Gratuity for fixed term employees
A fixed term employee earns gratuity pro rata, and the five-year continuous service requirement does not apply where the contract simply expires. A one-year fixed term contract therefore attracts gratuity, where a permanent employee with the same service would get nothing.
Gratuity payable
₹11,538
12 months served · 1.00 years · 15/26 of monthly wages per year
Fixed term employee
₹11,538
Entitled on pro rata basis. The five-year rule does not apply where the contract expires.
The same person on a permanent contract
₹0
Five years of continuous service is not complete, so no gratuity would be payable to a permanent employee on this service.
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 apply where termination is on the expiry of fixed term employment. This is what makes a short contract qualify.
- 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.
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 It does not run on basic pay plus dearness allowance alone, which was the position under the repealed Payment of Gratuity Act, 1972.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.