now, with the one-year eligibility, employees can claim their gratuity much earlier, providing significant financial support upon leaving or retiring. This law applies across factories, mines, ports, oil sectors, and railways.

How is Gratuity Calculated?

Gratuity is calculated using a fixed formula:

[
\text{Gratuity} = \text{Last Month’s Salary} \times \frac{15}{26} \times \text{Years of Service}
]

Last month’s salary includes basic pay and dearness allowance (DA).

Example:
An employee with a last drawn salary of ₹50,000 and 5 years of service would receive:

[
50,000 \times \frac{15}{26} \times 5 \approx ₹1.44 \text{ lakh}
]

Who Benefits Most?

Reducing the minimum service period to one year primarily helps fixed-term employees, whose contracts are often less than five years. Previously, if their contract ended before five years, they were ineligible for gratuity. The new rule ensures greater financial security for contract and fixed-term staff, aligning their benefits with permanent employees.