What changed
The Code on Social Security, 2020 came into force on 21 November 2025 and replaced the Payment of Gratuity Act. Section 53 gives fixed-term employees gratuity on a pro-rata basis once they complete one year of service. Permanent employees still need five years.
A fixed-term employee is someone hired on a written contract for a fixed period, with the same hours, wages and benefits as permanent staff doing the same work. Many project roles in IT, manufacturing and media are set up this way.
Worked example
Your contract ran for 1 year and 8 months, and your last basic + DA was ₹40,000.
- Service: the 8 months after the first year is more than six months, so it counts as a full year: 2 years.
- 15 days’ wages: ₹40,000 × 15 ÷ 26 = ₹23,077.
- Gratuity: ₹23,077 × 2 = ₹46,154, fully tax-free.
How service length changes it (₹40,000 basic + DA)
| Service | Years counted | Gratuity |
|---|---|---|
| 1 year 0 months | 1 | ₹23,077 |
| 1 year 6 months | 1 | ₹23,077 |
| 1 year 8 months | 2 | ₹46,154 |
| 2 years 3 months | 2 | ₹46,154 |
| 3 years 0 months | 3 | ₹69,231 |
| 0 years 11 months | — | ₹0 (not yet eligible) |
The rounding of more than six months follows the Social Security (Central) Rules notified in May 2026. Exactly six months does not round up.
What else you get when the contract ends
Gratuity is only one part of your full and final settlement. Depending on your terms, you can also expect your salary for the last days worked, encashment of unused earned leave, any pending bonus or reimbursements, and access to your PF balance (which you can transfer to a new employer through the UAN). Asking HR for a written breakdown helps you check every line calmly.
Practical tips
- Check your contract type. Your appointment letter should say “fixed-term”. Interns, consultants and agency staff on another company’s payroll are usually not your employer’s fixed-term employees.
- Contract renewed? If you are re-hired without a break, ask HR how the service will be counted; continuous service generally adds up.
- Ask in writing. When your contract ends, apply for gratuity to HR in writing and keep a copy. Payment is due within 30 days.
- Your state’s rules matter too. States notify their own rules under the Code for establishments they regulate, so details can differ slightly.
FAQ
Do fixed-term employees get gratuity after 1 year?
Yes. Since 21 November 2025, the Code on Social Security gives fixed-term employees pro-rata gratuity once they complete one year of service.
How much gratuity for 1 year 8 months on ₹40,000 basic + DA?
The extra 8 months rounds up, so 2 years are counted: 15/26 × ₹40,000 × 2 = ₹46,154.
Does the 1-year rule apply to permanent employees too?
No. Permanent employees still need 5 years of continuous service, except when leaving because of death or disablement.
Sources (checked 5 Nov 2026): Code on Social Security, 2020, ss. 2(88) and 53, in force 21 Nov 2025 (Ministry of Labour & Employment, labour.gov.in); Social Security (Central) Rules, G.S.R. 344(E) of 8 May 2026; Payment of Gratuity Act, 1972, s.4; Income-tax Act, 1961 s.10(10) and Income-tax Act, 2025 s.19 (incometaxindia.gov.in); CBDT notification S.O. 1213(E) dated 8 Mar 2019 (₹20 lakh). Cross-checked with law-firm commentary (Mondaq, Bar & Bench, Business Today).