Fixed-term employees in various sectors will now be eligible for gratuity after just one year of service at a company, instead of the previous requirement of completing five years, following a significant overhaul of India’s labor laws by the Union government. The government has consolidated 29 existing labor laws into four simplified labor codes to enhance wages, broaden social security coverage, and enhance health protections for workers in different industries.
The new regulations also encompass informal workers, gig economy workers, platform workers, migrant laborers, and female employees. Notably, the most substantial change introduced pertains to gratuity entitlement, impacting a substantial number of employees.
Previously, under the Payment of Gratuity Act, fixed-term employees had to serve five continuous years in an establishment to qualify for gratuity. However, with the implementation of the new labor codes, this requirement has been relaxed for Fixed Term Employees (FTEs). These employees will now be eligible for gratuity after completing just one year of service, aligning them with permanent employees.
The revision ensures that FTEs receive the same benefits as regular employees, including salary structures, leave entitlements, medical benefits, and social security measures. The government aims to reduce reliance on contract staffing and promote direct hiring transparency among companies through these changes.
Gratuity, a token of appreciation for long-term service, is a financial benefit paid by employers to employees upon resignation, retirement, or separation from an organization. The revised framework allows employees under fixed-term contracts to receive gratuity after one year of service, providing them with financial security during job transitions.
The Payment of Gratuity Act covers various establishments like factories, mines, oil fields, ports, and railways. While there were initial speculations about reducing the eligibility period to three years, the recent decision significantly relaxes the requirement to just one year for a specific worker category.
To calculate gratuity, a standard formula is used based on the last drawn salary (including Basic Pay and Dearness Allowance) multiplied by the number of years of service. This revised policy is anticipated to enhance employee security and improve workforce stability for employers.