A fixed term employee's gratuity is due when the contract ends, not at five years. One year under the contract qualifies, and any part of a year over six months counts as a full one. Here is the contract, the arithmetic and the notice.
Six formats. Pair the contract with the nomination form once the year is served.
In writing, for a fixed period, with parity on hours, wages and allowances, and the gratuity clause stated. It differs from a permanent employment agreement in exactly those places.
Extends the term in writing before it lapses and records the original start date, so service is counted from the day it actually began.
Ends the contract on its date, with the gratuity amount stated. It is not a retrenchment, which is what separates it from the other exit letters.
Service counted with the six-month rounding, wages built the way the Code defines them, the same wage base as the per-day salary sheet, then fifteen days per year.
The prescribed notice of the amount payable, with the brief statement of calculation the form asks for, ready to send with a copy to the competent authority.
Gratuity is paid on the wages last drawn. Attendo keeps each employee's salary structure and attendance in one record.
Because fixed term hiring was mostly priced on the assumption that a short contract earns no gratuity. Since the Code on Social Security came into force on 21-Nov-2025, a contract of two years earns two years of it, paid at the end of the contract.
Section 53(1) still sets five years of continuous service for everyone else, and the gratuity rules for permanent staff have not moved. But its second proviso says five years is not necessary where employment ends on the expiration of fixed term employment, and the third proviso to section 53(2) pays it pro rata.
Pro rata does not mean per day. Rule 33(1)(a) of the Social Security (Central) Rules, 2026 makes a fixed term employee eligible after at least one year under the contract and rounds a further period of more than six months up to a full year. A contract of 2 years 7 months at a hospital, a plant or a software firm is three years of gratuity. One of 2 years 5 months is two.
The contract also has to stand up. Both Codes define fixed term employment as engagement on a written contract for a fixed period, on hours, wages, allowances and other benefits not less than a permanent employee doing the same or similar work. The job description is usually what proves whether the work is the same.
Two things this page does not settle. Whether a fixed term employee who leaves early, after a year, is owed gratuity: the Code waives five years only on expiration, while the rule speaks of service under the contract. And whether a chain of short renewals is counted contract by contract or as continuous service. The pack says which reading it builds on and why, alongside the wider labour code changes.
Each one moves the number on the cheque, and none of them is in an old fixed term template.
| The step | Figure | How | Why | Provision | Format |
|---|---|---|---|---|---|
| Total monthly remuneration | ₹40,000 | everything paid | What the proviso measures against | s.2(88) | 04 |
| Basic, DA, retaining allowance | ₹16,000 | in wages by name | The rest is ₹24,000 | s.2(88) | 04 |
| Excess over one-half, added back | ₹4,000 | 24,000 less 20,000 | Wages become ₹20,000 | s.2(88), first proviso | 04 |
| Years: 2 yrs 7 mths | 3 | 7 months is over 6 | Rounded up to a full year | rule 33(1)(a) | 04 |
| Gratuity: 20,000 ÷ 26 × 15 × 3 | ₹34,615 | within 30 days | Notice in Form-V | s.53(2), s.56(3) | 05 |
Rule 33(1)(a) makes a fixed term employee eligible for gratuity after at least one year under the contract. It binds the Central sphere, which under section 2(3)(a) includes any establishment with branches in more than one State.
Source: Social Security (Central) Rules, 2026, rule 33(1)(a), second provisoAfter the first year, a further period of more than six months is rounded off to one additional year. Six months or less adds nothing. That is the difference between two years of gratuity and three on the same contract.
Source: Social Security (Central) Rules, 2026, rule 33(1)(a), second provisoFailing to pay gratuity an employee is entitled to is an offence under section 133(g), punishable with imprisonment of up to one year, a fine of up to fifty thousand rupees, or both. A repeat carries two to three years and a fine of three lakh rupees under section 134.
Source: Code on Social Security, 2020, s.133(g) with (ii), s.134The second proviso to section 53(1) removes the five-year condition where employment ends on the expiration of fixed term employment. The gratuity falls due when the contract ends.
Rule 33 counts in years. A further period of more than six months is a full year and six months or less is nothing, so a day-by-day pro rata pays the wrong amount in both directions.
A chain of contracts each under a year, with no break between them, is uninterrupted service under the same employer. Whether the year is counted per contract is not settled, and a design built on the answer being yes carries that whole risk.
Gratuity runs on wages as section 2(88) defines them. Where pay outside basic, dearness allowance and retaining allowance exceeds half of all remuneration, the excess is deemed wages and added back.
Section 56(2) requires the employer to work out the amount and give written notice as soon as gratuity becomes payable, whether or not the employee applies, alongside the relieving letter.
Both Codes require a fixed term employee's hours, wages, allowances and other benefits to be not less than a permanent employee doing the same or similar work. A lower rate for the same job is outside the definition.
Written before the Codes
Six formats, built on section 53
Counting the service, building the wage and paying on time is the rest. Attendo keeps the salary structure and attendance together.
Attendo (formerly Petpooja Payroll) is payroll and attendance software used by 40,000+ businesses across manufacturing, corporate offices, retail, hospitals and education. This template is one of our free HR downloads, each built from the gazette rather than from other templates.
Six formats, the contract, the worksheet and Form-V, in editable Word. Free, and no card.
