Types and Benefits of Employees Under the New Labour Code

India’s New Labour Codes, the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions (OSH) Code, 2020, seek to simplify and modernise the country’s labour and social-security framework. These codes aim to bring uniformity, expand welfare coverage and provide clarity regarding employee classifications and benefits.

This blog will explain the types of employees recognized under the New Labour Codes and the statutory benefits available to permanent employees, fixed-term employees and contractual/gig workers, with special focus on gratuity applicability.

Types of Employees Under the New Labour Codes

While the Codes define several categories of workers, the following three classifications are most relevant for understanding employment benefits: -

1 Permanent Employees

Permanent employees (regular or long-term employees) are engaged under open-ended employment arrangements. They are entitled to the full range of statutory benefits and protections under the Labour Codes.

2 Fixed-Term Employees

A fixed-term employee is appointed under a written contract for a specific duration.

Under the Industrial Relations Code, 2020, fixed-term employees are entitled to the same wages, allowances, working hours and other conditions of service as permanent employees, doing the same or similar work, on a proportionate basis.

3 Contractual Employees and Gig/Platform Workers

• Contractual employees: engaged either directly or through a contractor for specific work.
• Gig and platform workers: recognised for the first time under the Social Security Code, 2020 and include individuals working outside the traditional employer–employee relationships (e.g., delivery partners, ride-hailing drivers, freelancers operating via digital platforms).

While gig/platform workers are not classified as employees, the Code mandates creation of the social-security schemes specifically for them.

Applicability of Gratuity Under the New Labour Codes

The Code on Social Security, 2020 retains gratuity as a statutory right but introduces important reforms.

1 Gratuity for Permanent Employees

The long-established rules continue to apply: -

• Minimum 5 years of continuous service required (except in cases of death or disablement).
• Payable at termination, resignation, retirement, superannuation, disablement or death.
• Calculation: (15/26) × last drawn wages × completed years of service.

Where:

15 = 15 days’ wages (as fixed by the Act)

26 = number of working days in a month (used for calculation)

Last Drawn Wages = Basic Salary + Dearness Allowance

Completed Years = years of continuous service (rounded off as per rules)

• The Code introduces a uniform definition of “wages” to ensure transparency in gratuity calculations.

2 Gratuity for Fixed-Term Employees

A major reform under the Social Security Code, 2020: -

1. Fixed-term employees are eligible for gratuity without completing 5 years of service.
2. Gratuity becomes payable on:
• expiry of the fixed-term contract, or
• termination by the employer before expiry.
3. Payment is made proportionate to the period of service actually rendered (pro-rata gratuity).
4. The Code requires continuous service and practical interpretation of current rules indicates:

A minimum of 1 year of continuous service (i.e., 240 days of actual work in 12 months) is generally treated as the threshold for gratuity eligibility for fixed-term employees.

3 Gratuity for Contractual Workers and Gig/Platform Workers

1. Contractual employees engaged through contractors may become eligible for gratuity if they complete 5 years of continuous service, unless they are specifically appointed as fixed-term employees.
2. The responsibility for gratuity payment rests with the employer as per the contract structure.
3. Gig and platform workers:
• They are not eligible for traditional employer-funded gratuity, because they are not classified as “employees.”
• Instead, the Social Security Code mandates creation of a Social Security Fund financed by the government and aggregators for welfare schemes such as: -
       - life and disability cover
       - accident cover
       - old-age protection
       - health and maternity benefits
• The Code enables formulation of future welfare schemes, but does not guarantee gratuity or gratuity-like benefits.

Benefits Available Under the New Labour Codes

1 Benefits for Permanent Employees

Permanent employees enjoy the most comprehensive statutory protections: -

(a) Wages

• Minimum wages and equal remuneration
• Timely payment of wages
• Overtime entitlement under the OSH Code

(b) Social Security Benefits

• Employees’ Provident Fund (EPF)
• Employees’ State Insurance (ESI)
• Maternity benefits
• Gratuity (after 5 years)
• Bonus (where applicable)
• Pension under EPS (if eligible)

(c) Leaves and Holidays

• Earned, casual and sick leave
• Paid weekly holidays
• National and festival holidays

(d) Safety and Welfare

• Regulated working hours
• Health and safety standards under OSH Code
• Canteen, restrooms, crèche (where applicable)

(e) Job Protection

• Notice period and termination regulations
• Retrenchment compensation (for eligible establishments)

2 Benefits for Fixed-Term Employees

The Industrial Relations Code provides complete parity with permanent employees for the duration of their contract.

They are entitled to: -

• Equal wages and working conditions
• PF and ESI (if eligible under thresholds)
• Maternity benefits
• Proportionate leave
• Bonus (if applicable)
• Weekly offs and holidays
• Pro-rata gratuity on completion of contract
• Experience/service certificate upon completion

3 Benefits for Contractual Employees & Gig/Platform Workers

(a) Contractual Employees (through Contractors)

They are entitled to: -

• Minimum wages
• Timely wage payment
• PF and ESI (subject to eligibility)
• Bonus (if applicable)
• Leaves as per establishment rules
• Health, safety and welfare facilities under OSH Code
• Gratuity only if they complete 5 years of continuous service (unless fixed-term)

The principal employer has oversight responsibility to ensure contractors comply with statutory obligations.

(b) Gig and Platform Workers

Under the Social Security Code: - 

1. A dedicated Social Security Fund must be created by the government and aggregators
2. Schemes may include:
• life/disability cover
• accident insurance
• health and maternity benefits
• old-age protection
• skill development
3. Benefits depend on actual schemes notified by the government; as of now, traditional gratuity is not included.

Unified and Improved Provisions Under the Labour Codes

(a) Standardised Definition of Wages

A uniform wage definition (50% cap on allowances) applies to PF, gratuity, ESI, bonus and other benefits, ensuring consistency.

(b) Digital Compliance

• Online registrations
• Unified returns
• Simplified records
• Reduced compliance burden for employers

(c) Expanded Social Security

Recognition of gig/platform workers marks a structural shift towards universal social protection.

(d) Improved Gratuity Framework

Extending gratuity to fixed-term employees is one of the most progressive changes.

Conclusion

The New Labour Codes present a forward-looking framework designed to ensure fairness, parity and social protection for India’s diverse workforce. Permanent employees continue to receive comprehensive statutory benefits, while fixed-term employees now enjoy full parity and pro-rata gratuity without the five-year requirement.

Contractual employees receive wage, safety and welfare protections and gig/platform workers, though not traditional employees are now formally recognized under the social-security framework. If you need professional help, you may contact to Remind Legal, our experts will assist you in all corporate legal matters.

As implementation progresses through rules and notifications, employers should update HR policies, wage structures and also contract formats to ensure full compliance and to extend maximum welfare to all categories of workers.