The clause runs to one sentence. Where an employee completes one year of continuous service, gratuity shall be applicable on a proportionate basis. That is the whole of it, published by the Press Information Bureau in its Code on Social Security factsheet on 22 November 2025, a day after the four labour codes took effect. And the new gratuity rules 2026 inherited from that line have already changed what a fixed-term contract at an Indian IT services firm is worth on the way out. Nobody sent you an email about it. Your offer letter still says five years, because your offer letter was written before the codes existed.
Key Takeaways
If you are on a fixed-term contract, gratuity now starts accruing at one year instead of five, and it is paid pro rata.
- Permanent employees are untouched: the five-year continuous-service rule still governs them.
- The entitlement runs from 21 November 2025 forward, not backward over service you have already given.
- Part-years above six months count as full years, so your exit month can change the payout.
- Your appointment letter and payslips are the only proof of continuous service you control. Keep them.
Why The New Gratuity Rules 2026 Cut Two Ways
The one-year entitlement applies to fixed-term employees only, so the same reform that hands a contract worker a real exit payment also gives employers a reason to think harder about who gets a fixed-term paper and who gets a permanent one.
Here is the part the coverage keeps missing. A fixed-term employee at month thirteen now has a statutory claim that a permanent colleague at month thirteen does not. That is not a drafting accident. Fixed-term hiring in Indian IT grew precisely because it carried no tail: no gratuity, no retrenchment friction, no long service liability. The Code on Social Security took the cheapest part of that arrangement away. What it did not do was make fixed-term work safer. It made it costlier, and cost gets managed.
The bills arrived fast. Forbes India reported in January 2026 that TCS booked a statutory charge of Rs 2,128 crore in the third quarter of FY26, which pulled its profit down 13.9 percent year on year. That is one firm, one quarter, one set of provisions being trued up. Read that alongside the EPF withdrawal lock that now delays how much of your corpus you can actually take and a pattern shows up: your statutory entitlements are growing on paper while the time and conditions attached to reaching them are growing too.
New eligibility
1 year
Fixed-term staff, pro rata
Accrual rate
15/26
Days of wages per year served
Payment window
30 days
Interest accrues after that
Q3 FY26 charge
Rs 5,000 cr
Six IT majors, one quarter
Those four numbers describe the same reform from two ends. Two of them are what you can claim, one is how fast the money has to reach you, and the last is what the industry booked when its accountants finally priced the first three. Fisher Phillips, writing for employers in March 2026, put the payment obligation plainly: calculate, notify, pay, and carry interest if you miss. That is a harder deadline than most exit processes in this industry currently hold to, and it sits right next to India's 48-hour full and final settlement deadline, which covers the rest of your dues.
Your contract type, not your performance, now decides whether you leave with a gratuity cheque or a handshake. That is the whole reform, and it was never designed to be neutral.
Do Permanent Employees Still Need Five Years?
Yes, the five-year continuous-service requirement survives intact for permanent employees, payable on termination, superannuation, resignation, death or disablement, and only fixed-term staff got the one-year door, on a strictly proportionate basis.
A lot of the commentary in November treated this as gratuity being cut to one year for everyone. It was not. If you are a permanent employee four years and eight months into your job, nothing about your position changed on 21 November 2025, and anyone telling you otherwise has read a headline and not the clause. What did change sits in the table below, and most of it changes the arithmetic rather than the eligibility.
| Category | Detail | Insight |
|---|---|---|
| Start date | 21 November 2025, applied prospectively | Service given earlier does not count |
| Eligibility | Fixed-term at one year, permanent at five | Contract type now sets the wait |
| Wage base | Basic must be at least 50% of total pay | Raises the base gratuity multiplies |
| Retrenchment | Approval threshold moved from 100 to 300 workers | Easier to cut you before you vest |
| Part years | A part-year above six months counts as full | This is where the doubling happens |
| Our reading | Month 19 credits two years, month 18 credits one | Derived here, not a published figure |
| Best suited for | Fixed-term staff with a renewal date in hand | Time the exit, do not improvise it |
Two rows there deserve a second look together. The wage-base change raises the number your gratuity multiplies against, and the retrenchment change makes it administratively easier to end your employment before the multiplication ever happens. Both are in the same reform package. Whether that nets out in your favour depends entirely on how long you stay, which brings us to the only calculation in this piece that actually matters.
How Is Pro-Rata Gratuity Calculated For A Fixed-Term Employee?
You take the last drawn wage, multiply by fifteen twenty-sixths, and multiply again by years of service, where any completed year counts and a leftover period above six months counts as a whole additional year in its own right.
That last clause is where the money hides, and almost nobody plans around it. Work it through. A fixed-term employee who exits at eighteen months has one completed year plus exactly six months, and six months is not more than six months, so one year is credited. The same employee who stays into month nineteen has one completed year plus a part-year that clears the threshold, so two years are credited. Same contract, same salary, one extra month of work, and the entitlement doubles. That is our own reading of how the completed-year and part-year rules interact rather than a figure any of these sources prints, and it is worth checking against your own appointment terms before you sign anything on the way out.
Reading the timeline in plain words: the clock starts when the codes came into force, a fixed-term claim becomes possible at the twelve-month mark, the credited service stays at one year right through month eighteen, and it steps up to two years once month nineteen is reached. The payment window only opens at exit.
Where This Goes Wrong For You
The failure mode is almost never an employer refusing to pay, it is a broken service record, a contract quietly reclassified, or an exit timed three weeks too early, and all three happen during an ordinary notice period.
Continuous service is the load-bearing phrase in the whole clause, and it is also the one most easily damaged. A gap between two fixed-term renewals, a transfer between group entities, a short stint parked on a vendor payroll: each of these can reset the count, and each of them is presented to you as an administrative formality. I would push back on that framing, though I understand why people accept it. The paperwork usually arrives with a raise attached.
Watch for these:
- A renewal that starts a few days after the previous term ended, rather than the day after.
- A new appointment letter that changes the employing entity while your desk, manager and project stay the same.
- A relieving letter that omits the start date, or gives a start date that does not match your first payslip.
- An exit date proposed by your manager that lands just short of a month boundary you have been counting toward.
- A settlement statement that lists gratuity as nil without stating which rule it applied.
If your contract says fixed-term: count your months from the start date on your first appointment letter, not from when the codes took effect, then check which side of the part-year threshold your planned exit falls on.
If your contract says permanent: nothing here changes your eligibility, but the wage-base rule may quietly change what your eventual payout multiplies against, so read your revised salary structure rather than your net credit.
If you cannot tell which you are: that is itself the finding. Ask HR in writing which classification your service is recorded under, and keep the reply.
Does Resigning Before Five Years Mean No Gratuity At All?
For a permanent employee, yes, resignation before five years of continuous service still leaves you with nothing on this head. For a fixed-term employee past the one-year mark, no, the proportionate entitlement survives resignation.
This is the sharpest split the reform created, and it deserves more attention than it is getting. The same resignation letter produces two completely different financial outcomes depending on a classification most employees never chose and many cannot name. If you are watching the silent layoff signals most tech workers miss and thinking about jumping first, the classification question comes before the timing question. And if your reason for leaving is the commute and the anxiety that came with forced return to office, it still comes first, because the answer can be worth a month of pay.
This week, pull out your appointment letter and your most recent payslip, and confirm three things in writing with HR: your recorded classification, your recorded date of continuous service, and the rule under which your gratuity will be computed at exit. Do it now, while you are not negotiating anything. The answers are much harder to get once you have resigned.
