Fixed-term employment is hiring a worker directly on your own payroll under a written contract for a set period, on pay, hours and benefits no lower than a permanent worker doing the same or similar work. Section 2(o) of the Industrial Relations Code, 2020 defines it, and when the contract runs out the job ends without that counting as retrenchment.

The three conditions in the definition

• Parity. Hours of work, wages, allowances and other benefits cannot be less than those of a comparable permanent worker.
• Proportionate statutory benefits. The worker gets every statutory benefit a permanent worker gets, in proportion to service, even if the contract is shorter than the usual qualifying period.
• Gratuity after one year. The definition makes the worker eligible for gratuity after one year of service under the contract, instead of the usual five.

On gratuity, section 53 of the Code on Social Security, 2020 waives the five-year rule when fixed-term employment expires and requires pro-rata payment. Commentators disagree on whether a contract shorter than a year earns anything, so get advice before you pay or refuse in that case. “Wages” here follow the 50% wage rule. Example: a 20-month contract ending on Rs 40,000 a month in wages. Counting the 8 extra months as a full year (the more-than-six-months rule the Model Standing Orders, 2026 are reported to use), that is 2 years, and with the usual 26-day divisor gratuity is 40,000 x 15 / 26 x 2 = Rs 46,154. A strict pro-rata reading (20/12 years) gives Rs 38,462.

Where fixed-term contracts go wrong

The idea is not new: a 2018 amendment to the old standing orders rules extended fixed-term hiring from apparel manufacturing to every sector, and it barred converting existing permanent posts into fixed-term ones. The Code’s definition carries no such express bar, and unions have objected that this lets employers replace permanent jobs. Even so, rolling one worker through back-to-back renewals in a perennial role invites the argument that the contract is a sham and the worker is really permanent. Courts look at substance, not the label.

The other trap is early exit. Section 2(zh) excludes from retrenchment both completion of the fixed term and termination under a stipulation in the contract. If you end it early with no termination clause, you are on weaker ground, so write one in.

Frequently asked questions

Do we owe notice when the term ends?

No. The Model Standing Orders, 2026 say notice or pay in lieu is not due when a fixed-term contract expires or is not renewed. Early termination follows the contract’s own notice clause, worked out as in a notice period.

Is a fixed-term worker the same as contract labour?

No. A fixed-term worker is your own employee. Contract labour is supplied by a contractor, which brings in principal-employer duties under the old CLRA Act, now carried into the OSH Code.

Do PF and ESI apply from day one?

Yes, on the same wage tests as any employee. Tenure does not change coverage, so a six-month hire earning within the limits is enrolled on joining.

Work out an exit amount for a fixed-term worker in the gratuity calculator, then add the rest of the dues in the final settlement.