New Gratuity Rules Explained: Fresh controversies were ignited among employees with the introduction of the four new labour codes in the country, and this mainly pertains to gratuity eligibility. One of the most championship changes was reducing the service requirement for gratuity from five years to one; however, this caveat does not cover everyone. It is necessary, therefore, to understand to whom the revised framework applies, as well as what the law really says, in order to eliminate misunderstandings.
Major changes introduced for non-permanent workers under the Code on Social Security, 2020, by the government have already been stated:
Fixed-term employees (FTEs) will be entitled for granted after one year of uninterrupted service, which is a massive change from the previous requirement of five years.
Contract workers are included under this one year rule.
This is done in order to bring to light the necessary debate-the crux of all beneficial financial aspects one should concede to the often job-shifting employees working temporarily or on a project basis.
Absolutely not. This one-year eligibility pertains only to FTEs and contract workers.
The conditions still apply to permanent employees:
➡ Five years of service with no interruption to qualify for gratuity.
This is also reiterated by legal experts such that the new entitlement does not change the traditional norms for permanent staff. The only exception is in cases of death or permanent disability where gratuity is paid irrespective of the service duration.
Gratuity is the statutory payment governed by the Payment of Gratuity Act, 1972. This acts as financial acknowledgment given from the organization for an employee’s long-term service and paid during resignation, retirement, or separation. It acts as a safety cushion for the employees once entering a new life phase.
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As per the Act:
Gratuity = Last Drawn Monthly Wage * 15/26 * Completed Years of Service
Most companies include gratuity in the Cost to Company (CTC), as it represents future liabilities the employer will settle.
It certainly goes a long way in making social security systems fairer and more inclusive, especially for the host-growing fixed-term workforce of India. As for permanent employees, traditional structures will be maintained intact, so nothing really changes.
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