What Are the New Rules for Gratuity Eligibility Under the New Labour Codes?

On Friday, the Centre announced the implementation of new labour codes when it amalgamated 29 labour legislation into four umbrella labour codes to transform the archaic regulation of factories and employees over decades.

The four labour Codes have updated regulations on working hours, gratuity, work-from-home set-up and also covers the provision of gig workers.

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"By modernising labour regulations, enhancing workers' welfare and aligning the labour ecosystem with the evolving world of work, this landmark move lays the foundation for a future-ready workforce and stronger, resilient industries driving labour reforms for Aatmanirbhar Bharat," read the statement.

What is gratuity?

Gratuity is a sum of money which is paid by an employer to the employee as a sign of gratitude to his/her long-term service.

Historically, it had to be paid when an individual was in five years of stable employment and when he/she retired, resigned or was dismissed.

The new labour laws however can permit after one year of service that one can be eligible in some conditions like employees of a fixed term contract.

What do the new labour codes say on the eligibility of gratuity?

One of the most notable changes is the relaxation of the requirement to have gratuity, a move that is likely to have a huge and varied workforce.

The previous regulations provided by the Payment of Gratuity Act allowed fixed-term employees to receive the benefit upon five consecutive years of service.

According to the PIB press release of the new labour codes, the new codes remove this requirement wherein the fixed-term employees (FTEs) can gain access to gratuity upon serving one year of service.

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In this case, it is suggested to achieve the balance between regular and fixed term staff. The new provisions ensure that FTEs receive the same pay rates, leave benefits, healthcare, and social security benefits as the permanent employees.

Moreover, half of the total compensation (or percentage that can be announced) will be re-calculated back to compute wages, and it will be consistent to calculate the gratuity, pension, and social security benefits.

Workers in the export industries will get gratuity, provident fund (PF) and other social security benefits will be given to workers on fixed term contracts.

The main assurances in the new labour codes.

The businesses are now able to hire employees to work in shifts of between 8-12 hours a day as long as the overall number of hours do not exceed 48 hours per week.

Previously, the number of hours per day was limited to 9 hours. Any extra time would be paid at two times the normal rate of wage.

Contractors are given the option of one licence that can accommodate them to work in the whole country and that can last a period of five years.

Gig and platform workers are formally defined by the new labour codes in the first instance, which means that they can now obtain social security benefits.

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