Gratuity for fixed term employees
A fixed term employee earns gratuity pro rata, and the five-year continuous service requirement does not applywhere the contract simply expires. A one-year fixed term contract therefore attracts gratuity, where a permanent employee with the same service would ordinarily not qualify on resignation. The Ministry's 2026 FAQ specifies at least one year of actual service under a direct fixed-term contract.
Gratuity payable
₹11,538
12 months served · 1.00 years · 15/26 of monthly wages per year
One year of service is met. Pro-rata estimate for direct written fixed-term employment; confirm the qualifying exit and statutory wage.
Fixed term employee
₹11,538
Pro-rata estimate after one year of actual service. Confirm a qualifying contract expiry; early termination needs separate review.
The same person on a permanent contract
₹0
Five years is not complete for ordinary resignation. Death, disablement and disputed continuous-service cases require separate review.
Where this comes from
- Section 53(1)(d) — gratuity is payable on termination of the contract period under fixed term employment. It is a listed trigger in its own right, separate from superannuation, resignation or retirement.
- Second proviso to s.53(1) — the requirement of five years continuous service does not applywhere termination is on the expiry of fixed term employment. The Ministry's 2026 FAQ specifies one year of service under the contract.
- Third proviso to s.53(2)— “in the case of an employee employed on fixed term employment or a deceased employee, the employer shall pay gratuity on pro rata basis.”
- Section 2(34) — fixed term employment is engagement on a written contract for a fixed period, and such an employee is entitled to all benefits proportionately to the period of employment. Contractor-deployed workers are not automatically direct fixed-term employees.
Reviewed 2026-10-08. Ministry of Labour 2026 FAQ · Code on Social Security
Worth checking before you rely on this
- · There must be a written contract for a fixed period. An oral arrangement, or a rolling engagement with no fixed end, is not fixed term employment under s.2(34) and the ordinary five-year rule applies instead.
- · The statutory maximum payable is ₹20,00,000. The ceiling in the Code is “such amount as may be notified”, and that figure has not been confirmed against a notification made under the Code — treat it as indicative.
- · Continuous service is counted differently in some cases. Confirm how the period is computed for the particular engagement.
On the wage base. Gratuity runs on the statutory definition of wages in s.2(88) — basic pay plus dearness allowance, together with any amount added back where excluded allowances exceed one half of remuneration. It does not run on basic pay plus dearness allowance alone, which was the position under the repealed Payment of Gratuity Act, 1972. This is computed on the rate of wages last drawn. Position stated as at 2026-09-25.
Using fixed term contracts?
The Code made fixed term employment a statutory concept and gave it entitlements that many employers have not priced in. GHR reviews your contracts, confirms what each engagement attracts, and advises on the documentation.