The Central Government has made four new labor codes effective from November 21, 2025. After that the government has also made changes in these codes. Due to which a situation of confusion has arisen between employees and employers. One such rule change is related to gratuity. Employees want to know whether gratuity will now be payable after just one year of service instead of five years of service, and will this change be effective immediately?
Adding to the confusion is the government’s statement in Parliament that it is “in talks with states/UTs for smooth implementation of the codes”, leading many to believe that even important benefits like gratuity may be postponed for now. A close study of the law and expert opinion reveals that the matter is much more complex than this.
What did the government officially clarify?
In a written reply to Parliament, the central government said: “The above four labor codes have come into force from 21.11.2025. It also added that the Labor Ministry is contacting states and union territories for smooth implementation, indicating that although the laws are in place, certain aspects still depend on state regulations.
Understand the changes in gratuity under the new codes
Under the Social Security Codes, 2020, an important change has been made in the gratuity rules:
Fixed-term employees are entitled to gratuity on pro-rata basis even if they have not completed five years of continuous service.
The traditional eligibility condition of five years remains for regular (non-fixed term) employees.
This is an important distinction that is often misunderstood.
Will gratuity be applicable after 1 year from 21st November?
Will it be implemented immediately?
Labor law experts say that the legal right is already in place. Rishi Aggarwal, CEO and co-founder of TeamLease RegTech, tells FE that when the codes “come into force”, the core provisions immediately become law.
In case of gratuity:
The right of permanent employees to receive gratuity on a proportionate basis is part of the Basic Law.
This right does not depend on the rules of the state.
States can only set procedural details, they cannot deny the right itself.
In simple words, the concept of gratuity for permanent employees of less than five years has become law from November 21, 2025.
What still depends on the States/UTs?
While status quo may be in place, practical implementation will depend on rules notified by States/UTs, such as mode of payment and deadlines; Forms and Documents; and impact and dispute resolution procedures.
Akhil Chandana, partner and global people solutions leader, Grant Thornton India, tells FE reports that the provisions that require practical implementation of the rules may not be fully implemented immediately. However, this does not change the legal liability.
Is the 5 year rule over for regular employees?
It’s not like that. Experts say the widely prevalent claim that all employees will receive gratuity after one year is false. The rule of five years of continuous service continues for permanent employees.
The benefit of gratuity of one year (or less period) will be applicable only to fixed term employees, and that too on pro-rata basis.
The purpose of this change is to bring equality for workers appointed on fixed contracts, and not to make sweeping changes in gratuity eligibility for the entire workforce.
Employers should not ignore the changes in gratuity.
Experts believe that ignoring the gratuity provision for fixed-term employees may result in retrospective liability on employers. Since Social Security Codes are already in place, employers are expected to take into account gratuity costs for fixed-term employees and HR and salary systems should be reviewed to ensure compliance. Delaying action by assuming that “the rules are awaited” may prove to be harmful later.
Provisions to be clearly implemented from November 21, 2025
- Main definitions under all four codes
- Uniform salary definition and 50 percent salary rules
- Extended Social Security Coverage (EPF, ESI, Maternity Leave, Gratuity)
- Gratuity for fixed term employees (on pro-rata basis)
- High layoff limit under industrial related codes
- Paid leave and safety provisions under the OHS code.
Important points for employees and employers
Yes, Labor Codes have come into effect from November 21, 2025. Yes, gratuity for fixed term employees is legally applicable from this date. The five-year gratuity rule for regular employees has not been abolished. The procedure for gratuity will be determined by state rules – not whether it is payable or not.
For employers, experts are not advising adopting a wait-and-see strategy. For employees, especially those on fixed-term contracts, this change is a real expansion of Social Security – even if its full implementation will take time.