The Union government has announced a sweeping overhaul of India’s labor framework, consolidating 29 existing laws into four simplified labor codes.
This restructuring, according to the Union Labour Ministry, aims to ensure better wages, wider social security coverage, and improved health protections for workers across all sectors.
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One of the most significant changes under this new framework is the relaxation of the gratuity eligibility period for Fixed-Term Employees (FTEs).
Five-Year Limit Abolished for Fixed-Term Workers
Under the previous Payment of Gratuity Act, a fixed-term employee—an individual hired for a specific task or predetermined duration—was required to complete five years of continuous service to become eligible for gratuity.
With the new labor codes now taking effect, this mandatory tenure requirement has been substantially relaxed:
- New Rule: Fixed-term employees will now qualify for gratuity after completing just one year of service.
The ministry clarified that the primary objective of this change is to bring fixed-term workers on par with their permanent counterparts.
Impact and Benefits of the Change
This substantial relaxation of the eligibility period is expected to impact millions of workers, providing a stronger financial cushion and greater security during job transitions.
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Under the updated rules, FTEs will be entitled to the same benefits as regular employees, including:
- Equal salary structure
- Same leave facilities
- Identical medical benefits
- Equivalent social security measures
The government anticipates these changes will discourage companies from overly relying on contract staffing models and instead encourage more transparent, direct hiring practices.
What is Gratuity
Gratuity is a financial lump-sum paid by an employer to an employee as a token of appreciation for long-term service. Traditionally, this was disbursed upon resignation, retirement, or separation after the mandatory five-year period. With the revised policy, fixed-term employees will access this benefit much sooner.
The revised policy is seen as a key step in improving workforce stability for employers while delivering greater financial security to employees.
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