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Has the basic gratuity rule of five years changed for permanent employees?
No.
Permanent or regular employees become eligible for gratuity even after completing five years of continuous service with the same employer.
The five-year requirement continues for all permanent employees.
Will I get gratuity even if I am not a permanent employee?
Yes, in some cases.
The Labor Code now extends gratuity to certain categories of fixed-term employees (FTE) and contract workers.
These employees now earn gratuity in proportion to their service period, even if they do not complete five years.
What exactly is a Fixed Term Employee (FTE)?
An FTE is a person who is appointed on contract with a clearly defined tenure – for example, 6 months, 1 year or 18 months.
They are not “temporary” employees; They are regular employees for a fixed period.
Under the Code, FTEs must receive the same pay and benefits as permanent employees doing similar work.
If I leave the company after one year, will I get gratuity?
Yes, if you are a fixed term employee.
FTEs are now eligible for gratuity after one year of continuous service, even if their contract terminates earlier.
However, permanent employees do not receive gratuity after one year.
He still has to complete five years of service.
Does every contractual employee become eligible for gratuity after one year?
Not automatically.
Only contract workers engaged as fixed-term employees or those falling under certain roles defined in the Labor Code qualify after one year.
Other contract labor categories will continue to be governed by the existing eligibility rules.
Has the gratuity calculation formula changed?
No.
The formula remains: Based on last pay drawn, 15 days’ pay × complete years of service.
However, the new uniform definition of salary under the Codes may increase the basis for calculation of gratuity.
EY notes that a broader salary definition could increase benefit costs for employers as more salary components may fall under “wages”. Atul Gupta, Partner – Labor & Employment Practice, Trilegal also highlights that the “new definition of wages” has a material impact on benefits like gratuity, and organizations should immediately reevaluate the calculations.
Are gig and platform workers eligible for gratuity?
not yet.
Gig and platform workers receive new Social Security coverage, but gratuities remain primarily tied to “employee” status.
They are covered by PF-linked schemes, insurance and social welfare, which are partly funded by aggregator contributions.
When will the detailed rules of gratuity be notified?
The codes have come into force, but as EY highlighted, supportive regulations are still awaited by the central and state governments.
During this transition, the government has said that the existing rules will continue to apply where necessary until new rules are notified.
Why has gratuity eligibility been expanded now?
This extension is in line with the Code’s intention to provide uniform, inclusive social security, reduce disputes and formalize non-permanent employment.
EY notes that fixed-term employment is now formally recognised, and employees working on such contracts are entitled to gratuity pro rata after one year.