New labour codes and samvida workers: gratuity in one year, wages by the 7th and removal rules

Most samvida and outsourced workers in Uttar Pradesh have spent years hearing that labour law “doesn't really apply” to them because they are temporary, on contract or employed by an agency. The new labour codes make that argument much weaker. They also introduce one change that matters to almost every contract worker: gratuity no longer needs five years if you are on a fixed-term contract.

This guide explains what changed, who it applies to, how to calculate what you are owed, and what protection you have if your contract is ended or not renewed.

The four codes at a glance

Do the codes apply to you?

It depends on how you are engaged:

• Outsourced through an agency (including agencies working with UPCOS): you are an employee of the agency, which is an establishment. The codes clearly apply — wages, social security, appointment letters and the contract-labour rules.
• Directly on contract with a department, corporation or authority: most wage and social-security protections apply, but some benefits, such as gratuity, can depend on whether your engagement is governed by separate service rules. Public-sector corporations and local bodies are generally covered like other employers.
• Honorarium workers under schemes (shiksha mitras, anudeshaks and similar): scheme guidelines usually govern pay and leave, and these workers are often treated as outside the definition of an “employee”. Courts have taken different views, so check the specific scheme.

Gratuity: one year instead of five for fixed-term staff

Under the old Payment of Gratuity Act, nobody got gratuity before five years of continuous service. The Code on Social Security keeps five years for permanent employees, but a fixed-term employee — someone employed directly for a set period, with a fixed end date — is entitled to gratuity on a pro-rata basis once they complete one year of service. Gratuity must be paid within 30 days of becoming due; late payment attracts interest.

How to calculate it

The usual formula is:

Gratuity = last drawn monthly wages × 15 ÷ 26 × years of service

“Wages” for gratuity follow the codes' new definition: basic pay and dearness allowance, and at least 50% of total pay. For a worker paid a single fixed honorarium, the whole amount is usually wages. Gratuity up to ₹20 lakh is tax-free for non-government employees.

Wages: deadlines, deductions and equal pay

• Payment date: for monthly wages, before the 7th day of the following month. (For UPCOS staff, the state's own target is even earlier: between the 1st and 5th.)
• Final settlement: when you resign, are removed, retrenched or your contract ends, your dues must be paid within two working days.
• Deductions: only those the law allows — such as your EPF and ESIC share, recovery of advances, or fines approved under the rules — and never more than 50% of wages in a month.
• Equal pay: no discrimination between genders in pay or recruitment for the same or similar work.
• Minimum and floor wage: wages cannot be below the notified minimum wage for your category and area, and states cannot set minimum wages below the national floor wage. See our 2026 salary guide for current UP rates.

Contract labour: the principal employer's responsibility

The OSH Code's contract-labour chapter now applies where an establishment engages, or a contractor deploys, 50 or more contract workers (the old threshold was 20). Where it applies:

• The principal employer — the establishment where you actually work — must use licensed contractors and is responsible if the contractor fails. If your agency doesn't pay wages, the principal employer has to pay you and recover the amount from the contractor.
• The principal employer must ensure welfare facilities: drinking water, rest rooms, first aid and canteens where required.
• Contract labour should not be used for an establishment's core activities, except where the work is ordinarily done through contractors, does not need full-time workers, or is a sudden short-term surge.

A note of caution from the codes themselves: a contract worker usually cannot raise an industrial dispute directly against the principal employer unless the contract is a sham and the principal employer in fact controls and supervises the work. That is exactly what the Supreme Court found in the Ghaziabad gardeners' case discussed in our regularisation guide.

Protection against sudden removal

Notice and compensation (Industrial Relations Code)

A “worker” with at least one year of continuous service — normally 240 days of work in the preceding twelve months — cannot be retrenched without:

• one month's written notice with reasons, or one month's wages in lieu of notice;
• retrenchment compensation of 15 days' average pay for every completed year of service (and any part of a year above six months); and
• a further 15 days' last-drawn wages paid by the employer into a worker re-skilling fund for that worker, to be credited within 45 days.

The Code also says that the end of a fixed-term contract on its expiry, without renewal, is not retrenchment — which is why non-renewal disputes often turn on whether the “fixed term” was genuine or a device to avoid regular employment.

When the government is the employer

Where you are engaged directly by the state or a public body, the Constitution adds another layer. In Bhola Nath v. State of Jharkhand (January 2026), the Supreme Court held that the state cannot end long, satisfactory contractual service merely by invoking contract terms; it must act fairly and give cogent reasons. Earlier, in Shripal v. Nagar Nigam, Ghaziabad (January 2025), it found the removal of long-serving daily-wage gardeners — while their dispute was pending before the conciliation officer — unlawful.

UPCOS rules for outsourced staff

For outsourced staff in UP government departments, the corporation framework announced at the September 2026 launch says arbitrary removal is prohibited: an agency cannot remove an employee on its own, and action for indiscipline or misconduct needs the consent of the department or institution and the corporation. The cabinet's 2025 approval also allows service to be ended immediately if a serious irregularity is found — so the protection is against arbitrary removal, not against any removal.

A sector example: UP's power corporations

In October 2026, reports said UP Power Corporation's management and an outsourced employees' union had agreed in talks that contract workers could continue up to the age of 60 (with a fitness certificate after 55), and that workers removed during earlier retrenchment could be re-engaged if they had no record of misconduct. No government order had been published with those reports, so treat them as an agreement in progress rather than a rule.

What to do if you are removed or not renewed

1. Ask for the order in writing, with reasons. Don't sign a resignation letter or a blank paper you are handed.
2. Collect your documents: appointment and renewal letters, pay slips, bank statements, attendance records, EPF (UAN) and ESIC details.
3. Claim your final dues — unpaid wages within two working days, leave encashment where applicable, and gratuity if you qualify. Keep your PF account active or transfer it rather than withdrawing everything at once.
4. File a grievance on the UPCOS system if you are outsourced staff in a state department. See our grievance filing guide.
5. Approach the Labour Department (conciliation officer) about illegal retrenchment or unpaid dues, or consult a lawyer about a writ petition if the state was your direct employer.
6. Don't wait. Delay weakens claims, and some remedies have time limits.

Sources

• Business Today — New labour codes: who qualifies for gratuity after one year (25 November 2025)
• EY — Labour codes implemented across the country from 21 November 2025
• BDO India — Benefits for fixed-term contractual employees under the new codes
• Aparajitha — Contract labour compliance after the labour codes
• Indian Pay Calculator — Retrenchment compensation and re-skilling fund under the IR Code
• Free Press Journal — UPCOS launch: removal rules and services (2 September 2026)
• IBC24 — UP power sector contract workers: service till 60 and re-engagement (12 October 2026)
• Verdictum — Bhola Nath v. State of Jharkhand (2026 INSC 99)