New labour laws kick in, but is the 1-year gratuity rule still not in effect? What applies now and what depends on states – Money News | The Financial Express

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New Labour Codes in force, but what about gratuity after 1 year of service?

After the Centre notified the four new Labour Codes as “effective from November 21, 2025”, some specific changes triggered confusion among employees and employers. And one of such rule changes pertains to gratuity. Employees are wondering – will gratuity now be payable after just one year of service instead of five years, and does this apply immediately?

The confusion has been compounded by the government’s statement in Parliament that it is “pursuing with the States/UTs for smooth implementation of the Codes”, leading many to believe that even key benefits like gratuity may still be on hold.

A closer reading of the law, combined with expert views, shows that the answer is more nuanced.

What the government has officially clarified:

In a written reply in Parliament, the Centre stated that: “The aforesaid four Labour Codes have come into force on 21.11.2025.”

At the same time, it added that the Labour Ministry is pursuing States and UTs for smooth implementation, indicating that while the laws are in force, certain operational aspects still depend on state rules.

Understanding the gratuity change under the new Code

Under the Code on Social Security, 2020, gratuity rules have been expanded in an important way:

Fixed-term employees are entitled to gratuity on a pro-rata basis, even if they have not completed five years of continuous service

The traditional five-year eligibility condition remains for regular (non–fixed-term) employees

This is a critical distinction that has often been misunderstood.

Is gratuity after 1 year applicable from November 21?

What is applicable immediately

Labour law experts say that the legal entitlement itself is already in force.

Rishi Agrawal, CEO and Co-founder of TeamLease RegTech, explains that when the Codes “come into force”, the substantive provisions become law immediately.

In the case of gratuity:

The right of fixed-term employees to receive gratuity on a pro-rata basis is part of the substantive law

This entitlement does not depend on state rules to exist

States can only prescribe procedural details, not deny the entitlement itself

In simple terms, the concept of gratuity for fixed-term employees even before five years is already law from November 21, 2025.

What still depends on States/UTs

While the entitlement exists, practical implementation will depend on rules notified by States/UTs, such as manner and timelines for payment; forms and documentation; and inspection and dispute resolution procedures.

Akhil Chandna, Partner – Global People Solutions Leader at Grant Thornton Bharat, points out that provisions which require rules to become practically operational may not be immediately enforceable in full detail. However, this does not postpone the legal obligation itself.

What about regular employees — has the 5-year rule ended?

No. Experts clarify that the widely circulated claim that all employees will get gratuity after one year is incorrect.

The five-year continuous service rule continues for permanent employees

The one-year (or shorter tenure) gratuity benefit applies only to fixed-term employees, and that too on a pro-rata basis

This change aims to bring parity for workers hired on fixed contracts, not to overhaul gratuity eligibility for the entire workforce.

Why employers should not ignore the gratuity change

Experts caution that ignoring the gratuity provision for fixed-term employees could expose employers to retrospective liabilities.

Since the Code on Social Security is already in force, employers are expected to factor gratuity costs for fixed-term employees; and HR and payroll systems should be reviewed to ensure compliance. Delaying action on the assumption that “rules are awaited” could backfire later.

What is clearly in force from November 21, 2025

1. Core definitions under all four Codes
2. Uniform wage definition and 50% wage rule
3. Expanded social security coverage (EPF, ESI, maternity, gratuity)
4. Gratuity for fixed-term employees (pro-rata)
5. Higher retrenchment threshold under Industrial Relations Code
6. Paid leave and safety provisions under OSH Code

What is operationally evolving

1. Registration and licensing processes
2. Inspection mechanisms
3. Forms, returns, and compliance formats
4. State-specific thresholds and procedures

What “smooth implementation” really means

When the Centre says it is pursuing States and UTs for “smooth implementation”, experts stress that this does not mean the laws are inactive.

It simply means: The legal framework is live and states are expected to quickly notify rules to make compliance seamless. Until then, existing procedures continue as interim arrangements, where they do not conflict with the new Codes.

Bottom line for employees and employers

Yes, the Labour Codes are in force 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. State rules will decide how gratuity is processed — not whether it is payable.

For employers, experts advise against a wait-and-watch approach. For employees, especially those on fixed-term contracts, the change represents a real expansion of social security — even if its full on-ground rollout will take time.