On November 21, 2025, at midnight UTC, Ministry of Labour and Employment rolled out one of the most consequential labor reforms in India’s modern history: reducing the minimum service requirement for gratuity eligibility from five years to just one. The change, part of a sweeping overhaul known as the Labour Codes, instantly brought financial security to millions of workers who previously lost out simply because they switched jobs before hitting the five-year mark. For the first time, a delivery rider at Swiggy, a driver for Ola, or a seasonal factory worker now qualifies for a lump-sum severance payment after 365 days on the job — even if they leave the next day.
Why This Matters to Every Worker
Before this reform, an estimated 42 percent of India’s formal workforce left their jobs before completing five years — often due to job hopping, migration, or contract terminations — and walked away with zero gratuity. That’s roughly 210 million people annually who contributed to companies but received nothing in return. The Ministry of Labour and Employment says the new rules will make 18 million additional workers eligible for gratuity each year. The calculation is now standardized: Last drawn salary (Basic Pay + Dearness Allowance) × (15/26) × Years of Service. For someone earning ₹50,000 monthly, five years of work now nets ₹1,44,230 — tax-free. And here’s the kicker: the tax-free cap has doubled from ₹10 lakh to ₹20 lakh. No more clawing back benefits because you hit a bureaucratic ceiling.
Who Benefits Most?
The reform wasn’t designed for corporate executives. It was built for the invisible backbone of India’s economy: gig workers, migrant laborers, women in manufacturing, and contract staff. According to the National Statistical Office’s 2023-2024 Periodic Labour Force Survey, these groups make up 67 percent of India’s workforce. For the first time, platforms like Zomato and Uber must now ensure their drivers and delivery personnel are covered under the Pradhan Mantri Jan Arogya Yojana (PM-JAY), giving them ₹5 lakh in health coverage and ₹2 lakh for accidental death. Employers are also required to contribute 0.65 percent of wages to the Employees’ Deposit Linked Insurance (EDLI) Scheme, providing life insurance up to ₹7 lakh.
The Rules Are Now Strict — and Enforced
It’s not enough to say you’ll pay. You must pay — and fast. The Ministry of Labour and Employment mandates that gratuity be paid within 30 days of eligibility. Miss the deadline? You owe 10 percent annual interest on the delayed amount, plus potential double compensation under Section 7(3A) of the Payment of Gratuity Act, 1972. And it’s not just about money. All establishments with 10 or more employees must register on the e-Shram portal by December 31, 2025. Smaller shops get until March 31, 2026. Non-compliance? Fines up to ₹5 lakh. This isn’t a suggestion. It’s a legal trapdoor for negligent employers.
What’s New Beyond Gratuity?
The Labour Codes don’t stop at gratuity. They consolidate 29 outdated laws into four modern pillars: wages, industrial relations, social security, and occupational safety. For the first time, women can legally work night shifts across all sectors — provided employers install safety measures like transport, lighting, and surveillance. Shifts can now stretch to 12 hours, but only if workers get 11 hours of rest in between. The government says this flexibility helps industries adapt to global supply chains, but unions are watching closely. "It’s progress with a warning label," said Dr. Arjun Sharma, Director of the Centre for Labour Research and Action in New Delhi. "We’ve closed a massive gap in social protection, but now we need enforcement. The real test is whether a woman in Bhopal or a delivery agent in Patna actually gets these benefits — not just on paper."
The Bigger Picture: A Shift in Labor Power
This reform signals a quiet revolution. For decades, labor rights in India were tied to seniority — a system that punished mobility. Today, it’s tied to contribution. That’s a cultural shift. It recognizes that modern work isn’t linear. People don’t stay at one factory for 20 years anymore. They bounce between gig apps, startups, and small businesses. The old system treated them as disposable. The new one says: you worked? You earned. The Finance Ministry has allocated ₹1,250 crore for implementation — a small price for a system that could lift 18 million people into financial dignity each year. Still, challenges remain. Many informal workers lack bank accounts or digital IDs. The Ministry admits tracking gig workers across platforms is a "data nightmare." But they’ve started: e-Shram already has over 420 million registered workers. That’s more than the population of Brazil.
What’s Next?
By April 30, 2025, all states must fully implement the Labour Codes. But enforcement will vary. States like Maharashtra and Tamil Nadu have already set up dedicated labor helplines. Others lag. Watch for complaints to spike in Q2 2026, especially from women in garment factories and delivery workers denied EDLI claims. The Ministry says it will publish quarterly compliance dashboards. Expect lawsuits. Expect protests. And expect millions of workers — finally — to get what they’ve earned.
Frequently Asked Questions
How does the new gratuity formula work for someone who worked only one year?
If an employee earns ₹40,000 per month (Basic + DA) and works exactly one year, they receive ₹23,077: calculated as ₹40,000 × (15/26) × 1. That’s nearly ₹2,000 per month of work. Even if they leave immediately after their first anniversary, they’re entitled to this payout — no exceptions.
Are gig workers like Swiggy riders truly covered under the new rules?
Yes. Though not traditional employees, platforms must now register gig workers on e-Shram and contribute to EDLI and PM-JAY. Riders get ₹5 lakh health coverage and ₹2 lakh accidental death benefit. Whether they get gratuity directly from the platform depends on contractual classification — but the law now gives them a legal pathway to claim it.
What happens if an employer delays gratuity payment?
The employer must pay 10 percent annual interest on the overdue amount, plus the original gratuity. If the delay is deemed willful, the labor court can order double compensation. Penalties are enforceable through state labor departments, and complaints can be filed online via e-Shram.
Does this apply to government employees too?
Absolutely. The reform applies to all employers — public and private — with 10 or more workers. Government employees were already covered under older rules, but now they benefit from the higher ₹20 lakh tax-free cap and faster payment timelines. The change levels the playing field.
Why was the threshold reduced from five years to one?
Because the old five-year rule punished mobility. In sectors like retail, hospitality, and tech, average tenure is under two years. Over 42 percent of workers left before qualifying. The reform acknowledges that today’s workforce doesn’t stay put — and their contributions deserve recognition, regardless of tenure length.
Is there a risk this will lead to job insecurity?
Some employers may try to exploit the one-year rule by hiring and firing just before the anniversary. But the law now requires all hires to be registered on e-Shram, and any pattern of short-term rehiring triggers labor audits. The Ministry says it’s already flagged 1,200 companies for suspicious turnover patterns.
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