In a significant reform aimed at improving labor rights, the Union government of India announced that fixed-term employees across various sectors will now be eligible for gratuity after just one year of service, a change from the previous five-year requirement. This major overhaul of the country’s labor framework consolidates 29 existing labor laws into four streamlined codes, according to the Union Labour Ministry.
The government’s restructuring efforts focus on enhancing wages, expanding social security benefits, and providing better health protections for workers including informal, gig, and platform workers, as well as migrant laborers and women employees. This update addresses a crucial gap for fixed-term employees, who are typically hired under contracts with specific end dates or tasks.
Previously, the Payment of Gratuity Act entailed that fixed-term employees had to complete a minimum of five years of continuous service to qualify for gratuity. The newly revised labor codes eliminate this prolonged waiting period, allowing these workers to receive gratuity after just one year in their positions.
The ministry’s clarification indicates that this reform is designed to align the benefits of fixed-term workers with those of permanent employees. Under the updated rules, these workers will now have access to the same salary structures, leave entitlements, medical benefits, and social security provisions that are afforded to regular employees.
This move is expected to reduce the heavy reliance on contract staffing, encouraging companies to engage in more transparent and direct hiring practices. Gratuity, a lump-sum payment typically given to employees as a token of appreciation after a prolonged service, will now become accessible after one year, thereby providing enhanced financial security during employment transitions.
The Payment of Gratuity Act applies to various establishments, including factories, mines, and railways. While previous discussions hinted at a possible reduction in the eligibility period to three years, this recent decision marks a more considerable easing of restrictions, potentially benefitting millions of workers now classified under this category.
To illustrate how gratuity is calculated, the formula remains the same: Last Drawn Salary multiplied by (15/26) multiplied by the number of years of service. This financial benefit is now set to provide greater security for employees and stabilize the workforce for employers, promising a more equitable labor environment in the near future.