India’s four Labour Codes — Code on Wages, 2019; Industrial Relations Code, 2020; Occupational Safety, Health and Working Conditions Code, 2020; and Code on Social Security, 2020 are now fully in force nationwide. Together, they fundamentally reshape wage parity, contract labour regulation, and fixed‑term employment protections.
The central question facing millions of Indian workers today is: Can employers legally pay contract or fixed‑term staff less than permanent employees for the same work?
The short answer is no — but the full legal picture contains important nuances that every employee and employer must understand.
1. The Legacy Two‑Tier Matrix: How Wage Disparity Became Normalised
Before the new codes, India’s workforce was effectively divided into two classes:
- Permanent employees: Full wages, regular increments, statutory benefits, job security.
- Contract/temporary staff: Often lower pay, fewer benefits, no gratuity, despite performing identical duties.
The Contract Labour (Regulation and Abolition) Act, 1970 technically required wage parity if contract labour performed the same or similar work. However, enforcement was notoriously weak. Employers routinely manipulated job titles, redesigned responsibilities, or relied on the “Standard Air Filter” doctrine which treated contract labour as operating through a distinct establishment to avoid parity obligations.
This two‑tier system left millions of contractual workers earning significantly less than their permanent counterparts, performing the same roles, often sitting side by side.
2. The New Era: Fixed‑Term Employment (FTE) — A Game Changer
Definition under the Industrial Relations Code
Under Section 2(o) of the Industrial Relations Code, 2020, a fixed‑term employee is defined as “the engagement of a worker on the basis of a written contract of employment for a fixed period.”
Unlike traditional contract labour engaged through third-party contractors, FTEs are directly engaged by the employer through a written contract for a predetermined duration. The employment automatically concludes upon the expiry of that period.
The Parity Mandate — This Is Critical
The IR Code establishes a clear, enforceable principle: a fixed‑term employee is entitled to the same hours of work, wages, allowances, and other benefits as a permanent worker doing either the same or similar work.
Example: A one‑year fixed‑term software engineer must receive the same base salary, statutory benefits, and allowances as a permanent software engineer in the same role. No differential is permitted based solely on employment status.
Gratuity Entitlement for FTEs
Under Section 53 of the Code on Social Security, 2020, the government has reduced the eligibility requirement for gratuity for fixed‑term employees from five years to one year. In cases where the employee completes one year of continuous service, gratuity shall be applicable on a proportionate basis.
This benefit, previously available only to permanent employees, now extends to fixed‑term workers, significantly enhancing their social security coverage.
3. Contract Labour Under the OSHWC Code
Applicability Threshold
The OSHWC Code’s provisions on contract labour; Sections 45 to 58 apply to all establishments where 50 or more contract labourers are employed, or were employed on any day of the preceding 12 months. This threshold has been raised from the earlier standard of 20 workers under the CLRA Act.
Wage Parity Mandate
Chapter XI of the OSHWC Code establishes that principal employers must ensure wage parity if contract labour performs core, perennial, or identical work.
Liability Transfer — The Enforcement Hammer
If contractors fail to pay equal wages to contract labour, the principal employer is legally responsible for making up the difference. The principal employer may then recover the amount paid from the contractor.
This liability transfer creates a powerful compliance incentive for principal employers to ensure their contractors are paying fair wages.
4. The Test of Objectivity: What Is “Same or Similar Work”?
Authorities assess whether work qualifies as “same or similar” using four objective metrics:
| Metric | Description |
| Nature of duties | The actual tasks and responsibilities performed |
| Skill and expertise | The level of qualification, training, and experience required |
| Effort and responsibility | Physical, mental, and supervisory demands of the role |
| Working conditions | Environment, hazards, hours, and location of work |
If these factors align; if a contract worker is performing the same tasks, requiring the same skills, under the same conditions then wage disparity based solely on employment status is unlawful.
5. When Pay Differences Are Permissible
Not every wage differential is illegal. Employers may justify pay differences if they are based on objective, documented, and non‑discriminatory criteria:
| Permissible Reason | Example |
| Experience / tenure (seniority) | A permanent employee with 10 years of experience earns more than a newly hired FTE with 1 year of experience — this is lawful. |
| Merit / performance | A higher performer receiving a performance‑linked bonus or increment is permitted. |
| Geographic differentials | Workers in Mumbai may receive higher cost‑of‑living allowances than workers in smaller cities — this is permitted if uniformly applied. |
| Local wage notifications | Compliance with minimum wage notifications applicable to specific locations is mandatory and can create lawful differentials. |
Key Principle: The prohibition is against discrimination solely on the basis of employment status (permanent vs. contract/FTE). If the differential is justified by objective factors, it is permissible.
6. Penalties for Non‑Compliance (With Legal Sections)
The codes establish a robust penalty framework for employers who violate wage parity provisions.
Code on Wages, 2019 — Section 54
| Offence | Section | First Offence | Repeat Offence (within 5 years) |
| Pays less than amount due (includes wage parity violations) | 54(1)(a) & 54(1)(b) | Fine up to ₹50,000 | Imprisonment up to 3 months OR fine up to ₹1,00,000 OR both |
| Contravenes any other provision (other violations) | 54(1)(c) & 54(1)(d) | Fine up to ₹20,000 | Imprisonment up to 1 month OR fine up to ₹40,000 OR both |
| Improper maintenance of records | 54(2) | Fine up to ₹10,000 | (Falls under other provisions category) |
OSHWC Code, 2020 — Penalties
General contravention of the OSHWC Code by employers carries a penalty of ₹2,00,000 to ₹3,00,000. For serious violations, penalties can escalate significantly, with potential imprisonment for repeated or major contraventions.
Industrial Relations Code, 2020 — Unfair Labour Practices
Under Section 86(5), any person who commits an unfair labour practice as specified in the Second Schedule shall be punishable with a fine which shall not be less than ₹10,000, but which may extend to ₹2,00,000.
Unfair labour practices include artificial breaks in service, discriminatory treatment between permanent and contract workers, and other practices designed to evade statutory benefits.
Procedural Safeguard for First‑Time Violations
Under Section 54(3) of the Code on Wages, 2019, before initiating prosecution for a first‑time contravention, the Inspector‑cum‑Facilitator must give the employer a written direction to comply. If the employer complies within the specified period, prosecution will not be initiated.
However, this safeguard does NOT apply to repeat offences within five years.
7. Special Note: Gender‑Neutral Equal Remuneration
The Code on Wages, 2019 prohibits discrimination in wages not only on the basis of employment status but also on the basis of gender. Employers cannot pay men and women differently for the same work or work of a similar nature.
This provision, which subsumes the earlier Equal Remuneration Act, 1976, extends to recruitment processes as well; discrimination against women in recruitment for the same work is also prohibited.
8. Code on Social Security, 2020 — May 2026 Update
On 8 May 2026, the Ministry of Labour and Employment formally issued the Social Security (Central) Rules, 2026, which supersede multiple legacy rules including the Payment of Gratuity (Central) Rules, 1972. Key implications include:
- Uniform application of social security provisions for central establishments
- Digital registration mandates on the Shram Suvidha Portal
- Clearer procedural frameworks for claims and enforcement
For fixed‑term employees, these rules reaffirm the pro‑rata gratuity entitlement after one year of continuous service, with actual service period counted without rounding.
9. Employee Action Checklist – FREE
If you are a fixed‑term or contract worker and believe you are being paid less than permanent staff for the same work:
- Document the disparity — Collect payslips, appointment letters, and role descriptions comparing your compensation with permanent colleagues in similar roles.
- Review your contract — Does your contract explicitly state your employment status (fixed‑term / contract)? Does it reference parity obligations?
- Raise the issue internally — A formal query to HR regarding compliance with Section 2(o) of the IR Code (for FTEs) or Chapter XI of the OSHWC Code (for contract labour) often prompts corrective action.
- File a claim — Approach the appropriate authority under the Code on Wages (Section 45 claims process) for recovery of wrongfully withheld wages.
- Seek compensation — Authorities may order unpaid wages + compensation up to ten times the claim amount.
- Appeal if necessary — Within 90 days to the appellate authority if unsatisfied with the initial decision.
10. Strategy for HR & Legal Leaders – FREE
For employers seeking to maintain compliance:
| Action | Why It Matters |
| Audit your pay scales | Identify any unjustified disparities between permanent and fixed‑term/contract staff performing similar work. |
| Formalise FTE structures | Ensure fixed‑term employees are engaged directly under written contracts that explicitly reference parity obligations. |
| Document differentials | If pay differences exist, document the objective, measurable justification (seniority, merit, geography, etc.). |
| Budget for gratuity | For FTEs who complete one year of service, allocate pro‑rata gratuity in your financial planning. |
| Monitor contractor compliance | For contract labour, ensure your contractors are paying equal wages — remember, principal employer liability applies if they fail. |
| Update policies post‑May 2026 | Align HR policies with the Social Security (Central) Rules, 2026 and the penalty frameworks. |
Final Thoughts
The question “Can my company pay me less than permanent staff?” now has a clear legal answer: No — not if you are performing the same or similar work.
Under the new labour codes — the Code on Wages, 2019; Industrial Relations Code, 2020; OSHWC Code, 2020; and Code on Social Security, 2020 wage parity is not optional. It is a statutory obligation backed by:
- Financial penalties (fines up to ₹2‑3 lakhs under OSHWC Code)
- Imprisonment (up to 3 months for repeat wage parity violations)
- Unfair labour practice sanctions (fines up to ₹2 lakhs under IR Code)
- For employees: Know your rights. If you are a fixed‑term employee under a direct contract, the IR Code guarantees you the same wages, allowances, and benefits as permanent staff doing similar work. If you are contract labour, the OSHWC Code places the compliance burden not just on your contractor but on the principal employer as well.
- For employers: Maintaining separate pay scales for permanent and fixed‑term/contract staff doing the same work is no longer a “cost‑saving strategy” — it is a clear statutory violation with serious consequences.
Disclaimer: This article is for informational and educational purposes only and does not constitute legal advice. State‑level rules may vary, and implementation timelines differ. Employers and employees should consult a qualified legal professional for specific compliance or enforcement matters.