Yes. Section 53 of the Code on Social Security 2020 removes the five-year qualifying period where employment ends because a fixed term expires, and pays the gratuity pro rata. The complication sits one level down. Rule 33 of the Social Security (Central) Rules 2026 makes a fixed-term employee eligible only after at least one year under the contract, and the eleven-month contract, common on Indian sites, sits just under that line.
What the Code says, in three places
The Code reaches the same result by three routes, and they agree with each other. Section 53(1) lists the "termination of his contract period under fixed term employment" as an event on which gratuity becomes payable. The second proviso to section 53(1) then provides that "the completion of continuous service of five years shall not be necessary" where termination is due to death, disablement, "expiration of fixed term employment" or a notified event. And the third proviso to section 53(2) says that for an employee on fixed term employment "the employer shall pay gratuity on pro rata basis".
The fourth route is in the definition itself, and it is the broadest. Fixed term employment is engagement on a written contract of employment for a fixed period, on two conditions that travel with the definition:
(a) his hours of work, wages, allowances and other benefits shall not be less than that of a permanent employee doing the same work or work of a similar nature; and (b) he shall be eligible for all benefits, under any law for the time being in force, available to a permanent employee proportionately according to the period of service rendered by him even if his period of employment does not extend to the required qualifying period of employment.
Clause (b) is written to cover exactly the case where the qualifying period is not reached. Read with section 53, the Code's position is that a fixed-term employee earns gratuity proportionately to the time served, whatever that time is. Clause (a) is the parity rule, and it matters here too: the wage the gratuity is computed on cannot be lower than a permanent employee's on the same work.
How the amount is worked out
Fifteen days' wages for every completed year of service, or part of a year in excess of six months, at the rate of wages last drawn (s.53(2)). For a monthly-rated employee the Code fixes the arithmetic itself: Explanation 3 to section 53 says the fifteen days' wages are calculated "by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen".
- A completed year is continuous service for twelve months (s.2(17)).
- Continuous service survives interruptions for sickness, accident, leave, lay-off, strike, a lock-out, or a cessation of work not due to the employee's fault (s.54(A)).
- The 240-day deeming rule. Where service is not continuous in that sense, an employee is deemed to have a year of continuous service if they actually worked at least 240 days in the preceding twelve calendar months, or 190 days below ground in a mine or in an establishment working fewer than six days a week (s.54(B)).
- Wages means the Code definition, with the 50% add-back for excluded components; the article on that rule on this site works through what it does to a gratuity base.
- The ceiling. ₹20 lakh, notified as S.O. 1420(E) dated 29 March 2018 under the Payment of Gratuity Act 1972 and carried forward by the savings clause in section 164(2)(a) until a fresh notification is made under section 53(3) [VERIFY: whether a fresh notification under s.53(3) has issued]. A fixed-term blue-collar roster will not come near it.
- Better terms survive. Nothing in section 53 affects an employee's right to better gratuity terms under an award, agreement or contract (s.53(5)).
Take a monthly Code wage of ₹15,600, a round figure chosen because it divides cleanly and not a rate this site quotes for anything. Divided by 26 it is ₹600 a day; fifteen days of that is ₹9,000 for each completed year. Every figure in the next table builds on that one number.
The one-year floor in the Rules
The Central Rules add a condition the Code does not contain. Rule 33(1)(a), which governs the application for gratuity, carries this proviso:
Provided further that an employee on fixed term employment shall be eligible for gratuity, if he renders service under the contract for a period of at least one year and for subsequent period in excess of six months and more, but less than one year, shall be rounded off to one additional year.
That creates a floor of one year and a whole-year rounding above it. Neither appears in section 53 or in section 2(34), which says the opposite on the floor in terms: eligible "even if his period of employment does not extend to the required qualifying period". The two readings give different numbers, and not always in the same direction.
| Contract length | Strict pro rata reading of s.53(2) | Rule 33 as notified | Difference |
|---|---|---|---|
| 7 months | ₹5,250 (7/12 of a year) | Nil, under one year | Rules pay ₹5,250 less |
| 11 months | ₹8,250 (11/12 of a year) | Nil, under one year | Rules pay ₹8,250 less |
| 12 months | ₹9,000 | ₹9,000 | None |
| 18 months | ₹13,500 (1.5 years) | ₹9,000 if exactly six months is not "in excess of six months"; ₹18,000 if "six months and more" is read to include it | Rules pay ₹4,500 less, or ₹4,500 more, depending on the reading |
| 19 months | ₹14,250 (19/12 of a year) | ₹18,000 (seven months rounds up to a second year) | Rules pay ₹3,750 more |
| 24 months | ₹18,000 | ₹18,000 | None |
The rounding cuts both ways above the first year, which is worth knowing before anyone assumes the Rules are simply less generous. The proviso's own wording adds a second ambiguity at exactly six months: "in excess of six months and more" can be read to exclude a remainder of exactly six or to include it, and the 18-month row swings by a full year's gratuity on that reading alone. Below the first year the Rules are categorical: nothing. And the eleven-month contract, which is often used precisely so that an engagement ends before a year runs, lands in the row where the two readings are furthest apart in proportion to what is owed.
There is a second argument inside the first. An eleven-month contract worked on a six-day week will usually clear 240 working days, and on the Code's own section 54(B) arithmetic that is a deemed year of continuous service. Rule 33 speaks of rendering service "for a period of at least one year", which reads as calendar duration rather than as the deemed year of section 54. Whether a worker with a deemed year but eleven calendar months has met rule 33 is itself unsettled.
Fixed-term is not contract labour
A fixed-term employee is the establishment's own employee, and the establishment owes the gratuity. The definition requires a written contract of employment for a fixed period, and the proviso ties the terms to a permanent employee of that establishment. A contract worker is employed through a contractor, and the contractor is an employer in its own right under section 2(27)(d). The two are often discussed together, and for gratuity they behave quite differently.
| Fixed-term employee | Contract worker | |
|---|---|---|
| Who employs | The establishment, on a written contract for a fixed period (s.2(34)) | The contractor, which is an employer under s.2(27)(d) |
| Qualifying period | None under the Code on expiry of the term (s.53(1), second proviso); one year under r.33 | Five years' continuous service, on the ordinary rule (s.53(1)) |
| Basis | Pro rata (s.53(2), third proviso) | Completed years, and part years over six months |
| Parity | Wages and benefits not below a permanent employee on the same work (s.2(34)(a)) | Governed by the contract labour provisions of the OSH Code, not by s.2(34) |
| Practical exposure | Payable on every expiry, from the first year (or earlier, on the Code reading) | Rarely reached, because a rotating contract workforce seldom accumulates five years with one contractor |
Two practical consequences follow. A site moving work from a contract crew onto fixed-term contracts takes on a gratuity liability it did not previously carry, from the first expiry, and should budget for it at the point of conversion rather than discover it at the first exit. And a chain of back-to-back fixed-term contracts raises the question whether the service is continuous across the renewals, which turns on whether the gap between contracts interrupts service under section 54. That is fact-specific and belongs with counsel [VERIFY: treatment of renewals was not researched for this piece].
Claiming and paying it
The procedure is in rule 33, and for a fixed-term employee the date gratuity becomes payable is the date the term expires. That is known on the day the contract is signed, which leaves no excuse for a late computation.
- The employee applies in Form-IV to the employer, ordinarily within thirty days of the gratuity becoming payable (r.33(1)(a)). A late application is still entertained on sufficient cause, and no claim is invalid merely because it was presented late (r.33(1)(e)).
- The employer answers in Form-V within fifteen days. If the claim is admissible, the notice states the amount and fixes a payment date no later than the thirtieth day after the application was received; if not, it gives the reasons, with a copy to the competent authority (r.33(2)(a)).
- Payment is by demand draft or bank credit to the employee, nominee or legal heir (r.33(3)).
- Compute before the end date, not after it. For a fixed-term exit the payroll desk has the whole contract period to prepare the figure. The computation, and the decision on which reading of rule 33 the employer is applying, should be on the file before the term runs out.
The sum on a single fixed-term exit is small. The sum across a roster that turns over every eleven months is not, and neither is the difference between the two readings once it is multiplied by every exit in a year.
Sources
- The Code on Social Security, 2020 (Act 36 of 2020), Gazette text hosted by the Ministry of Labour and Employment — s.2(17) (completed year of service), s.2(27)(d) (employer includes contractor), s.2(34) and its proviso (fixed term employment, parity and proportionate benefits without the qualifying period), s.53(1) and its second proviso, s.53(2) and its third proviso, s.53(3), s.53(5), Explanation 3 to s.53 (the ÷26 × 15 computation), s.54 (continuous service and the 240-day deeming rule), s.164(2)(a) (savings). Opened and read.
- The Social Security (Central) Rules, 2026, G.S.R. 344(E) dated 8 May 2026 — r.33(1)(a) and its second proviso (the one-year floor for fixed-term employees and the rounding above it), r.33(1)(e) (late applications), r.33(2)(a) (Form-V within fifteen days, payment by the thirtieth day), r.33(3) (mode of payment). Opened and read from a mirrored copy of the Gazette [VERIFY: against the e-Gazette original].
- Ministry of Labour and Employment notification S.O. 1420(E) dated 29 March 2018 under s.4(3) of the Payment of Gratuity Act 1972 — ₹20 lakh ceiling, as reproduced on the Tamil Nadu Labour Department's site [VERIFY: the notification itself was not opened; its continuation under the Code rests on s.164(2)(a)]