Gratuity eligibility after the new Labour Codes

For decades, "five years of continuous service" was the one gratuity rule everyone knew, even people who knew nothing else about the Payment of Gratuity Act. The 2026 Labour Codes changed that for one specific group of employees — and a lot of older articles and calculators haven't caught up.

What actually changed

Fixed-term and contract employees now qualify for gratuity after just one year of continuous service, instead of the five years still required for permanent employees. This brings gratuity eligibility in line with the growing share of the workforce hired on fixed-term contracts rather than permanent rolls.

Permanent employees: still five years

Nothing changed for permanent employees — the five-year minimum, and the formula itself ((15 × last-drawn Basic+DA × years of service) ÷ 26), are unchanged. This update is specifically about who else now qualifies, not how much anyone is owed once they do.

Why this matters if you're on a fixed-term contract

If your employment is structured as fixed-term (common in IT services, consulting, and several other sectors), you may now be entitled to gratuity at your next contract renewal or exit far sooner than you'd assumed. It's worth checking your contract's classification directly rather than assuming the old five-year rule still applies to you.

The rounding rule still applies either way

Once you're eligible, service is rounded to the nearest full year for the purpose of calculating the amount — more than six months into a year rounds up, six months or less rounds down. This rounding is separate from, and doesn't affect, whether you've crossed the eligibility threshold in the first place.

Check your own eligibility and estimated amount on the gratuity calculator.