In a major reform that will benefit lakhs of employees who frequently switch jobs, the Government of India has reduced the minimum service requirement for gratuity from five years to just one year under the new Labour Codes that come into force from today, i.e. 21st November 2025.
This historic change is part of the broader overhaul of 29 old labour laws into four modern Labour Codes, aimed at improving worker welfare, updating decades-old rules, and creating a more formal, transparent, and worker-centric labour market.
For India’s private sector employees—especially those in sectors with high attrition such as IT, retail, services, start-ups, and gig platforms—this is one of the most impactful legal changes in years.
What is gratuity and how does it work for private sector employees?
Gratuity is a lump-sum monetary benefit that employers pay workers as a mark of gratitude for their service.
Under the Payment of Gratuity Act, gratuity becomes payable when – an employee leaves a job (resignation, termination), retires or superannuates, becomes disabled. In case of death, it is paid to nominees
Earlier, gratuity required a minimum of five years of continuous service with the same employer, except in the case of death or disability.
The new Labour Codes now reduce this eligibility to just one year, making the benefit accessible to a far larger number of employees.
This change is especially significant because lakhs of employees leave jobs every year before completing five years, resulting in zero gratuity despite years of contribution to their organisation. The new rule ensures that even employees with shorter stints receive financial support upon exit.
Why this change is a game-changer
-Shorter job tenures will no longer penalise employees
-Higher financial security for young workers who switch jobs frequently
-A major boost for contractual, fixed-term, and gig workers
-Encourages formal employment as gratuity becomes a universal, predictable benefit
This move alone places India’s workforce on a more secure footing and brings labour benefits closer to global standards.
Labour Codes overhaul 29 laws: What else changes for workers
The government has implemented the Code on Wages, Industrial Relations Code, Social Security Code, and OSHWC Code, replacing outdated regulations framed between the 1930s and 1950s. These Codes modernise labour governance and make the labour ecosystem more transparent and inclusive.
Here are the major reforms that accompany the new gratuity rule:
Mandatory appointment letters for all workers
For the first time, all workers—permanent, contractual, fixed-term—must receive appointment letters, improving job security and reducing disputes.
Minimum wages for all, not just select industries
Earlier, minimum wages applied only to scheduled industries.
Under the Code on Wages, every worker in every sector is entitled to minimum wages, ensuring no one falls below a basic income floor.
Pan-India ESIC coverage, even for small and hazardous units
The Social Security Code expands ESIC benefits nationwide.
Highlights:
Even establishments with one worker in hazardous processes must provide ESIC benefits
Small units (<10 employees) can opt in
Coverage now includes gig, platform, and unorganised workers
Free annual health check-ups for workers above 40
The new Codes make preventive healthcare mandatory, with employers required to provide yearly health check-ups to workers aged 40+. This will help early detection and reduce long-term health risks.
Women can work in all types of jobs, including night shifts
To promote equal opportunity and higher earnings for women:
-Women can work in all types of jobs (including hazardous, mining, and heavy machinery)
-Night shifts allowed with consent and safety measures
-Equal pay for equal work is now enforceable
-Mandatory representation in workplace grievance committees
Faster, simpler compliance for industries
The Codes replace multiple registrations, licences, and returns across 29 laws with:
One registration
PAN-India single licence
Single return filing
This significantly reduces compliance burden, promoting ease of doing business and job creation.
Why these reforms were needed
India’s previous labour laws were scattered across 29 Acts, many of them outdated and rooted in pre-Independence regulations. The fragmented legal structure created:
-Confusion for employees
-High compliance costs for employers
-Difficulty for emerging sectors like gig work and digital platforms
-Limited social security coverage
The Labour Codes address these issues and align India with modern global practices.
A long-awaited shift to a fairer labour system
The government’s decision to make the four Labour Codes effective from 21 November 2025 marks the biggest labour reform India has seen in decades. The reduction of gratuity eligibility from five years to one year stands out as the most immediate and meaningful benefit for millions of private sector employees.
Combined with stronger social security, minimum wages for all, expanded ESIC benefits, women’s safety and equality measures, and simplified compliance, these reforms lay the foundation for a future-ready, fair, and secure workforce.