Gratuity rules: The government has given a significant gift to fixed-term employees by making major reforms to labor laws. Now, they will no longer need to work for five years to receive gratuity. Gratuity benefits can be earned even with just one year of service. This decision is considered a major relief for millions of employees, gig workers, and those in the unorganized sector.

On Friday, the central government announced plans to reduce 29 labor laws into four codes. These new codes aim to provide better wages, social security, and health coverage to all workers—women, migrant workers, informal sector workers, and gig workers.

5-year limit is over – now gratuity is available even after 1 year

According to the previous rule, gratuity was only available after completing five consecutive years of service at any organization.
However, under the new rule, fixed-term employees (FTEs) will now receive all the benefits that permanent employees receive after just one year of service—
• holidays
• medical benefits
• social security
• and now—the full benefit of gratuity.

The government aims to reduce the contract based system and promote direct hiring.

What is gratuity?

Gratuity is a financial gift that a company gives to its employees in return for their work.
The full amount is paid in one lump sum upon leaving the company or retirement.

Earlier this benefit was available after 5 years, but now this right will be available even in 1 year.

How is gratuity calculated?

Formula to calculate gratuity:

(Last salary) × (15/26) × (number of years worked)

Example:
If your last salary (Basic + DA) = ₹50,000
and you worked in the company for 5 years—

So according to the formula:
50,000 × (15/26) × 5 = ₹1,44,230

Where does the Gratuity Act apply?

Payment of Gratuity Act applies to all the country's—
• Factories
• Mines
• Oil Fields
• Ports
• Railways