New labour codes: Fixed-term jobs get boost, gratuity in one year, PF access, nationwide social security
Under the reforms, fixed-term employees can now receive gratuity after just one year of service—far lower than the traditional five-year requirement that continues for permanent staff.
- Nov 22, 2025,
- Updated Nov 22, 2025 7:40 PM IST
India’s labour landscape is undergoing its most sweeping transformation in decades as the new labour codes begin reshaping the rights, benefits, and protections available to millions of workers. Among the most consequential changes is the near-parity granted to fixed-term contractual employees, who now stand significantly closer to permanent staff in terms of entitlements and workplace safeguards.
A mandatory rule requiring written appointment letters for every employee, uniform social security benefits across states, and a landmark shift in gratuity eligibility mark the beginning of a more structured and protective employment ecosystem. Under the reforms, fixed-term employees can now receive gratuity after just one year of service—far lower than the traditional five-year requirement that continues for permanent staff.
Fixed-term staff
A key goal of the new codes is to formalise employment relationships that previously operated in grey zones. Many organisations historically used short-term contracts to avoid extending statutory benefits. The new framework closes this gap by mandating formal contracts for fixed-term workers, clearly outlining pay, tenure, job scope, and social security entitlements. With these changes, fixed-term employees must receive nearly the same benefits as permanent workers performing similar roles.
Compliance has also been streamlined through national registration systems that replace fragmented state-level procedures. ESIC coverage now applies more broadly—mandatory for establishments engaging a single worker in hazardous processes and voluntary for smaller units with fewer than ten employees. For the first time, gig and platform workers are included within India’s social security framework.
Gratuity in one year
The reduction of gratuity eligibility to one year is widely viewed as a structural shift for contract employment. Dinkar Sharma, Company Secretary and Partner at Jotwani Associates, said the move “fundamentally alters the landscape of contractual employment by recognising the realities of modern, project-based work.” Traditionally, he explained, gratuity functioned as a long-term retention tool, which effectively excluded fixed-term workers.
“By lowering the threshold, the law ensures fairness, discourages artificially short contracts designed to avoid benefits, and gives fixed-term hiring greater legitimacy as a responsible workforce strategy,” Sharma added.
Job security
The mandatory issuance of appointment letters is one of the strongest formalisation measures in the new codes. The provision enhances clarity for employees who previously worked without written documentation. Sharma noted that written contracts “bring transparency and enforceable accountability, preventing arbitrary changes that often occurred in informal employment arrangements.”
The codes also introduce statutory parity, requiring fixed-term workers to receive wages, working hours, and benefits comparable to permanent staff, with pro-rated calculations where applicable. While fixed-term roles remain time-bound, parity provisions significantly enhance job security and reduce long-standing inequities.
Welfare boost
The reforms expand ESIC coverage, introduce minimum wage guarantees linked to a national floor wage, and strengthen occupational safety norms. Mandatory safety audits, hazard assessments, emergency planning, and stricter regulations for women’s working hours aim to create safer workplaces across factories, construction sites, and services.
Compliance costs
Employers will face a challenging transition as the broader definition of “wages” caps allowances at 50% of total pay, impacting PF, gratuity, and bonus calculations. Tighter overtime rules, unified registers, and higher penalties for non-compliance will require updated payroll and HR systems.
Overall, the new labour codes signal a decisive shift toward formalisation, transparency, and equitable treatment of workers. While employers navigate higher compliance costs in the short term, the long-term outcome is expected to be a more stable and inclusive labour ecosystem—one that finally extends long-awaited dignity, protection, and social security to millions of India’s fixed-term and vulnerable workers.
India’s labour landscape is undergoing its most sweeping transformation in decades as the new labour codes begin reshaping the rights, benefits, and protections available to millions of workers. Among the most consequential changes is the near-parity granted to fixed-term contractual employees, who now stand significantly closer to permanent staff in terms of entitlements and workplace safeguards.
A mandatory rule requiring written appointment letters for every employee, uniform social security benefits across states, and a landmark shift in gratuity eligibility mark the beginning of a more structured and protective employment ecosystem. Under the reforms, fixed-term employees can now receive gratuity after just one year of service—far lower than the traditional five-year requirement that continues for permanent staff.
Fixed-term staff
A key goal of the new codes is to formalise employment relationships that previously operated in grey zones. Many organisations historically used short-term contracts to avoid extending statutory benefits. The new framework closes this gap by mandating formal contracts for fixed-term workers, clearly outlining pay, tenure, job scope, and social security entitlements. With these changes, fixed-term employees must receive nearly the same benefits as permanent workers performing similar roles.
Compliance has also been streamlined through national registration systems that replace fragmented state-level procedures. ESIC coverage now applies more broadly—mandatory for establishments engaging a single worker in hazardous processes and voluntary for smaller units with fewer than ten employees. For the first time, gig and platform workers are included within India’s social security framework.
Gratuity in one year
The reduction of gratuity eligibility to one year is widely viewed as a structural shift for contract employment. Dinkar Sharma, Company Secretary and Partner at Jotwani Associates, said the move “fundamentally alters the landscape of contractual employment by recognising the realities of modern, project-based work.” Traditionally, he explained, gratuity functioned as a long-term retention tool, which effectively excluded fixed-term workers.
“By lowering the threshold, the law ensures fairness, discourages artificially short contracts designed to avoid benefits, and gives fixed-term hiring greater legitimacy as a responsible workforce strategy,” Sharma added.
Job security
The mandatory issuance of appointment letters is one of the strongest formalisation measures in the new codes. The provision enhances clarity for employees who previously worked without written documentation. Sharma noted that written contracts “bring transparency and enforceable accountability, preventing arbitrary changes that often occurred in informal employment arrangements.”
The codes also introduce statutory parity, requiring fixed-term workers to receive wages, working hours, and benefits comparable to permanent staff, with pro-rated calculations where applicable. While fixed-term roles remain time-bound, parity provisions significantly enhance job security and reduce long-standing inequities.
Welfare boost
The reforms expand ESIC coverage, introduce minimum wage guarantees linked to a national floor wage, and strengthen occupational safety norms. Mandatory safety audits, hazard assessments, emergency planning, and stricter regulations for women’s working hours aim to create safer workplaces across factories, construction sites, and services.
Compliance costs
Employers will face a challenging transition as the broader definition of “wages” caps allowances at 50% of total pay, impacting PF, gratuity, and bonus calculations. Tighter overtime rules, unified registers, and higher penalties for non-compliance will require updated payroll and HR systems.
Overall, the new labour codes signal a decisive shift toward formalisation, transparency, and equitable treatment of workers. While employers navigate higher compliance costs in the short term, the long-term outcome is expected to be a more stable and inclusive labour ecosystem—one that finally extends long-awaited dignity, protection, and social security to millions of India’s fixed-term and vulnerable workers.