Fixed-Term Employee? Your Gratuity Now Starts at 1 Year, Not 5

What changed

The Code on Social Security, 2020, in force since 21 November 2025, provides that fixed-term employees become eligible for gratuity after one year of service rather than the five years that applied under the previous regime. The Payment of Gratuity Act 1972, which most Indian employees know as the source of the five-year rule, was among the statutes subsumed by the Codes.

The reasoning behind the change is straightforward. Fixed-term employment by its nature often runs for less than five years, so a five-year threshold meant fixed-term staff structurally could not accrue a benefit that permanent staff could. Reducing the qualifying period for that category addresses the gap.

Why your contract probably still says five years

Employment templates in India commonly carry a line to the effect that gratuity is payable in accordance with the Payment of Gratuity Act on completion of five years of continuous service. That sentence was accurate for years, which is exactly why it is everywhere.

Applied to a fixed-term employee today it is not. This is one of the cleanest examples of a clause that is not simply old-fashioned but wrong on its face, and it is worth flagging whether you are issuing the contract or signing it.

Fixed-term versus permanent matters more now

The change raises the stakes on how an engagement is characterised. Fixed-term employment is a recognised category under the Industrial Relations Code, and it carries its own consequences around termination and benefits. An engagement labelled fixed-term but operating like permanent employment, or the reverse, was always worth examining; it is now worth examining for a further reason.

If you are on a series of renewed fixed-term contracts, the aggregate picture of your service is worth understanding rather than assuming each term resets everything. That analysis depends on the specific facts and is a good question for an advocate.

What to check

• Whether your contract characterises the engagement as fixed-term, and whether the description matches how you actually work.
• Whether any gratuity clause states a flat five-year rule without distinguishing fixed-term employment.
• Whether the contract refers to the Payment of Gratuity Act 1972 by name, which indicates it predates the Codes.
• For employers, whether payroll and provisioning reflect the one-year threshold for fixed-term staff.