Employees to Get Gratuity After 1 Year Under New Labour Laws (Calculator inside)
Gratuity After 1 Year: A Landmark Labour Reform
The Union government has announced a major change in India’s labour framework: employees will now be eligible for gratuity after just one year of service instead of five years. This reform, part of the new labour codes, is expected to benefit millions of workers across industries.
Gratuity after 1 year labour law—has already become one of the most searched terms among employees and HR professionals.
What Changed in the Labour Laws?
India’s labour system has long been criticized for being complex, with 29 different laws governing wages, social security, and working conditions. The government has now consolidated these into four simplified labour codes.
The key objectives are:
- Better wages for workers
- Wider social security coverage
- Improved health and safety protections
- Equal treatment for fixed-term and permanent employees
This restructuring also extends benefits to gig workers, platform workers, migrant labourers, and women employees, making it one of the most inclusive reforms in recent years.
Gratuity : From 5 Years to 1 Year
Under the Payment of Gratuity Act, employees earlier had to complete five years of continuous service to qualify for gratuity. This was often seen as unfair to fixed-term employees (FTEs), who contributed significantly but left before completing five years.
Now, with the new labour codes:
- Fixed Term Employees (FTEs) qualify for gratuity after just one year.
- They will also enjoy the same salary structure, leave facilities, medical benefits, and social security as permanent staff.
- The government hopes this will reduce contract staffing and encourage companies to hire directly.
This change is expected to boost workforce stability and provide employees with a stronger financial cushion during job transitions.
What is Gratuity ?
Gratuity is a lump-sum financial benefit paid by an employer to an employee as a token of appreciation for long-term service. Traditionally, it was given when an employee resigned, retired, or separated from an organization after completing the mandatory five-year service period.
With the revised rules, gratuity becomes more accessible and employee-friendly, especially for younger workers and those in fixed-term roles.
How to Calculate Gratuity
The gratuity amount is calculated using a standard formula:
With the new law, even employees completing just one year will be eligible for gratuity, though the amount will be proportionately smaller.
Gratuity Calculator
Why This Reform Matters
This change is not just about numbers—it’s about employee security and fairness.
- For Employees: It ensures financial support during transitions, especially for those in short-term contracts.
- For Employers: It reduces dependence on contract staffing and promotes transparent hiring.
- For the Economy: It strengthens social security and encourages workforce participation.
Impact on Different Worker Categories
- Fixed Term Employees: Biggest beneficiaries, as they now get parity with permanent staff.
- Gig and Platform Workers: Extended coverage under social security measures.
- Women Employees: Improved protections and benefits, encouraging higher participation.
- Migrant Labourers: Inclusion under health and wage-related safeguards.
Evergreen Queries Answered
- When will employees get gratuity under new labour laws? → After 1 year of service.
- Who benefits most from this change? → Fixed Term Employees (FTEs).
- What is the gratuity formula? → Last Drawn Salary × (15/26) × Years of Service.
- Does this apply to all employees? → Yes, but primarily impacts FTEs.
Conclusion
The gratuity after 1 year labour law marks a turning point in India’s employment landscape. By reducing the eligibility period from five years to one, the government has made gratuity more accessible, fair, and inclusive.
This reform is expected to empower employees, stabilize the workforce, and encourage transparent hiring practices. For millions of workers, it’s a step toward financial security and dignity in employment.
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External Links
- Payment of Gratuity Act – Wikipedia
- Ministry of Labour and Employment – Govt of India
- Labour Codes Explained – The Hindu
- Gratuity Calculation – Quora
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