Gratuity Rules 2026 for Fixed‑Term, Contract & Gig Workers

The era of "join a company and retire there" is over. Today, the Indian workforce is powered by flexibility. From IT consultants on 2-year projects to delivery partners zooming through traffic, the "gig" and "contract" economy is booming. But for years, these workers faced a major disadvantage: they worked hard but left with zero long-term benefits because they rarely hit the 5-year milestone required for gratuity. That unfairness ends now.

With the Code on Social Security, 2020 coming into full effect from November 21, 2025, the rules have been rewritten (1). If you are a freelancer, a contract employee, or a gig worker, you are no longer just "temporary help." You are now a recognized part of the social security framework.

Here is what the Gratuity Rules 2026 mean for your wallet.

1. The Revolution: Gratuity for Fixed‑Term Employees (FTEs)

This is the biggest headline of the new labour codes. Previously, if you were hired on a fixed-term contract (say, for 3 years), you would leave with your salary and nothing else. The company saved money by not paying you gratuity because you didn't complete 5 years.

The New "1-Year" Rule

Under Section 53 of the new Code, Gratuity eligibility after 1 year is now the law for Fixed-Term Employees⁽²⁾.

• Old Rule: No gratuity unless you serve 5 continuous years.
• New Rule: FTE gratuity rules state that if you complete just one year of continuous service, you are entitled to gratuity on a pro-rata basis.

What Does "Pro-Rata" Mean?

It means you get paid for exactly what you worked for. You don't need to wait for a 5-year cliff.

• Example: You join a design firm on a 2-year contract.
• Outcome: When your contract ends, the company must pay you a gratuity calculated for those 2 years. They cannot say "you didn't stay for 5 years."

This move ensures that Gratuity for fixed‑term employees is treated on par with permanent employees, removing the financial incentive for companies to hire people on short contracts just to save costs⁽³⁾.

2. Contract Worker Gratuity Eligibility: No More Loopholes

"Contract labor" often meant "second-class employee." You did the same work as a permanent staffer but got fewer benefits. The new codes attack this disparity directly.

Parity is Mandatory

The new labour codes mandate that contract workers must receive service conditions, including hours of work, wages, and social security, similar to permanent employees doing the same work.

• Principal Employer Liability: If the contractor (the agency that hired you) fails to pay gratuity, the "Principal Employer" (the company where you actually sit and work) is liable to pay it.
• The Shift: Contract worker gratuity eligibility is now tightly linked to the 1-year rule if the contract is structured as fixed-term. The government aims to stop the "churn and burn" of contract staff⁽³⁾.

3. Gratuity for Gig / Flexible / Export Sector Workers

This is the most historic shift in Indian labour law. For the first time, terms like "Gig Worker" and "Platform Worker" are legally defined in the Code on Social Security, 2020⁽⁴⁾.

Are Gig Workers Eligible for Gratuity?

Technically, gig workers (like delivery partners or ride-sharing drivers) usually don't have a "salary" in the traditional sense, so standard gratuity formulas are hard to apply. However, the government has created a special mechanism for them.

The Social Security Fund:
Instead of direct gratuity from a single employer, the government has set up a Social Security Fund.

• Funding: Aggregators (the apps you work for) must contribute 1-2% of their annual turnover (capped at 5% of the amount paid to workers) into this fund⁽⁸⁾.
• Benefits: This fund will be used to provide Gratuity for gig / flexible / export sector workers, along with health and maternity benefits.⁽⁷⁾

So, while you might not get a "gratuity cheque" from your app manager when you quit, you are accruing benefits in a government-managed fund designed to protect you, a massive upgrade from having zero safety net.

4. How to Calculate Your Payout (FTE Edition)

If you are a Fixed-Term Employee, you don't need to guess. The math is straightforward, but remember the New wage definition for gratuity (50% rule) applies to you too.

The Formula: Gratuity = (15 ÷ 26) × Last Drawn Wages × Years of Service

Example Calculation:
You work as a Software Developer on a 3-year fixed contract.

• Monthly CTC: ₹80,000
• Basic Wages (50% of CTC): ₹40,000
• Years Worked: 3

Calculation:

• Gratuity = 15/26} x 40,000 x 3
• Gratuity = 23,076 x 3 = ₹69,228

Under the old rules, you would have received ₹0. Under the new rules, you walk away with nearly ₹70,000. This is why understanding FTE gratuity rules is critical before you sign your next contract.

5. What Should You Do Now?

For Employees (FTEs & Contract):

1. Check Your Contract: Does it explicitly state "Fixed Term Employment"? This specific wording is your golden ticket to 1-year gratuity eligibility.
   
2. Review Your Salary Slip: Ensure your "Basic + DA" is at least 50% of your total income. If not, your gratuity calculation might be lower than it should be ⁽⁵⁾.
   
   

For Employers:

The rise of the "Gig Economy" was supposed to lower costs, but the Social Security Code has added a compliance layer. You now have a liability to contribute to the Social Security Fund for gig workers and pay gratuity to FTEs who leave after just 12 months.

• The Risk: A sudden exit of multiple fixed-term contract staff can cause a cash-flow shock if you haven't funded the gratuity liability.
• The Solution: ABSLI Group Gratuity Plans are now essential not just for your permanent staff, but for your contingent workforce too. These plans allow you to offload the volatility of payouts and ensure you remain compliant with the aggressive new "2-day settlement" rules ⁽⁶⁾.

Don't let the new rules catch you off guard. Secure your compliance and your team's future with ABSLI.

Conclusion: A New Deal for the Modern Worker

The implementation of the Code on Social Security, 2020 marks a historic shift in India's employment landscape. For decades, the law rewarded only those who stayed in one place for years. But the workforce has changed, and finally, the laws have caught up.

The Gratuity Rules 2026 acknowledge a simple truth: work is work, whether it lasts for one year or ten.

For Fixed-Term Employees (FTEs) and contract workers, this is a financial liberation. You no longer have to worry that taking a short-term project means sacrificing your long-term benefits. For gig workers, it is the first step towards dignity and a formal safety net.

However, these rights come with responsibilities. Employees must be vigilant about their contract terms, and employers must be proactive about their funding. The liability for companies has grown, and managing it requires professional help.

Aditya Birla Sun Life Insurance (ABSLI) understands this shifting landscape. Our Group Gratuity Plans are designed to help employers manage these new, faster, and more frequent payouts without disrupting their cash flow.

Whether you are gigging, contracting, or hiring, secure your financial future with ABSLI today.