Gratuity After One Year of Service For Contract Workers Under New Labour Code, Details Here


Contract workers to get gratuity after 1 year of employment

The new labour laws, which are yet to be rarified by all states, will significantly change the take-home salary, contribution to provident fund and working hours for the employees in the private sector.

The proposed changes in the new labour codes will also increase an employee’s retirement corpus and the gratuity amount.

The four new labour codes have been formed by reviewing and combining 29 Central labour laws.

According to the Payment of Gratuity Act 1972, an employee in a private company with more than 10 workers is eligible to claim gratuity benefits after five years of continuous service.

Under the soon-to-be-implemented labour codes, the Centre plans to reduce the gratuity eligibility threshold to only one year of service for fixed term, or contract employees.

But for those on the regular payrolls of a company, the gratuity norms remain the same.

Under the new Social Security and Industrial Relation Code, the government proposes to ease the five-year service rule for gratuity payments for fixed-term employees.

Fixed-term employees are those whose employment ends with the lapse of the contract period.

The government aims to widen the social security for private sector employees by extending gratuity benefits to contractual employees, which would mostly include the low-ranked staff like labourers, factory operators, helpers and drivers, among others.

The Code also mandates that the gratuity be calculated based on the wage defined in the new guidelines.  

However, regular employees will be eligible for gratuity after five years of continuous service in a company.

As per the existing law, the gratuity is calculated based on the basic pay and dearness allowance. For every year of service, 15 days of basic pay and dearness allowance as per the last drawn salary is paid as gratuity.

For gratuity calculations, a month is considered 26 days. The maximum limit for gratuity amount is Rs 20 lakh.   

The new labour codes also mandate that 50 per cent of the gross salary should be paid as basic pay. This will increase the gratuity amount for the employees.

The employer needs to restructure the remuneration if the employee’s basic salary is less than 50 per cent of the gross amount.


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