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Fixed-term Gratuity: The One-year Rule and Contractor Distinction

Apply the Ministry's 2026 FAQ to direct fixed-term contracts, partial service and ordinary employee comparisons.

GHR Editorial Team
8 October 20262 min readReviewed and updated
#fixed-term#gratuity#Labour Codes#contract labour

The Ministry's 2026 additional Labour Code FAQ states that a fixed-term employee becomes eligible for gratuity after rendering one year of service under the contract. That clarification matters when a calculator assumes that every short contract earns statutory gratuity.

A direct fixed-term employee is not any contractor worker

The Ministry distinguishes employees directly engaged by the employer from contract labour engaged through a contractor. Calling a contractor worker “fixed term” does not itself transfer them to the direct fixed-term gratuity rule.

Check actual service

Keep the written contract, its start date and actual final working date. An eleven-month contract does not meet the one-year condition described in the FAQ. An early exit from a longer contract also requires inspection of actual service rather than the proposed term alone.

Use the statutory wage

The Code's wage definition and any required add-back affect the base. A headline CTC or basic salary percentage is not automatically the correct gratuity wage. The statutory wage structure checker exposes components; the fixed-term calculator then applies the service assumption.

Compare ordinary employment carefully

Ordinary resignation or retirement generally uses five years of continuous service. Death and disablement have exceptions. Those exceptions should not be flattened into “permanent employees always get nothing under five years.” Preserve the exit reason and service history in the calculation.

Include it in an exit schedule

The final settlement tool keeps gratuity separate from unpaid salary, notice pay and leave encashment. Employer gratuity provisioning inside CTC is a cost estimate; it does not by itself decide the statutory amount payable on exit.

Official sources and scope

Source review: 2026-10-08. Check the relevant notification and your own records before filing or settling an entitlement.

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