India has implemented four consolidated labour codes effective November 21, 2025, replacing 29 previous laws to modernise workers’ rights and employer obligations.
A landmark change lets fixed-term employees claim gratuity after just one year, down from five, equalising benefits for temporary and permanent workers.
Alongside this, the overhaul mandates universal minimum wages, mandatory appointment letters, expanded social security including gig workers, enhanced workplace safety, and stronger protections for women and contract labour.
Officials hail the reforms as transformative for labour welfare and economic resilience despite opposition from trade unions.
Gratuity and Benefits Parity for Fixed-Term Employees
A core feature of the new codes is the reduction of gratuity eligibility for fixed-term employees to one year of service, aligning their benefits with those of permanent staff. Earlier, only employees serving five years qualified for gratuity under the Payment of Gratuity Act.
Now, fixed-term employees enjoy equal pay, leave, medical benefits, and social security protections. The reforms seek to discourage excessive contract labour reliance, improve job security, and formalise workforce engagement across sectors including IT, MSMEs, and manufacturing.
Additionally, women can work night shifts with consent and safety guarantees, and all workers are entitled to appointment letters, timely wages, and free annual health checks after age 40.
Labour Law Consolidation and Wider Workforce Impact
The four codes-the Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code-streamline decades-old, fragmented laws dating back to colonial times into a coherent, simplified framework.
This rationalisation improves compliance for businesses by raising thresholds that exempt smaller units from onerous licencing while extending protections to hitherto unregulated segments like gig and platform workers. Safety standards and grievance mechanisms are upgraded, including mandatory safety committees in larger factories.
The government positions these reforms as key to building a future-ready, globally competitive labour ecosystem that supports India’s vision for development by 2047.
Balancing Reform and Opposition
While the reforms have garnered praise from officials and industry experts for enhancing social security and fostering formalisation, trade unions have raised concerns about potential erosion of strike rights and reduced benefits for some informal workers.
The government maintains that the reforms increase coverage from 19% in 2015 to over 64% in 2025 and embed portability of benefits pan-India. Labour Minister Mansukh Mandaviya described the launch as a transformative step toward “a self-reliant and developed India,” underscoring the intent to support both workers’ welfare and enterprise growth.
What is Gratuity?
Gratuity is a benefit paid by an employer to an employee as a token of appreciation and a financial cushion for the employee’s post-employment life.
It acts as a retirement benefit or a ‘end-of-service’ gratitude, acknowledging the employee’s contribution over their years of service.
Under Indian law, it is classified as a terminal benefit and forms part of the employee’s overall salary package. The Act applies to factories, mines, plantations, ports, railways, companies, and establishments with ten or more workers, emphasizing its broad applicability across the workforce.
How is Gratuity Calculated?
The calculation of gratuity is generally based on the employee’s last drawn wages and the length of service. According to the Payment of Gratuity Act, 1972, the formula typically used is:
(15 days wages) x (Number of years of service)
The wages component usually comprises the basic salary and Dearness Allowance (DA). As per recent amendments and guidelines, additional allowances and benefits are sometimes included, and the calculation may vary slightly for different sectors or contractual agreements.
The maximum gratuity payable is Rs. 20 lakh, as per recent increases, and is tax-exempt up to this threshold.
The Logical Indian’s Perspective
These sweeping labour reforms embody progressive policymaking geared toward fairer and more dignified work conditions, especially for marginalised fixed-term, contract, and gig workers.
Equalising benefits across worker categories and enforcing safety and wage norms fosters social harmony and economic justice.
The Logical Indian endorses inclusive policies that nurture kindness, equity, and coexistence in workplaces and society, viewing such reforms as essential to peaceful progress.
