Gratuity New Rule: Under the new Labor Code, a major change has been made in the rules of gratuity. Under this, fixed-term employees (FTE) will no longer have to wait for five years to get gratuity. Due to change in rules, they will be entitled to receive gratuity only after one year of continuous service.

What is fixed term?

Earlier, when a company hired an employee on contract, he did not get the same benefits as permanent employees. Now under ‘Fixed-Term’, employees appointed on written contract for a fixed time (1 year or 2 years) will be placed directly on the payroll of the company. That means their salary, holidays and allowances will be the same as that of permanent employees.

According to the current law (Payment of Gratuity Act, 1972), any employee gets gratuity only when he completes 5 years of service. Under FTE, now if your contract with the company is for 1 year 3 months, then you will get gratuity for the entire 15 months. This is a matter of happiness for those who especially do project-based work.

Overall, at least 1 year of service is mandatory for fixed-term employees (FTE). They will not get gratuity if they work for less than 1 year. After completion of 1 year, the company will give you gratuity by adding up the number of months or days you work, like if you have worked for 1 year and 5 months, then you will get gratuity of 17 months.

Why were the rules changed?

This change in the rules has been made keeping in mind the people working on small projects or working on fixed contracts (1 or 2 years) so that they can also get gratuity as a reward for their work and do not have to wait for a long time of up to 5 years.

Increase in basic salary

According to the new Labor Code, the calculation of gratuity will be based on salary, which should be at least 50 percent of the total CTC (cost-to-company) of the employee. According to the rules, allowances like HRA or Travel cannot exceed 50 percent of your CT. If the allowance is more than 50 percent, the additional amount will be added to your basic salary. This will increase the basic salary, due to which the amount received as gratuity and PF will also increase.

F&F will happen soon

Currently, companies take 30 to 60 days for full and final settlement (F&F). According to the new rules, after the resignation of the employee or after he is fired from the company or after his contract is terminated, the company will be paid his gratuity and outstanding salary within 2 working days (48 hours).

Also read:

Income Tax Return Filing AY 2026-27: Government notified ITR forms, know when will you be able to file returns?