The Government of India has announced a landmark labour reform: gratuity eligibility has been reduced from five years to just one year under the new Labour Codes, effective November 21, 2025. This change is expected to benefit millions of employees, especially in high-turnover sectors like IT, retail, services, start-ups, and gig platforms.
Govt cuts gratuity eligibility to 1 year from 5 years under new Labour Code
New Delhi:In a historic move, the Government of India has reduced the minimum service requirement for gratuity from five years to one year. The reform, part of the new Labour Codes that came into effect on November 21, 2025, marks one of the most significant overhauls of labour laws since Independence.
Key Highlights
- Gratuity eligibility reduced: Employees can now claim gratuity after completing just one year of service, compared to the earlier five-year requirement.
- Coverage expansion: The change benefits fixed-term employees, gig workers, and platform workers, who often switch jobs frequently.
- Women workers: The codes ensure equal pay for equal work and broaden opportunities for women across industries.
- Contract workers: Employers are now mandated to provide health and social security benefits to contract staff.
- Unified framework: The reform consolidates 29 old labour laws into four Labour Codes—Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health and Working Conditions Code (2020).
Impact on Employees
- Private sector boost: Employees in IT, retail, start-ups, and service industries—where attrition is high—will benefit the most.
- Job mobility: Workers no longer need to stay in one company for five years to secure gratuity, encouraging career flexibility.
- Social protection: Gig and platform workers, previously excluded, are now formally recognized and entitled to welfare benefits.
Government’s Vision
The Labour Codes aim to:
- Modernize outdated regulations.
- Create a transparent, worker-centric labour market.
- Strengthen social security and welfare protections.
- Support the vision of Aatmanirbhar Bharat by building a resilient and competitive industrial environment.
Expert Reactions
- Employee unions have welcomed the move, calling it a step toward greater fairness in the workplace.
- Industry leaders believe it will improve employee morale and retention, though some caution about increased costs for employers.
- Policy analysts see this as a balancing act between worker welfare and business competitiveness.
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