Gratuity Gets a Makeover From Five to One: Major Win for Workers in New Labour Reform

Updated: November 22, 2025 10:27

The latest labour reforms in India dramatically reduce the minimum service period for gratuity eligibility from five years to just one year. This change enhances employee benefits, accelerates financial security, and marks a significant shift towards worker-centric labour policies across the country.

In a groundbreaking move under the new labour codes, the Indian government has reduced the period of continuous service required for employees to claim gratuity benefits from five years to just one year. This reform is hailed as a major step towards strengthening social security and improving workforce morale, particularly for contract and short-term workers across industries.

Reduced Service Tenure for Gratuity

Earlier, employees needed at least five years of continuous service to become eligible for gratuity payments—a long wait for many, especially in the gig and informal sectors. The new law slashes this qualifying period to just one year, enabling quicker access to retirement benefits.

Broader Inclusion and Worker Support

This revision reflects an intent to make labour welfare benefits more inclusive, covering a wider employee base, including casual, contractual, and fixed-term workers who previously struggled to meet the five-year threshold.

Impact on Employee Financial Security

With earlier eligibility, workers can plan their financial futures more confidently, receiving lump-sum payments promptly after one year of service. This move is expected to provide crucial support, especially for migrant and temporary employees.

Government’s Reform Vision

The new labour codes aim to harmonize and simplify multiple legislations, focusing on ease of compliance as well as expanded worker protections. The gratuity reduction aligns with the broader agenda to create a more balanced and fair industrial relations environment.

Industry Adjustments and Compliance

Employers are now required to update their payroll and gratuity management systems to incorporate the revised eligibility criteria and ensure seamless transition and compliance across sectors.

The reduction in gratuity eligibility duration signals progressive labour reforms geared towards enhancing India’s workforce welfare framework, promising a more just and fair workplace for millions.

Sources: Ministry of Labour & Employment, Press Information Bureau, The Economic Times, Hindustan Times

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