# New Labour Codes 2025: Fixed-Term Employees Now Get Gratuity After Just 1 Year

URL: https://technosports.co.in/new-labour-codes-2025-fixed-term-employees-now/  
Published: 2025-11-28  
Updated: 2025-11-28  
Author: Reetam Bodhak

India’s revolutionary **New Labour Codes 2025**, effective from November 21, 2025, have transformed workplace benefits for millions. The most significant change allows **fixed-term employees to claim gratuity after just one year** of continuous service instead of the traditional five years—a game-changing reform that strengthens financial security for contract workers while permanent employees continue under the existing five-year rule.

## New Labour Rules 2025: Complete Breakdown

| Category | Old Rule | New Rule (Effective Nov 21, 2025) |
| --- | --- | --- |
| **Permanent Employees** | 5 years service | 5 years service (unchanged) |
| **Fixed-Term Employees** | 5 years service | **1 year service** |
| **Minimum Days Required** | 240 days/year | 240 days/year (continuous service) |
| **Maximum Payout** | ₹20 lakh | ₹20 lakh |
| **Wage Definition** | Variable | Minimum 50% of CTC |
| **Payment Timeline** | Not specified | **30 days** (10% interest if delayed) |
| **Tax-Free Limit** | ₹10 lakh | **₹20 lakh** (private sector) |

## Who Benefits Most: Fixed-Term vs Permanent Employees

![](https://technosports.co.in/wp-content/uploads/2025/11/image-2754-355-1024x768.jpg)

### Fixed-Term Employees: The Big Winners

Fixed-term contracts have predetermined end dates, typically tied to projects or time-bound assignments. Under the new codes, these workers become eligible for gratuity after completing just **one year of continuous service** (minimum 240 days).

**Key Benefits:**

- Pro-rated gratuity based on actual contract duration
- Equal treatment with permanent staff during employment
- Mandatory appointment letters ensuring transparency
- Same wages and statutory benefits as permanent employees

This change addresses a major inequity where project-based workers missed out on financial benefits despite contributing significantly to organizations.

### Permanent Employees: Status Quo Maintained

Labour law experts clarify that the one-year rule **does not apply to permanent employees**. Rohit Jain, Managing Partner at Singhania & Co, stated: “Reports that every employee will now get gratuity after one year are incorrect. It is still five years for permanent employees. Only fixed-term employees benefit from the new one-year rule.”

## How Gratuity is Calculated Under New Rules

The standard formula remains:

**Gratuity = Last drawn salary × 15/26 × Years of service**

- **15** = 15 days of wages (statutory minimum)
- **26** = Average working days per month
- Service rounded to nearest full year (6+ months = full year)

### Critical Change: 50% Wage Rule

Companies must now ensure that “wages” constitute **at least 50% of total CTC**. Previously, many organizations structured salaries with Basic + DA at just 30-40% of CTC, with remaining amounts paid as allowances (HRA, special allowance, etc.).

**If allowances exceed 50% of CTC, the excess must be reclassified as “wages”** for gratuity, PF, and other statutory calculations—preventing salary structure manipulation.

![](https://technosports.co.in/wp-content/uploads/2025/11/image-2754-356-1024x576.jpg)

**Example:**

- Employee CTC: ₹10 lakh/year
- Old structure: Basic ₹3 lakh (30%) + Allowances ₹7 lakh
- New requirement: Wages must be minimum ₹5 lakh (50%)
- Impact: Higher gratuity payout due to increased calculation base

## Four Labour Codes Replacing 29 Legacy Laws

| Labour Code | Focus Area | Laws Replaced |
| --- | --- | --- |
| **Code on Wages 2019** | Minimum wages, timely payment, equal pay | 4 laws |
| **Industrial Relations Code 2020** | Hiring, retrenchment, unions, disputes | 3 laws |
| **Social Security Code 2020** | PF, gratuity, maternity, gig workers | 9 laws |
| **Occupational Safety Code 2020** | Workplace safety, health, women’s rights | 13 laws |

## Additional Major Reforms in Labour Codes 2025

**Social Security Expansion:**

- Gig and platform workers officially recognized
- Aggregators contribute 1-2% of annual turnover to Social Security Fund
- ESIC healthcare coverage expanded to 740 districts
- Mandatory appointment letters for all employees

**Workplace Safety & Equality:**

- Free annual health check-ups for workers above 40
- Women permitted in night shifts with safety measures
- Equal pay for equal work legally mandated
- Gender discrimination prohibited across sectors

**Employer Flexibility:**

- Companies with up to 300 workers can hire/retrench without government approval (up from 100)
- Reduced compliance burden through digital systems
- Single registration portal for all labour laws

## Financial Impact on Companies

According to Debjani Aich, Partner at CMS INDUSLAW, companies can expect **25-50% increase in gratuity liabilities**. The pro-rata gratuity obligation for fixed-term workers creates additional payout requirements, though financial burden remains lower than hiring full-time employees.

Employers must:

- Restructure salary components to meet 50% wage threshold
- Update actuarial valuations under Ind AS 19/AS 15
- Recognize increased liabilities as past service cost in P&L
- Revise HR policies and employment contracts for compliance

For more employment law updates, visit our **[Labour Law Section](https://technosports.co.in/labour-laws/)** and explore **[Employee Benefits Guide](https://technosports.co.in/employee-benefits/)**. Stay informed with official notifications at **[Ministry of Labour & Employment](https://labour.gov.in/)**.

## Frequently Asked Questions

### **Q1: Do all employees now get gratuity after 1 year under the new Labour Codes 2025?**

  
No. Only **fixed-term employees** qualify for gratuity after one year of continuous service (minimum 240 days). **Permanent employees** still require five years of service to become eligible. This distinction ensures project-based workers receive financial benefits while maintaining traditional rules for permanent staff.

### **Q2: What is the new 50% wage rule in Labour Codes 2025?**

  
The 50% wage rule mandates that an employee’s “wages” (Basic + DA) must constitute at least 50% of total CTC. If allowances exceed 50% of remuneration, the excess amount must be reclassified as “wages” for calculating gratuity, PF, and other statutory benefits—preventing companies from minimizing payouts through salary structure manipulation.