New Labour Codes 2024: Updated Gratuity Eligibility Rules Explained
India’s revamped labour codes, set for implementation in 2024, introduce sweeping changes to gratuity—a critical retirement benefit. These reforms expand eligibility, streamline processes, and adapt to modern work structures like gig jobs. Here’s a breakdown of the new rules and their implications for employees and employers.
What is Gratuity?
Gratuity is a lump-sum payment employers make to employees as recognition for long-term service. Governed by the Payment of Gratuity Act, 1972, it applies to organizations with 10+ employees. Previously, eligibility required five years of continuous service with one employer.
Key Changes to Gratuity Eligibility
The Labour Codes (2024) merge 29 laws into four pillars, including updates to gratuity rules. Major shifts include:
1. Shorter Service Period for Contract Workers
- Fixed-term and contractual employees may now qualify for pro-rata gratuity even before completing five years if their contract ends earlier.
- Impact: Benefits job-hoppers and short-term hires in IT, hospitality, and manufacturing.
2. Gig & Platform Workers Included
- Delivery riders, cab drivers, and freelancers may become eligible for gratuity under proposed portable benefit schemes.
- Note: Rules are still evolving, but this marks a landmark inclusion for India’s growing gig workforce.
3. Revised Wage Definition for Calculation
The gratuity formula remains:
Gratuity = (Last drawn salary × 15 × Service tenure) / 26
However, “wages” now explicitly include bonuses, allowances, or variable pay, potentially increasing payouts.
4. Faster Processing & Stricter Deadlines
- Employers must disburse gratuity within 30 days of an employee’s exit (vs. undefined earlier).
- Digital submissions will reduce delays and disputes.
Who Gains the Most?
- Contract workers: Pro-rata gratuity for sub-5-year tenures.
- Gig economy workers: Potential access to retirement benefits.
- Women: Maternity leave periods count toward service tenure.
Challenges Ahead
- Small businesses may face higher costs for short-term hires.
- Enforcement gaps could hinder gig workers’ access to benefits.
Action Steps for Employees
- Review contracts for gratuity clauses, especially if on fixed-term roles.
- Document employment history to validate service tenure.
- Verify wage components to ensure correct gratuity calculations.
Final Thoughts
The 2024 labour codes modernize gratuity to reflect today’s flexible work models. While implementation hurdles remain, the reforms promise broader coverage and faster payouts, advancing financial security for India’s diverse workforce.
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