Did the government cut gratuity from five years to one year?

Not for everyone. Only for fixed-term employees.

If you are on a written contract for a fixed period, you become eligible for gratuity after one year of service. If you are a permanent employee, you still need five years.

This is the single biggest point of confusion going around. The government's own factsheet says the reduced threshold is for fixed term employees.

When did the new rules start?

The four labour codes came into force on 21 November 2025. The Code on Social Security, 2020 is one of them.

The central rules that make the gratuity provisions work day to day were notified on 8 May 2026 as G.S.R. 344(E).

My company says the codes do not apply to us yet. Are they right?

Partly, and it depends on who your regulator is.

The central rules apply where the Central Government is the appropriate government for your establishment. For most private companies, the state government is the appropriate government. Many states have not finished notifying their own rules.

So the law is in force. The machinery to run it is not evenly in place across every state. This is a real gap, not something your employer invented.

Is the old Payment of Gratuity Act, 1972 dead?

Yes. The Code on Social Security, 2020 repeals it and eight other laws. The Payment of Gratuity (Central) Rules, 1972 were also repealed when the 2026 rules came in.

In practice, most of the old law was carried into the Code. The formula did not change. The five-year rule for permanent staff did not change. The forms changed.

How do I know if I am a fixed-term employee?

You are a fixed-term employee if you signed a written contract for a set period. A two-year project contract. A one-year renewable contract. Something with an end date written into it.

You are not a fixed-term employee just because you are new, or on probation, or unhappy. Permanent staff on a standard appointment letter with no end date are permanent staff.

Read your appointment letter. If it names a date on which the employment ends, you are likely fixed-term.

I am on a two-year contract. What do I get?

Gratuity for the period you served, once you cross one year.

The formula is the same one everyone uses: fifteen days of wages for each completed year. Service beyond six months at the end is rounded up to a full year.

I am permanent and leaving at four years and eight months. Do I get gratuity?

This is disputed, and the honest answer is that it depends on where you work and whether you are willing to fight for it.

The law says five years of continuous service. Several High Courts have held that four years plus 240 days of work in the fifth year counts as five years. Other courts have not agreed. There is no Supreme Court ruling settling it for the whole country.

Many employers pay. Many refuse. If yours refuses, you can go to the competent authority, but understand you are entering a grey area.

What if I die or become disabled before five years?

Gratuity is paid. The five-year condition does not apply.

If you die, it goes to your nominee. If you have not named one, it goes to your legal heirs.

Do gig workers and delivery partners get gratuity?

No. Not gratuity.

Gig and platform workers are covered by the Code for the first time, which is genuinely new. But they are covered through separate welfare schemes funded by aggregator contributions. Gratuity under Chapter V is for employees.

Some articles blur this. They are different things.

Do freelancers and independent contractors get gratuity?

No. If you invoice a company and you are not on their payroll, you are not their employee.

Being called a consultant while working full-time under a manager is a different situation. Courts look at the substance of the relationship, not the label on the contract. But that is a dispute you would have to raise.

Does my company have to pay if we are only eight people?

Probably not, for shops and offices. The threshold is ten or more employees.

Factories, mines, oilfields, plantations, ports and railway companies are covered regardless of headcount.

Worth knowing: once the law applies to a business, it keeps applying even if headcount later drops below ten.

Do interns get gratuity now?

Nobody is fully sure, and that is the truthful answer.

The Code defines fixed-term employment as a written contract for a fixed period. It does not set a minimum length. An intern on a written 12-month contract could read as a fixed-term employee. An intern on a three-month stint would not cross the one-year threshold anyway.

Apprentices engaged under the Apprentices Act, 1961 are excluded from the definition of employee.

Until there is a clarification or a ruling, this stays open.

Do journalists have a different rule?

Yes. Working journalists qualify after three years, not five.

This was in the old law too. It now sits inside the Code.

What is the formula?

Last drawn wages, multiplied by 15, divided by 26, multiplied by your completed years of service.

The 26 is there because a month is treated as 26 working days. The 15 is fifteen days of pay for each year you worked.

Eight years and seven months counts as nine years. Eight years and four months counts as eight years.

What is the 50 percent wage rule and does it increase my gratuity?

For a lot of people, yes.

The Code has one definition of wages now. It covers basic pay, dearness allowance and retaining allowance. It leaves out HRA, conveyance, overtime and similar items.

Here is the part that matters. If those excluded allowances add up to more than half your total pay, the excess gets added back into wages. So wages can never be less than 50 percent of your total pay for statutory purposes.

Many Indian companies kept basic pay at 30 or 35 percent of CTC to hold down PF and gratuity costs. That no longer works. If your basic was low, the wage figure used for your gratuity goes up, and so does your gratuity.

My basic is 30 percent of CTC. Is that illegal now?

Your salary structure is not illegal. But your employer cannot use that low basic to calculate your statutory benefits.

For gratuity, PF and the rest, they have to compute wages as at least half your total pay. Most companies are restructuring salaries so the two numbers match.

Will my past years be calculated at the new higher wage?

Yes, because of how the formula works.

Gratuity uses your last drawn wages, not an average across your career. Every completed year, including years before 2025, gets multiplied by that final figure.

So if the wage definition pushes your final number up, your whole tenure benefits.

Is there a maximum?

Yes. Twenty lakh rupees.

Your employer can pay more if they want to. Anything above twenty lakh stops being statutory gratuity and becomes an ex-gratia payment, which changes how it is taxed.

My CTC letter shows a gratuity line. Is my employer deducting it from my salary?

Companies often show gratuity as a line in the CTC breakup, usually around 4.81 percent of basic, and present it as part of your cost to the company.

Gratuity is the employer's liability. It is not a deduction from your take-home pay. A company cannot show it in your CTC and then refuse to pay it when you become eligible.

If they do, raise it formally.

How fast does my employer have to pay?

Thirty days from the date gratuity becomes payable, which is normally your last working day.

I heard full and final settlement is now two days. Does that cover gratuity?

No, and this trips up a lot of people including HR teams.

The two working day rule comes from the Code on Wages, 2019. It covers wages: pending salary, leave encashment, and similar items.

Gratuity runs on its own thirty-day clock under the Code on Social Security. Two different laws, two different deadlines.

Many companies pay both together because splitting them creates extra work. Legally they are separate.

What happens if they pay late?

Simple interest runs on the unpaid amount.

The Central Government has notified 12 percent per annum as the rate of simple interest for amounts payable under the Code on Social Security. Under the old law the notified rate was 10 percent.

Interest is not a favour. It runs from the day the deadline passes.

How do I actually claim it? Which form?

Under the Social Security (Central) Rules, 2026 the forms changed.

• Form III is your nomination.
• Form IV is the application for gratuity, filed by the employee, nominee or legal heir.
• Form V is the employer's notice, either admitting the claim with an amount and a payment date, or rejecting it with reasons.

You apply within thirty days of gratuity becoming payable. Legal heirs get one year. A late application is not automatically invalid if you can show good reason.

Your employer must issue Form V within fifteen days of receiving your application, and pay within thirty days by demand draft or bank transfer.

Send everything by a method that gives you proof. Keep the receipt.

What if my employer just refuses?

Go to the competent authority for gratuity in your area. That office is set up under Section 58 of the Code.

Before you go, do the calculation yourself and put the number in writing. Most disputes start with an employer who never showed the working.

Under the 2026 rules, gratuity applications and appeals are meant to be disposed of within six months, extendable by three more months with reasons recorded.

Can my employer forfeit my gratuity?

Only in narrow situations.

They can forfeit part of it if you caused damage or loss through wilful negligence, and only up to the value of that damage. They can forfeit all of it if you were dismissed for violent or disorderly conduct, or for an offence involving moral turpitude committed during your employment.

Poor performance is not on that list. Leaving without serving notice is not on that list. Joining a competitor is not on that list.

Do I pay tax on gratuity?

Up to twenty lakh rupees is exempt for private sector employees. Anything above that is added to your salary income and taxed at your slab rate.

Two more things people get wrong.

The twenty lakh is a lifetime limit across every employer you ever work for, not per job. If you claimed eight lakh at one company, you have twelve lakh of exemption left.

If your employer pays you something when you leave before qualifying, that is ex-gratia, not gratuity. It is fully taxable and the exemption does not protect it.

Gratuity paid on death or disability is fully exempt with no ceiling.