Gratuity After One Year: Landmark Labour Law Reform Brings Relief to Millions
New labour codes simplify 29 old laws and expand social security to gig and platform workers
Reform strengthens worker rights, women’s welfare, and ease of doing business in India
By Our Legal Correspondent
New Delhi: November 22, 2025:
In a major step towards modernising India’s labour framework, the Government of India has implemented sweeping reforms under the Code on Social Security, 2020. Effective from 21 November 2025, employees across the country will now be eligible to receive gratuity after just one year of continuous service, instead of the earlier five-year requirement. This change, part of the new labour codes, is expected to benefit millions of workers, especially those employed on fixed-term contracts, gig platforms, and in the unorganised sector
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Background of the Reform
India’s labour laws had long been criticised for being outdated and fragmented. The government consolidated 29 separate labour laws into four simplified Labour Codes —
- Code on Wages (2019)
- Industrial Relations Code (2020)
- Code on Social Security (2020)
- Occupational Safety, Health and Working Conditions Code (2020)
The aim was to streamline compliance, expand social security, and balance worker protection with business flexibility.
Key Highlights of the Gratuity Reform
- Reduced eligibility: Employees on fixed-term contracts can now claim gratuity after one year of service, compared to the earlier five years.
- Proportionate benefit: Gratuity will be calculated proportionately for shorter service periods.
- Universal coverage: The reform extends benefits to gig workers, platform workers, and unorganised sector employees for the first time.
- Women-centric provisions: Expanded maternity leave (26 weeks), work-from-home options, nursing breaks, and mandatory crèche facilities for establishments with 50 or more employees.
- Social Security Fund: A new fund will provide life insurance, disability cover, health and maternity benefits, and pensions for gig and unorganised workers.
Why This Matters
Gratuity is a lump-sum benefit paid by employers to employees as a reward for long-term service. Under the old system, workers who left before completing five years were denied this benefit. With the new rule, lakhs of employees in IT, manufacturing, retail, and service industries will now qualify for gratuity much earlier, improving financial security and reducing attrition.
Impact on Workers
- Fixed-term employees: Contract workers in industries like IT, hospitality, and manufacturing will now enjoy the same benefits as permanent staff.
- Gig and platform workers: Delivery partners, ride-hailing drivers, and freelancers will gain access to social security schemes.
- Women employees: Expanded maternity benefits and crèche facilities will encourage greater participation of women in the workforce.
- Unorganised workers: Migrant and self-employed workers will be registered on a national portal and receive a unique ID linked to Aadhaar, ensuring portability of benefits across states.
Impact on Employers
While the reform increases obligations for employers, it also simplifies compliance:
- Digitalisation: Records and returns will now be maintained electronically, reducing paperwork.
- Ease of doing business: Offences have been decriminalised, with monetary fines replacing imprisonment in many cases.
- Inspector-cum-facilitator system: Inspections will be transparent and supportive, reducing harassment and litigation.
Expert Reactions
Labour economists have hailed the gratuity reform as a progressive step towards inclusive growth. Trade unions welcomed the reduction in eligibility, noting that it will protect workers in industries with high turnover. Business associations, while cautious about increased costs, praised the simplification of compliance and digitalisation measures.
Broader Labour Code Benefits
Beyond gratuity, the labour codes introduce several other reforms:
- Universal EPFO coverage: All establishments with 20 or more employees must now provide provident fund benefits.
- ESIC expansion: Coverage extended nationwide, including hazardous occupations and plantations.
- Commuting accidents covered: Employees injured while travelling to or from work will now be eligible for compensation.
- Career centres: Modern employment exchanges will connect job seekers with employers digitally.
Political and Social Significance
The reform reflects the government’s commitment to building a “Viksit Bharat by 2047”, ensuring that India’s workforce is protected in a rapidly changing economy. By recognising gig and platform workers, the law acknowledges the realities of the digital age. By strengthening women’s rights, it promotes gender equality in employment.
Conclusion
The new labour law overhaul marks a turning point in India’s employment landscape. By reducing gratuity eligibility to one year, extending social security to gig and unorganised workers, and simplifying compliance for businesses, the reform balances worker welfare with economic growth. For millions of employees, this means greater financial security, dignity, and fairness in the workplace.
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