Will permanent employees also get gratuity after 1 year of continuous service? Check details.(Representative Image)

The new labour codes notified by the government last week have created interest around the gratuity rules, with the reforms designed to help the contract workers and fixed-term employees. Under the revised framework, these employees will become eligible for gratuity after completing just one year of service instead of the existing requirement of 5 years of continuous service.

However, the new gratuity eligibility norms have created confusion among permanent employees. Let’s take a look at the gratuity eligibility criteria for permanent employees under the new labour codes.

1-Year Service Rule: Who Is Eligible?

According to the Code on Social Security, 2020, individuals working as fixed-term employees will now get gratuity after completing just 1 year of continuous service. The development marks a significant reduction in the minimum service years required to receive gratuity. The rule also applies to the contract workers, both in the government and private sectors. Now, these employees will be eligible for gratuity only after 1 year of service, rather than 5 years.

However, the one-year gratuity eligibility does not apply to the permanent employees of these companies. Such individuals will still require 5 years of continuous service to qualify, with no amendment to the Codes specifically designed to benefit them.

“The one-year gratuity eligibility rule is a new entitlement specifically created for fixed-term employees and does not apply to permanent employees. The standard eligibility period for permanent employees remains five years of continuous service. The only exception for the five-year rule for permanent employees would be in cases of employee death or disablement,” Preetha Soman, partner, JSA Advocates and Solicitors, was quoted as saying by the Economic Times.

What Is Gratuity?

For beginners, a gratuity is a financial benefit given by an employer to its employees as a mark of appreciation and reward for their long-term contributions to the organisation. This statutory benefit is governed by the Payment of Gratuity Act, 1972.

From an employer’s perspective, it is a monetary assistance to express gratitude towards the employee for their years of commitment and devotion to work during their service years. The gratuity is usually disbursed when an employee retires or resigns from an organisation. Gratuity is also paid irrespective of the service years in case of the death or permanent disability of an employee. This financial sum acts as a cushion for their future endeavours.