The new financial year has started from 1 April. Along with this, new labor codes have been implemented across the country. Under these new labor codes, many important changes have been made in labor laws. The most discussed provision among these changes is related to gratuity of employees and the “full and final settlement” process. Apart from this, there are many more questions related to this matter which need clarification.
Now you will get gratuity after only one year of service
Earlier, an employee was entitled to receive gratuity only after completing at least five years of service in an organization. But, now this required time limit has been reduced to one year; This means that even if an employee leaves his job after just one year of service, he will still be entitled to receive gratuity. This is a major change in the rules related to salaried employees. Still, the scope of this change is limited.
What are the provisions for contract employees?
The biggest limitation of the “gratuity after one year of service” rule is that it does not apply to everyone. On March 16, 2026, the Ministry of Labor and Employment (MoLE) released a detailed set of frequently asked questions (FAQs). Question number 14 in this FAQ document clearly states that this benefit will be available only to those “fixed-term employees” who are directly recruited by the company.
In contrast, Question No. 10 clarifies that contract workers—that is, those hired through a contractor—are not covered by this definition. As a result, this means that millions of employees working under contractors in sectors like construction, manufacturing, mining and agriculture have not been extended this benefit. Therefore, it is clear that unorganized sector employees will not get any practical benefit from this regulatory change.
Settle immediately upon resignation
From April 1, 2026, Section 17(2) of the ‘Code on Wages, 2019’ has come into full force, bringing about a historic change that serves the best interests of salaried employees. Now, in case of resignation, retirement or retrenchment of an employee, it is mandatory for the employer to complete the “full and final settlement” within just two working days of the employee’s last day of work. This includes outstanding salaries, leave encashment, and all other dues. Previously, this process would take anywhere from 45 to 90 days, leaving employees to wait a long time to receive their money.
Will bonuses be included in the calculation of gratuity?
As a result, a question may arise in the minds of many employees: will the bonus be taken into account while calculating gratuity, and will it result in higher gratuity payment? On this matter, Question No. 4 of the Labor Ministry’s Frequently Asked Questions (FAQs) is very clear: Annual performance-based incentives will not be included in the definition of ‘salary’. This means that in sectors like IT, banking, insurance and sales, the calculation of gratuity will be completely based on Basic Salary and Dearness Allowance (DA).