For the longest time, the word "gratuity" in India came with a heavy condition: patience. Specifically, five years of patience.
If you were on a contract or a fixed-term employment agreement, leaving a job before that five-year mark usually meant walking away with zero gratuity benefits, no matter how hard you worked.
But things are changing in a big way. Under India’s new Social Security Code 2020, the rules have shifted in favor of the employee. The headline? Fixed-term employees can now claim gratuity after just one year of service.
If you are a contract worker, a project consultant, or hired for a specific tenure, here is everything you need to know about your new rights, the "50% CTC" rule, and exactly how much money you might take home.
The Big Change: Gratuity Time Went Down from 5 Years to 1 Year
Earlier, the Payment of Gratuity Act, 1972, had a strict requirement. You have to work for five years in a row to collect even one rupee in gratuity.
This was a huge problem for the gig economy and contract workers, who usually only work for a year or two.
The revised labor codes have closed this gap.
For Employees with a Set Term
If you are hired for a set amount of time (with a documented contract that says when you will start and when you will terminate), you can get a gratuity after working for a year straight.
On a Pro-Rata Basis
The payout isn't a set amount that was chosen at random; it's based on a pro rata basis. This ensures that you earn your fair portion even if you only work for 2 or 3 years.
- Note for Permanent Employees: It's crucial to make it clear that for regular, permanent employees, the eligibility criterion is usually five years, unless they die or become disabled.
How to Calculate Your Gratuity (The Formula)
If you prefer to do the math manually rather than using our calculator, here is the statutory formula:
Gratuity = (Last Drawn Salary × 15 × Number of Completed Years) ÷ 26
- Last Drawn Salary: Basic Pay + DA.
- 15: Represents 15 days of wages for every year of service.
- 26: Represents the number of working days in a month.
Payout Estimates: What You Could Receive
To make this easier to understand, let’s look at real numbers. Below are calculations for employees who have completed exactly one year of service under the new fixed-term rules.
Let’s say your last drawn Basic Salary is ₹30,000
| Component | Value |
| Last Drawn Salary | ₹30,000 |
| Years of Service | 1 Year |
| Calculation | (30,000 × 15 × 1) ÷ 26 |
| Total Gratuity Payable | ₹17,307.69 |
Gratuity Calculator: Check Your Amount Instantly
Don't want to do the complex math yourself? We have made it easy.
Who is a "fixed-term employee"?
A fixed-term employee is someone who is hired for a certain amount of time or for a certain project. Your job has a set end date, unlike permanent personnel who stay until they quit or retire.
The new rule is aimed at this group in particular to make sure they don't miss out on social security benefits merely because their contracts are short.
The "50% CTC" Rule: Why You Might Get More Money
This update has an additional layer that makes your benefits even better. According to the new definition of "wages," your basic pay plus your dearness allowance (DA) must make up at least 50% of your total cost to the firm (CTC).
If your company sets up your pay so that allowances (including HRA, transportation, etc.) make up more than half of the total, the extra amount is included back into the "wages" for tax reasons. This means that your gratuity will be based on a higher amount.
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Why This Matters for You?
This shift represents a move toward better financial stability. In sectors like IT, BPO, and manufacturing, workers previously lost out on millions of rupees collectively because they switched jobs every few years.
With the new rules, gratuity becomes a portable benefit rather than a "loyalty bonus."
Ready to check your specific numbers? Scroll up and try our Gratuity Calculator now.
