Reforming Gratuity Rights in India: A Critical Study of the One-Year Rule for Fixed-Term Workers under the Code on Social Security 2020

Gratuity has long been treated in India as a reward for loyalty and long service, payable only after an employee completes five years of continuous work with one employer. This rule, contained in the Payment of Gratuity Act 1972, left out a large and growing section of the workforce, namely fixed-term and contractual workers, who rarely stay with one employer for five years, even though they contribute the same effort as permanent staff. The Code on Social Security 2020 attempts to correct this gap. Section 53 of the Code retains the five-year rule for regular employees. Still, it creates a separate, much shorter path for fixedterm employees, who may become eligible for gratuity on a proportionate basis after completing just one year of service, or on the expiry of their contract, whichever the law is read to intend. This paper examines the historical background of gratuity law in India, the reasons behind the introduction of the one-year rule, and the manner in which Section 53 has been drafted. It argues that while the reform is a welcome and overdue step toward treating fixed-term workers fairly, its language is unclear on the precise trigger for eligibility, its implementation has been delayed because States have not framed matching rules, and its benefits may be limited by the continuing exclusion of small establishments and by the risk that employers structure contracts to fall just short of one year. The paper closes with concrete suggestions, including an anti-avoidance rule for repeated short-term contracts, a firm timeline for State rulemaking, and simpler guidance on calculating pro rata gratuity, so that the promise of the 2020 reform is not lost in practice.