In the rapidly modernizing Indian economy, the “job for life” model is making room for a more agile approach. Enter Fixed-Term Employment (FTE). Recently formalized under the Four Labour Codes (2020/2022), specifically the Industrial Relations Code and the Social Security Code, FTE is a gamechanger for employers seeking flexibility without the red tape of traditional “contract labour.”
But how do you navigate this without tripping over compliance hurdles? As a Senior Labour Law Consultant, I’m here to walk you through the specifics.
What Exactly is a Fixed-Term Employee?
Under Section 2(o) of the Industrial Relations Code, 2020, an FTE is a worker engaged on the basis of a written contract for a fixed period.
- The Key Difference: Unlike a permanent employee, their service ends automatically when the contract expires. No notice of “retrenchment” (layoff) is required.
- The Direct Link: You hire them directly on your payroll, not through a third-party vendor. This reduces reliance on contract labour and simplifies compliance compared to the Contract Labour (Regulation & Abolition) Act.
The “Parity” Principle: Fairness is Mandatory
One common myth is that FTEs are “cheaper” because they don’t get benefits. This is false. The law mandates Statutory Parity:
- Equal Pay: They must receive the same wages and allowances as a permanent worker doing the same or similar work.
- Pro-Rata Benefits: They are eligible for all statutory benefits (PF, ESI, Bonus) proportionately, even if their contract is for just six months.
- Gratuity Eligibility: Subject to applicable rules and notifications, FTEs may be eligible for gratuity after completing one year of service, unlike permanent employees who typically qualify after five years.
Why Employers are Switching: The Strategic Benefits
Why go through the effort of direct hiring for a temporary role?
- No Retrenchment Hassles: You don’t need to pay retrenchment compensation or provide a notice period upon the natural expiry of the contract.
- Operational Agility: Ideal for seasonal industries (e.g., E-commerce during Diwali) or project-based work (e.g., IT software development).
- Direct Control: Because they are on your payroll, you have better control over quality, training, and workplace culture compared to outsourced help.
Compliance Checklist: How to Do It Right
Avoid the “permanent employee” trap by following these strict compliance steps:
- Written Contract: You must have a signed contract before day one. An oral agreement is legally invalid for FTE status.
- Specific Dates: Clearly mention the start and end dates (e.g., “This contract is valid from Jan 1, 2026, to Dec 31, 2026”). Avoid vague terms like “until the project ends.”
- The “No Renewal” Clause: Explicitly state that the contract ends automatically and does not create a right to permanent employment.
- Payroll Alignment: Ensure your HRMS is configured to calculate pro-rata gratuity after 12 months, subject to applicable rules.
Disclaimer: This content is provided for educational and informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy of the information based on the 2020/2022 Labour Codes and subsequent notifications up to 2026, labour laws are subject to state-specific amendments and judicial interpretations. Gratuity eligibility and benefit calculations may vary based on state rules and judicial interpretation. Readers are advised to consult with a qualified legal professional before making any business or compliance decisions.