India’s long-awaited Labour Code reforms were expected to transform employee benefits, especially gratuity rules. However, the implementation of the new gratuity framework remains stalled due to unresolved differences between the Centre and various states. This delay has created uncertainty among private sector employees, contract workers, and employers who were preparing for major changes under the new labour laws.
Why the New Gratuity Rules Are in the Spotlight
Gratuity is a crucial retirement-linked benefit that rewards long-term service. Under the existing system, employees become eligible for gratuity only after completing five continuous years of service. The proposed Labour Codes aim to expand coverage, simplify eligibility, and ensure uniformity across sectors. However, disagreements over operational details have slowed the rollout.
What the New Labour Codes Propose for Gratuity
The new Labour Codes, particularly the Code on Social Security, 2020, propose significant reforms in gratuity eligibility and calculation. One of the biggest changes is the proposal to allow gratuity benefits even if an employee has not completed five years of continuous service in certain employment models.
This reform is especially relevant for fixed-term employees, gig workers, and those working in new-age employment structures, where long-term continuity is rare.
Centre and States Disagreement Explained
The Centre has framed model rules under the Labour Codes, but labour is a concurrent subject under the Constitution. This means states must notify their own rules before implementation. Several states have raised concerns about administrative readiness, financial burden on employers, and clarity around eligibility thresholds.
As a result, the Labour Codes, including the revised gratuity provisions, cannot be enforced nationwide until states align with the Centre’s framework.
Current Gratuity Rules vs Proposed Changes
The difference between the existing gratuity system and the proposed changes under the Labour Codes is significant.
| Aspect | Current Gratuity Rule | Proposed Labour Code Rule |
|---|---|---|
| Minimum service | 5 years continuous service | Reduced or relaxed for fixed-term employees |
| Coverage | Mostly permanent employees | Includes fixed-term and broader workforce |
| Calculation | Based on last drawn salary | Similar formula but wider applicability |
| Applicability | Limited sectors | Intended uniform nationwide |
Who Will Benefit Once the New Rules Are Implemented
The proposed gratuity reforms are designed to make social security more inclusive. Once implemented, the following groups are expected to gain the most.
• Fixed-term employees who currently miss gratuity due to short contracts
• Workers in private sector roles with high attrition
• Employees in emerging industries with non-traditional employment patterns
• Contractual staff engaged through long-term projects
Impact on Employers and Payroll Systems
Employers will need to adjust payroll planning, cost structures, and compliance systems once the new rules come into force. Gratuity liability may increase for organizations relying heavily on fixed-term or project-based hiring. This is one of the key reasons many states are cautious about immediate implementation.
Latest Update on Implementation Timeline
As of now, there is no confirmed nationwide implementation date for the new gratuity rules. The Centre continues to push for adoption, while states are at different stages of drafting and notifying their own rules. Until consensus is reached, existing gratuity laws remain applicable across India.
What Employees Should Do Right Now
Employees should continue to rely on current gratuity rules for financial planning. Those switching jobs frequently or working on fixed-term contracts should keep track of official notifications, as the new rules could significantly impact future benefits once enforced.
Conclusion
The Labour Code gratuity update promises a more inclusive and modern social security system, but its progress remains stuck between the Centre and the states. While the intent is clear and employee-friendly, implementation delays mean workers must wait longer to see real benefits. Until official notifications are issued by states, the existing gratuity framework will continue to apply.
Disclaimer
This article is for informational purposes only and does not constitute legal or financial advice.