Gratuity Eligibility Halved to One Year: A Game-changer for Employees
The government has reduced gratuity eligibility from five years to just one year. This rule takes effect on November 21, 2025, and could significantly boost payouts for temporary employees while maintaining the standard requirements for permanent staff.
Highlights
- •Gratuity eligibility reduced from 5 years to 1 year
- •One-year eligibility applies to fixed-term employees and contract workers
- •New calculation considers basic salary, dearness allowance, and retaining allowances
- •Expected increase in gratuity payouts by 66%
Good news for all employees! The government has introduced a significant change in gratuity regulations, reducing eligibility from five years of service to just one year. This update is part of the updated Labor Codes and takes effect on November 21, 2025.
This new rule impacts various types of employment contracts:
Eligibility for One Year
Achieve gratuity after just one year of service if you have a fixed-term contract (FTE) or are a temporary worker. These employees will now receive pro-rata benefits based on their time served.
For permanent staff, the eligibility remains at five years unless in cases of death or disability, which could see earlier payout provisions.
This change
Impact on Gratuities
The gratuity amount will now be calculated based on the basic salary, dearness allowance (DA), and retaining allowances. The combined percentage must account for at least 50% of the Cost to Company (CTC). Previously, only basic salaries up to 30% were considered.
This adjustment could increase gratuity payouts by nearly two-thirds in some cases. Employees will receive a more substantial lump-sum sum upon leaving their job due to these expanded calculations.
Experts predict this change could significantly aid employees during career transitions or at the end of traditional employment, providing a financial cushion in times of need.
