This is one of the genuine gains of the codes, and one of the entitlements most often refused at the settlement desk by an HR team still applying the repealed Act. The refusal usually reverses once the provisions are quoted accurately.
What the gratuity chapter says
The Code on Social Security, 2020 makes gratuity payable on termination of employment after five years of continuous service, on superannuation, retirement or resignation, on death or disablement, on termination of the contract period under fixed term employment, or on a notified event. Then two provisos do the work:
- the completion of continuous service of five years shall not be necessary where the termination of employment is due to death or disablement, or the expiration of fixed term employment, or a notified event; and
- in the case of an employee employed on fixed term employment, or a deceased employee, the employer shall pay gratuity on a pro rata basis.
So the five year rule is switched off, and the calculation is proportionate rather than all or nothing. Our note on gratuity under the Code on Social Security sets out how the rest of that chapter fits together.
Where the one year figure comes from
Not from the gratuity chapter. It comes from the definition of fixed term employment in the Industrial Relations Code, 2020, which defines it as the engagement of a worker on the basis of a written contract of employment for a fixed period, with three provisos: parity of hours, wages, allowances and other benefits with a permanent worker doing the same or similar work; eligibility for all statutory benefits proportionately even where the qualifying period in the statute is not reached; and that he shall be eligible for gratuity if he renders service under the contract for a period of one year.
The Ministry of Labour and Employment's frequently asked questions on the labour codes deal with the point twice. Asked whether a fixed term employee needs exactly one year or more than one year, the reply is that a fixed term employee will be eligible for gratuity if he or she renders service under the contract for a period of one year, from the start of the contract. Asked whether a fixed term employee engaged for eleven months is eligible on contract expiry, the reply is the same. The Ministry also records that fixed term employment covers employees directly engaged by the employer, and not contract labour engaged through a contractor. Those answers are administrative guidance, not a legal document, and the Code prevails where they differ, but they are the published position and worth annexing to a written claim.
Three conditions the claim actually turns on
- A written contract for a fixed period. The definition requires it. An oral arrangement, or a contract with no stated end date, is not fixed term employment at all, and the person is then an ordinary employee for whom the five year rule still applies.
- Direct engagement by the employer. If you were supplied to a client by a staffing company, the fixed term category is not the right frame, and the question becomes who your employer is and whether your continuous service across successive engagements adds up.
- The term ran its course. The chapter speaks of the expiration of fixed term employment. Where the contract is cut short before the end date, that is not the expiry of the term. The Ministry's answer to a question that included an early exit was given by reference to the one year rule rather than by drawing that distinction, so treat an early exit as arguable rather than settled and claim it.
Running the number
Gratuity is payable at fifteen days' wages for every completed year of service or part in excess of six months, based on the rate of wages last drawn, and the Code explains that for a monthly rated employee fifteen days' wages means the monthly rate last drawn divided by twenty six and multiplied by fifteen. For a fixed term employee that figure is then applied on a pro rata basis for the period served. Two points on the inputs. Wages is the Code's own definition, so the base is not simply the basic pay line where the excluded allowances exceed one half of your remuneration. And the maximum is not in the Code: gratuity shall not exceed such amount as the Central Government notifies, so take the ceiling from the notification in force. Our guide on gratuity rules, eligibility and calculation in India works the arithmetic through in full.
Claiming it, and the usual refusal
- Write before the last working day asking for the pro rata gratuity computation, the leave encashment and the head by head settlement
- If the refusal is that you did not complete five years, reply citing the fixed term limb and the proviso that dispenses with five years on expiry
- Note that the employer must determine and pay within thirty days of gratuity becoming payable, whether or not you applied, with simple interest if it is late
- If it is still refused, apply to the competent authority under the gratuity chapter
One last check before you accept a figure. Anything better under an award, agreement or contract with the employer survives the Code, so a company policy promising more than the statutory formula is enforceable as a contract. For where the fixed term category sits within the wider reorganisation of Indian labour law, see our overview of what the four labour codes changed for employees.