Kolkata: The new labour codes that were notified on Nov 21, 2025 has brought about an important change in the gratuity rules. While earlier an employee was entitled to gratuity payment only after five years of continuous service, the eligibility rule has been shortened to just one year of continuous service. The legislation on gratuity applies to workers and employees of all businesses and establishments that employ 10 or more persons. However, the new rule does not apply to all employees. Who will come under this new eligibility criterion? Let’s have a look.

What is gratuity

A company pays gratuity to its employees in recognition of continuous service and hard work. The emphasis is on unbroken service. The Payment of Gratuity Act, 1972 came into force on September 16, 1972. The legislation paved the way for pay mandatory lump sum to employees in factories, mines, ports and other establishment. It is a social security benefit after retirement, superannuation or resignation and in popular perception is accorded the same importance as Employee’s Provident Fund. The legislation on gratuity applies to workers and employees of all businesses and establishments that employ 10 or more persons.

Who is eligible for gratuity after one year of service?

Gratuity might be paid to those employees who have been hired for a fixed tenure. It does not apply to permanent employees, who continue to get gratuity only after five years of continuous service. The new labour code has said fixed-term employees are those who are absorbed only for a specific period, which can be a year or two or three years etc and who are not permanent staff. The code has also mentioned that they will be paid gratuity on a pro rata basis.

It has also been mentioned that while calculating gratuity, the wages that will be employed will include basic pay, DA (dearness allowance) and retaining allowance. These three heads must cumulatively comprise at least 50% of an employee’s CTC (cost to company).

Another criterion is, only those who are employed directly by a company will get gratuity after one year of service. Those who are hired through third party contractors, won’t get this benefit.