37,264 Startup Layoffs Later, India's Five-Year Gratuity Rule Faces Reckoning

Roughly 37,264 employees lost their jobs across at least 130 Indian startups between the start of the funding slowdown in 2022 and March 2024, according to Inc42's Indian Startup Layoff Tracker — a scale of churn that is quietly turning India's five-year gratuity rule into a policy problem.

The number is an industry-level indicator, not a census. It counts publicly reported events, not the whole workforce. But it points to something structural: employment continuity can no longer be guaranteed by either side of the table.

What do the layoff numbers show?

The disruption has continued year after year. Inc42 reported more than 17,000 startup job cuts in 2023 and more than 9,000 in 2024. Its subsequent reporting counted approximately 6,716 startup layoffs during 2025. For 2026, an independent tracker of reported technology-sector layoffs recorded 4,725 job cuts across Indian technology companies through September 14.

The backdrop is a tech sector that has shifted from aggressive talent competition to operational efficiency, cost optimisation and leaner workforces. Startups face funding pressure. Established firms restructure business units. Artificial intelligence is rewriting job responsibilities, skill requirements and workforce planning — creating opportunity on one side and displacement on the other.

Why five years of service can count for nothing

Under India's gratuity framework, regular employees generally must complete five years of continuous service with one employer to qualify, subject to statutory exceptions.

Consider an employee with four years and six months of service. They delivered projects, met performance expectations, supported customers, helped the organisation hit its objectives. Then a restructuring eliminates the position. The employee is asked to leave — and generally receives no gratuity.

The question is not whether employers should restructure. They should. The question is whether an employee should lose recognition for years of service because a business decision ends the employment before the fifth anniversary. Four years of service do not become worthless simply because they fall short of five.

What did the Labour Codes change?

The four Labour Codes took effect on November 21, 2025. The Code on Social Security, 2020 provides proportionate gratuity for eligible fixed-term employees after just one year of service.

That reform acknowledges a principle: accumulated service has value even when employment is not meant to last indefinitely. Yet the five-year requirement still applies to regular employees. Two workers doing comparable work for similar durations can have different gratuity outcomes purely because of their contract type.

What does this change for the individual worker?

For now, nothing legally. A regular employee who leaves — voluntarily or through redundancy — before five completed years forfeits gratuity. But the source argues the reform principle should extend further, and it sets out five options:

• Proportionate gratuity from year one, for all employment types.
• Extending the one-year threshold now reserved for fixed-term staff to regular employees.
• Protecting involuntary separations — layoffs, redundancy, project closures, automation — with proportionate payouts even before five years.
• Portability, letting accrued service follow a worker across successive employers, with careful design on funding, contributions, settlement and administration.
• Better data — India currently lacks public statistics on how many employees qualify, how many receive gratuity, how many leave early, and how many lose jobs to restructuring.

Can employers absorb it?

Proportionate gratuity from the first year would expand the number of entitled employees and may change financial provisioning requirements. The source frames this as designing a predictable social-security mechanism, not an unreasonable burden. Phased implementation, contribution mechanisms and clear statutory guidelines could let employers plan their obligations.

The argument comes at a moment when India's workforce is more mobile than the rule assumes. Employees change jobs for growth, relocation or family reasons; others have the decision imposed on them. A social-security benefit, the argument runs, should recognise contribution rather than retention. With the Labour Codes now in force, expect pressure to build on exactly that question.