Fixed term employment is the engagement of a worker directly, on a written contract for a fixed period, with the job ending on its own when that period runs out. Under the Industrial Relations Code, 2020, any employer in India can hire this way, but the fixed term employee must get the same hours, wages, allowances and benefits as a permanent worker doing similar work, every statutory benefit in proportion to service, and gratuity once they have served one year under the contract. That last point is the one payroll feels first, and you can check any figure in this guide with our gratuity calculator.
Most of the fixed term contracts I review fail in the same place. The offer letter says "fixed term", but the salary structure, insurance policy and leave rules quietly treat the person as a second-class contract hire. The Codes do not allow that. A fixed term employee costs what a permanent employee costs while the contract runs. What changes is the exit: no retrenchment compensation when the term ends, and gratuity after one year instead of five.
This guide is for the HR head, payroll executive or founder deciding whether to hire on fixed term contracts and how to run them. Go to the rules for what the law requires, to gratuity calculation for the formula and worked examples, to expiry, renewal and early exit for what ending a contract costs, or to the set-up checklist if you are about to issue the first contract.
Nothing here is legal or tax advice. All four Labour Codes came into force on 21 November 2025. The Industrial Relations (Central) Rules, 2026, the Social Security (Central) Rules, 2026 and the Model Standing Orders, 2026 were notified on 8 May 2026. The Central Rules apply where the Central Government is the appropriate government; other establishments follow their state's rules under the Codes, so check your state's notified rules before you finalise a contract. Law as at 12 November 2026.
| Fixed term employment at a glance | Rule or figure | Where it sits |
|---|---|---|
| What it is | Engagement of a worker on a written contract of employment for a fixed period | Industrial Relations Code, section 2(o); Code on Social Security, section 2(34) |
| Pay and hours | Hours of work, wages, allowances and other benefits not less than those of a permanent worker doing the same or similar work | IR Code, section 2(o), proviso (a) |
| Statutory benefits | All statutory benefits of a permanent worker, in proportion to service, even below the usual qualifying period | Section 2(o), proviso (b) |
| Gratuity eligibility | One year of service under the contract, counted from its start; the five-year rule does not apply | Section 2(o), proviso (c); Code on Social Security, section 53(1); MoLE FAQs 76 and 99 |
| Gratuity amount | 15 days' wages for each completed year (monthly wages ÷ 26 × 15); a part-year of more than six months counts as a full year | Section 53(2) and Explanation 3; Social Security (Central) Rules, 2026, rule 33(1)(a) |
| Gratuity payment | Within 30 days of becoming payable, whether or not the employee applies | Section 56(2) and (3) |
| Expiry or non-renewal | Not retrenchment, so no retrenchment notice or compensation | IR Code, section 2(zh)(iii) and (iv) |
| Early termination with no contract clause | For a worker with one year's continuous service: one month's notice or pay, 15 days' average pay per completed year, notice to the government and 15 days' wages to the worker re-skilling fund | Sections 70 and 83 |
| Length and renewals | No maximum term and no cap on extensions | MoLE FAQ 168 |
| Standing orders | Fixed term employment is a listed class of worker; standing orders are compulsory only for industrial establishments with 300 or more workers | Section 28(1); First Schedule, item 1; MoLE FAQ 167 |
What is fixed term employment in India?
Fixed term employment (FTE) means hiring someone on your own payroll for a period fixed in a written contract: 12 months for a plant expansion, 18 months for a funded project, six months to cover a long leave. The definition is in section 2(o) of the IR Code, and the Code on Social Security repeats it in section 2(34) for employees generally.
Three features separate it from every other arrangement:
- Direct engagement. The person is your employee, not a contractor's. MoLE's FAQ 96 says fixed term employment covers employees directly engaged by the employer. A worker supplied by a manpower agency is contract labour, and the agency is their employer.
- A written contract for a fixed period. No written contract, no fixed term status. The employment contract or appointment letter has to state the start date and the end date.
- The job ends by itself. When the term ends, so does the employment. You do not retrench anyone and you do not owe retrenchment compensation.
Fixed period contracts are not new in India. The Industrial Disputes Act already kept non-renewal of a contract out of retrenchment, and in March 2018 the Centre added "fixed term employment" as a class of workman to the central standing orders rules for all sectors (G.S.R. 235(E)). What the Codes changed is the footing. The definition, the parity conditions and the one-year gratuity rule now sit in the statute itself, and they apply to every employer, not only establishments covered by the old standing orders law.
What are the fixed term employment rules in India?
The IR Code builds three conditions into the definition. A fixed term worker's "hours of work, wages, allowances and other benefits shall not be less than that of a permanent worker doing the same work or work of similar nature". They are "eligible for all statutory benefits available to a permanent worker proportionately according to the period of service rendered by him even if his period of employment does not extend to the qualifying period of employment required in the statute". And they are "eligible for gratuity if he renders service under the contract for a period of one year".
The government's own summary, in the PIB release of 21 November 2025, put it as "FTEs to receive all benefits equal to permanent workers, including leave, medical, and social security" and "Gratuity eligibility after just one year, instead of five."
| Rule | What it means for HR and payroll | Source |
|---|---|---|
| Written contract for a fixed period | State the start date, end date, role and wage components. No contract, no FTE status. | IR Code, section 2(o) |
| Pay parity | Wages and allowances at least equal to a permanent worker in the same or similar role. A lower "contract staff" band is a breach. | Section 2(o), proviso (a) |
| Same hours | Same working hours, shifts and overtime rules as permanent staff. | Section 2(o), proviso (a) |
| Proportionate statutory benefits | Leave, bonus, maternity benefit and the rest accrue in proportion to service, even below the usual qualifying period. | Section 2(o), proviso (b) |
| Gratuity after one year | The five-year condition does not apply when a fixed term ends. Gratuity is paid for the service rendered. | Section 2(o), proviso (c); Code on Social Security, section 53 |
| Expiry is not retrenchment | No retrenchment notice or compensation when the term ends or is not renewed. | IR Code, section 2(zh) |
| Worker classification | Establishments that have standing orders list fixed term employment as a class of worker. | First Schedule, item 1; Model Standing Orders, 2026 |
Two points in that table cause most of the trouble.
Parity follows the role, not the grade. The comparison is with a permanent worker doing the same or similar work. If your permanent field executives get ₹2,500 a month in conveyance and a festival advance, a fixed term field executive gets both. You cannot create a separate "FTE grade" with thinner benefits. Where you have no permanent comparator in that role, benchmark against the nearest similar permanent role and record how you chose it.
Workers, employees and managers. The IR Code's definition speaks of a "worker", which leaves out people employed mainly in a managerial or administrative capacity and supervisors earning more than ₹18,000 a month (section 2(zr)). The Code on Social Security's definition in section 2(34) uses the wider word "employee" and carries the same pay parity and proportionate benefits conditions. So for social security purposes, which include gratuity, PF, ESI and maternity benefit, a fixed term manager is covered too. In practice most companies apply one fixed term policy to everyone on a fixed term contract, because a two-track policy is hard to defend.
Which employers can use it. Any employer, in any sector. The IR Code does not limit fixed term employment to particular industries, and MoLE's FAQ 167 confirms that establishments below the 300-worker standing orders threshold can hire on fixed term contracts without any standing orders clause. An industrial establishment with 300 or more workers needs standing orders under section 28, and the Model Standing Orders, 2026 for the mining, manufacturing and service sectors already list fixed term employment as a class of worker.
What is the difference between fixed term, permanent, contract labour and probation?
| Fixed term employee | Permanent employee | Contract labour | Probationer | |
|---|---|---|---|---|
| Who employs | You | You | The contractor | You |
| End date | Fixed in the contract | None | Tied to the contractor's engagement | None; confirmation or exit at the end of probation |
| Pay and benefits | At least equal to permanent staff doing similar work | As per policy and law | Paid by the contractor; the principal employer pays if the contractor fails (OSH Code, section 55(3)) | As per policy and law |
| Gratuity | After one year under the contract | After five years of continuous service | Paid by the contractor as employer, on the usual conditions | Probation counts as service towards the five years |
| Ending it | Expiry or non-renewal is not retrenchment | Resignation, dismissal or retrenchment with notice and compensation | Ends with the contractor's engagement | Under the Model Standing Orders, six months' probation, extendable by three |
Fixed term vs permanent. The only legal difference while the contract runs is the end date. Pay, hours, leave and benefits must match. The differences show up at exit: no retrenchment compensation on expiry, and gratuity after one year rather than five.
Fixed term vs contract labour. A fixed term employee is on your rolls, your PF and ESI codes and your payslip. Contract labour is on the contractor's. If you are paying a staffing agency for people who sit in your teams for years, fixed term employment is often the cleaner route, and the PIB release says as much when it describes FTE as reducing "excessive contractualisation". Engage's HRMS for staffing companies covers the agency side of that relationship.
Fixed term vs probation. Some companies run a 12-month "probation" and then let people go without a word. If the paperwork says fixed term, treat it as fixed term with everything that follows. If the role is permanent, use a probation clause and a confirmation letter instead.
Can a permanent employee be moved to a fixed term contract, and is there a maximum term?
Converting permanent staff. Avoid it. The 2018 central rule that first opened fixed term employment to all sectors said in rule 3A that no employer could convert existing permanent posts into fixed term employment. The IR Code does not repeat that sentence, and the Model Standing Orders, 2026 do not carry it either. That does not make conversion safe. A move from permanent to fixed term varies the conditions of service to the worker's disadvantage, which brings in the notice of change requirement under section 40 of the IR Code where the change touches a Third Schedule matter, and it strips accrued rights that a court or conciliation officer will look at closely. The common view among employment lawyers is that the practice should be avoided altogether. If you are considering it for any group, take advice first.
Maximum term and renewals. There is none. MoLE's FAQ 168 says the IR Code places no restriction on the duration of a fixed term contract and no restriction on extensions. The limit comes from elsewhere. Item 10 of the Second Schedule to the IR Code lists as an unfair labour practice employing workers "as badli workers, casuals or temporaries" and continuing them as such "for years, with the object of depriving them of the status and privileges of permanent workers". A permanent job dressed up as a chain of fixed term contracts is exactly that pattern. Use FTE for work that really has an end: a project, a season, a funded programme, a replacement for someone on long leave.
How is gratuity calculated for a fixed term employee?
A fixed term employee becomes eligible for gratuity after one year of service under the contract. Section 53(1) of the Code on Social Security lists "termination of his contract period under fixed term employment" as a payment event, and its second proviso drops the five-year condition on the "expiration of fixed term employment". Section 53(2) then sets the rate and says the employer "shall pay gratuity on pro rata basis" for fixed term employees. Our gratuity calculation guide covers the general rules; this section covers the fixed term specifics.
The formula is the standard one:
Gratuity = last drawn monthly wages × 15 ÷ 26 × years of service
Three inputs decide the number.
- Wages, as the Codes define them. Not "basic + DA" out of habit. Section 2(88) of the Code on Social Security starts from all remuneration, names basic pay, dearness allowance and retaining allowance as included, and excludes a fixed list: HRA, conveyance, overtime, commission, statutory bonus, employer PF contributions and a few others. If the excluded items from (a) to (i) come to more than half of total remuneration, the excess is added back. On the plain text, an allowance that is not on the exclusion list, such as special allowance, counts as wages from the start. MoLE's FAQ 1 describes the 50% test slightly differently, so the worked example below shows both readings.
- The one-year threshold. MoLE's FAQs 76 and 99 answer this directly: a fixed term employee is eligible for gratuity "if he/she renders service under the contract for a period of one year (from start of contract)". An 11-month contract does not qualify.
- Part-years. Section 53(2) gives 15 days for "every completed year of service or part thereof in excess of six months". For fixed term employees, rule 33(1)(a) of the Social Security (Central) Rules, 2026 settles how that works: the employee is eligible after at least one year, and a further period of more than six months but less than a year is rounded off to one additional year. The Model Standing Orders, 2026 say the same. A part-year of six months or less is dropped.
Before May 2026 some payroll teams read "pro rata" as month-by-month, with 20 months counted as 1.67 years. For establishments under the Central Rules that reading is now out of step with rule 33. If your state's rules are in force, check their wording on fixed term gratuity, and write your method into the policy.
Worked example 1: a two-year contract
Priya joins a Pune engineering firm on a 24-month contract as a design engineer. Her wages under the Codes' definition are ₹30,000 a month. The contract ends on schedule.
| Step | Calculation | Amount |
|---|---|---|
| Years of service | 24 months | 2 |
| Gratuity | ₹30,000 × 15 ÷ 26 × 2 | ₹34,615 |
| Same contract at exactly 12 months | ₹30,000 × 15 ÷ 26 × 1 | ₹17,308 |
Under the old Payment of Gratuity Act she would have got nothing on a two-year contract, because she would not have reached five years.
Worked example 2: the wages test plus a part-year
Rohan is on a fixed term contract with a Bengaluru logistics company. His monthly pay is ₹60,000:
| Component | ₹ a month | Counts as wages? |
|---|---|---|
| Basic + DA | 24,000 | Yes, expressly included |
| Special allowance | 18,000 | Yes on the plain text, as it is not on the exclusion list |
| HRA | 12,000 | Excluded, clause (f) |
| Conveyance | 6,000 | Excluded, clause (d) |
| Total | 60,000 |
The excluded items come to ₹18,000, which is 30% of total pay and inside the 50% limit, so nothing is added back. Wages for gratuity are ₹42,000. If you follow the way MoLE's FAQ 1 phrases the test, treating everything other than basic and DA as the part checked against 50%, the base is ₹30,000 (₹24,000 plus the ₹6,000 by which ₹36,000 exceeds half of ₹60,000). Either way, a payroll that uses basic + DA alone takes ₹24,000 and underpays. Confirm the reading with your adviser and apply it to everyone.
His contract ends after 1 year and 8 months. Eight months is more than six, so it counts as a full year under rule 33.
| Method | Years counted | Gratuity |
|---|---|---|
| Rule 33 rounding, wages ₹42,000 | 2 | ₹42,000 × 15 ÷ 26 × 2 = ₹48,462 |
| Month-by-month, wages ₹42,000 (not the rule) | 20 ÷ 12 | ₹42,000 × 15 ÷ 26 × 20 ÷ 12 = ₹40,385 |
| Rule 33 rounding, basic + DA only (wrong base) | 2 | ₹24,000 × 15 ÷ 26 × 2 = ₹27,692 |
The month-by-month method underpays Rohan by ₹8,077. Across 200 fixed term exits a year, that is about ₹16 lakh of underpaid gratuity sitting in your books as a claim waiting to happen, which is why finance should sign off on the method and not only HR. Had Rohan left at 1 year and 4 months, the four months would be dropped and he would get one year's gratuity, ₹24,231.
When is fixed term gratuity due, and which forms apply?
Gratuity becomes payable when the contract ends. Under section 56(2) the employer must work out the amount and give written notice to the employee and to the competent authority as soon as it becomes payable, whether or not the employee has applied. Section 56(3) gives 30 days to pay, and late payment carries simple interest under section 56(4). Fold it into the full and final settlement rather than waiting for a claim.
The Social Security (Central) Rules, 2026 set out three forms:
- Form III, nomination. Rule 32 asks for it within 90 days of completing one year of service, and an employer must accept a late one. For a 12-month fixed term contract that window opens on the day the contract ends, so collect Form III at joining along with the PF and ESI nominations. If the employee dies in service, a valid nomination is what lets you pay quickly.
- Form IV, application. The employee may apply within 30 days of gratuity becoming payable (rule 33(1)). A late application is still valid.
- Form V, notice. Within 15 days of an application, the employer issues Form V fixing the payment date or giving reasons for rejection (rule 33(2)).
The ₹20 lakh ceiling on gratuity still applies (MoLE FAQ 129), though few fixed term payouts get near it. Gratuity under the Code is payable by shops and establishments with 10 or more employees, and by every factory, mine, oilfield, plantation, port and railway company (First Schedule to the Code on Social Security).
What happens when a fixed term contract ends, is renewed or is cut short?
On expiry, employment simply ends. Section 2(zh) of the IR Code keeps two things out of "retrenchment": termination as a result of "completion of tenure of fixed term employment", and non-renewal of the contract on its expiry. Paragraph 22(2) of the Model Standing Orders adds that a fixed term worker whose contract is not renewed or has expired is not entitled to notice or pay in lieu. So there is no retrenchment notice, no retrenchment compensation and no re-skilling fund contribution. You still owe the final month's wages, wages for unused annual leave, statutory bonus if eligible, gratuity if the year is complete, and the F&F. Pay final wages within two working days. Section 17(2) of the Code on Wages sets that limit for removal, retrenchment and resignation, and the Model Standing Orders apply it to any termination.
Renewal is allowed and has no cap. Issue a fresh written contract or a signed extension before the old one lapses. If someone keeps working past the end date with no paperwork, you have an employee on unclear terms and a strong argument that they became permanent. For gratuity, the common view is that back-to-back renewals with the same employer form one period of continuous service under section 54, so a six-month contract renewed for another six months meets the one-year test. MoLE's FAQs speak of one year "from start of contract" and do not address renewals directly, so confirm this with your adviser before you rely on breaks between contracts.
Ending a contract early is a different matter. Two situations need to be kept apart.
- The contract has an early-exit clause and you use it. Section 2(zh)(iii) also excludes from retrenchment a contract "being terminated under a stipulation in that behalf contained therein". Ending the contract under a genuine termination clause, with the notice the clause provides, is not retrenchment on the text. Use the clause for real business reasons and record them; a clause invoked routinely to cut people before the one-year mark invites a challenge.
- There is no such clause. Ending a worker's contract before its end date for any reason other than discipline is then retrenchment. For a worker with at least one year's continuous service, section 70 requires one month's written notice with reasons or wages in lieu, compensation of 15 days' average pay for every completed year or part over six months, and notice to the appropriate government. Under the Central Rules that notice goes in Form XIII within three days (rule 27). Section 83 adds 15 days' last drawn wages to the worker re-skilling fund, which rule 37 requires to be transferred within ten days of the retrenchment. Factories, mines and plantations with 300 or more workers fall under Chapter X instead, which requires three months' notice and prior government permission (section 79).
Managers and supervisors earning above ₹18,000 a month are not "workers" under the IR Code, so the retrenchment conditions do not apply to them; their contract and the general law decide what early termination costs.
Worked example 3: ending a three-year contract after 14 months
A Chennai component maker hires Suresh, a CNC programmer, on a 36-month fixed term contract at ₹42,000 wages. A client programme is cancelled and the company ends his contract at month 14. The contract has no early-exit clause. Taking his average pay as ₹42,000 and using the 26-day divisor throughout:
| Item | Calculation | ₹ |
|---|---|---|
| Notice pay in lieu (one month) | 1 × 42,000 | 42,000 |
| Retrenchment compensation | 42,000 × 15 ÷ 26 × 1 (the extra two months are under six) | 24,231 |
| Worker re-skilling fund | 15 days' wages, 42,000 × 15 ÷ 26 | 24,231 |
| Gratuity (one year served) | 42,000 × 15 ÷ 26 × 1 | 24,231 |
| Total on top of final wages and leave | 1,14,693 |
If the same contract had carried a one-month termination clause, the exit would cost the one month's notice and the gratuity, ₹66,231, plus wages and leave. Gratuity is due either way: MoLE's FAQ 76 addresses an employee who exits before the contracted tenure and still ties eligibility only to one year of service. If the end date of the work really is uncertain, write a shorter term and renew, or write a fair termination clause into the contract at the start. Our notice period recovery guide and notice period calculator cover the reverse case, where the employee leaves early.
Do fixed term employees get leave, PF, ESI, bonus and maternity benefit?
Yes. Treat a fixed term employee as a permanent one for every statutory scheme from the first day. The only question is the amount, which follows service.
| Benefit | Rule for fixed term employees | More detail |
|---|---|---|
| Annual leave | Under section 32 of the OSH Code, one day for every 20 days worked once 180 days are worked in a calendar year; a mid-year joiner qualifies after working a quarter of the remaining days. On exit, unused leave is paid even if the qualifying period was not reached (section 32(1)(vi)), within two working days. Proviso (b) to section 2(o) points the same way. | Leave policy requirements, leave encashment calculator |
| PF | Enrol from joining in an establishment covered by PF (20 or more employees). Membership is compulsory on PF wages up to ₹25,000 a month since 17 September 2026 (S.O. 5109(E)). Fixed term status is no ground to exclude anyone. | PF calculation |
| ESI | Covered where gross wages are within ₹21,000 a month (MoLE FAQ 97). | ESI calculation |
| Statutory bonus | Eligible after 30 days' work in the accounting year if wages are within the notified ₹21,000 limit (Code on Wages, section 26(1)); bonus is worked on wages actually earned, so it is proportionate by design. | Bonus calculation |
| Maternity benefit | 26 weeks once she has worked 80 days in the 12 months before the expected delivery (Code on Social Security, section 60). Section 68 bars discharge during maternity absence; whether a fixed term ending during that absence counts as discharge is not settled, so many employers extend the contract to cover the leave. | Maternity leave rules |
| Company benefits (health insurance, meal cards, festival advance) | Must match permanent staff in the same role. A "confirmed employees only" insurance policy needs fixing. | CTC breakup |
Group health insurance slips most often. Many policies define eligible members as "confirmed permanent employees". Ask your broker to change the definition before you hire on fixed term contracts at any scale. Minimum wages apply in full too; check your state's rates on our minimum wages pages.
How do you set up fixed term employment? A 9-step checklist
- Decide whether the work has a real end: a project, a season, a funded programme, cover for long leave. If the role is permanent, hire permanently.
- Map the role to a permanent comparator. Note the grade, pay band and benefits of the permanent employee doing the same or similar work. That is your parity baseline.
- Issue a written contract. Start date, end date, role, location, wages broken into components, a termination clause with notice for either side, and a line that statutory benefits apply in proportion to service. Our appointment letter generator is a starting point.
- Collect Form III (gratuity nomination) at joining, along with the PF and ESI nominations.
- Set the employee up in payroll on the same salary structure, leave policy and benefits as the comparator, with the contract end date on the employee record.
- Run the wage-definition test on the structure so gratuity, PF and leave encashment all use the right base.
- Provide for gratuity every month from day one, using the rule 33 rounding method. For a contract under a year, record why the term is short.
- Flag the end date 30 to 45 days ahead. The manager decides: renew (with the new contract signed before expiry), make permanent, or let it end.
- Close out on time. Final wages and leave wages within two working days, then bonus, gratuity and the F&F, with gratuity paid well inside 30 days and the notice under section 56(2) on file.
The employee onboarding checklist covers the joining documents, and our labour law compliance checklist covers registers and returns.
What are the common mistakes with fixed term contracts?
- A separate, cheaper "FTE grade". Lower pay or fewer allowances than the permanent comparator breaches proviso (a) to section 2(o).
- Gratuity on basic + DA only. The Codes' wage definition usually gives a larger base. In Rohan's example the gap is ₹20,770.
- Month-by-month part-years. Rule 33 rounds a part-year of more than six months up to a full year for fixed term employees.
- 11-month contracts on repeat. Built to stay under the one-year threshold, they look like the unfair labour practice in item 10 of the Second Schedule and invite regularisation claims.
- Working past the end date with no extension. The fixed term has lapsed and you now have an employee on unclear terms.
- Treating every early exit as "expiry". Without a termination clause, ending the contract early because the work dried up is retrenchment, with notice pay, compensation, Form XIII and the re-skilling fund.
- Leaving fixed term staff out of insurance, bonus or leave encashment because a policy says "permanent employees".
- Waiting for a gratuity claim. Section 56(2) puts the duty to calculate and notify on the employer the day gratuity becomes payable.
What do employers ask most about fixed term employment?
What are the fixed term employment rules in India?
Any employer can hire directly on a written contract for a fixed period. The employee must get hours, wages, allowances and benefits at least equal to a permanent worker doing similar work, statutory benefits in proportion to service, and gratuity after one year under the contract (IR Code, section 2(o)). Expiry or non-renewal of the contract is not retrenchment.
Is a fixed term employee eligible for gratuity after one year?
Yes. The five-year condition does not apply when a fixed term ends. Gratuity is payable once the employee has served one year under the contract, counted from its start, at 15 days' wages for each completed year, with a part-year of more than six months counted as a full year.
How is gratuity calculated for a fixed term employee?
Last drawn monthly wages × 15 ÷ 26 × years of service. On ₹30,000 wages and a two-year contract that is ₹34,615. Use the Codes' wage definition, not basic + DA alone. Under rule 33 of the Social Security (Central) Rules, 2026, a part-year of more than six months adds a full year and a shorter one is dropped.
Does a fixed term employee get gratuity on an 11-month contract?
No. MoLE's FAQ 76 says eligibility needs one year of service under the contract. Repeated 11-month contracts with breaks can be challenged as a device to deny gratuity and permanent status.
What is the difference between a fixed term employee and a permanent employee?
While the contract runs, only the end date. Pay, hours, leave and benefits must match for similar work. At exit, a fixed term job ends without retrenchment compensation, and gratuity is payable after one year rather than five.
What is the difference between fixed term employment and contract labour?
A fixed term employee is engaged directly and is on your payroll. Contract labour is employed by a contractor who supplies workers to you, and the contractor pays their wages and benefits, with you as principal employer liable if the contractor fails to pay wages.
Can a fixed term contract be renewed in India?
Yes. MoLE's FAQ 168 says there is no limit on duration or extensions. Sign the renewal before the current term ends, and do not use renewals to keep a permanent job temporary.
Is notice required to end a fixed term contract?
Not when it ends on the agreed date. Ending it early under a genuine termination clause in the contract is not retrenchment, but you give the notice the clause provides. Ending a worker's contract early with no such clause, for reasons other than discipline, is retrenchment: one month's notice or pay in lieu, and compensation once the worker has a year of continuous service.
Do fixed term employees get PF, ESI and bonus?
Yes, on the same terms as permanent employees: PF in a covered establishment on wages up to the ₹25,000 ceiling, ESI where gross wages are within ₹21,000 a month, and statutory bonus after 30 days' work in the year where wages are within the ₹21,000 limit.
How does Engage help you run fixed term staff?
Fixed term staff go wrong in spreadsheets for one reason: the end date and the contract terms live in an offer letter, not in the system that runs payroll. Engage keeps the employee record, salary structure, attendance, leave and payroll in one place, so a fixed term employee sits on the same structure and leave policy as their permanent comparator. Engage payroll handles PF, ESI, PT, LWF, TDS and statutory bonus, and on exit it computes gratuity, leave encashment and notice recovery together so the full and final settlement closes on time. Role-based access and an audit trail show who changed a salary or an employee record, and when. Engage is built for companies with 50 or more employees, and pricing is on the site.
Related reading: the gratuity calculation guide, full and final settlement in India, attendance compliance under the Labour Codes, and the glossary entries for gratuity, leave encashment and full and final settlement.
Sources
- Industrial Relations Code, 2020. Gazette of India, 29 September 2020, Ministry of Labour and Employment copy. Section 2(o) on fixed term employment; section 2(zh) on retrenchment; section 2(zr) on workers; section 28 on standing orders; section 40 on notice of change; sections 66 and 70 on continuous service and retrenchment; Chapter X; section 83 on the worker re-skilling fund; First and Second Schedules.
- Code on Social Security, 2020. Section 2(34) on fixed term employment; section 2(88) on wages; sections 53 to 56 on gratuity; sections 60 and 68 on maternity benefit; First Schedule on applicability.
- Industrial Relations (Central) Rules, 2026. G.S.R. 342(E), 8 May 2026. Rule 27 on retrenchment notice in Form XIII; rule 37 on the worker re-skilling fund.
- Model Standing Orders, 2026. S.O. 2312(E), 8 May 2026. Schedules A to C, paragraph 2 on classification and fixed term employment; paragraph 22 on termination.
- Social Security (Central) Rules, 2026. G.S.R. 344(E), 8 May 2026. Rule 32 on nomination in Form III; rule 33 on gratuity applications, Forms IV and V, and the fixed term rounding proviso.
- Ministry of Labour and Employment, Compilation of FAQs on Four Labour Codes and Central Rules (as on 25 October 2026). Questions 1, 71, 75, 76, 96, 97, 99, 129, 167 and 168.
- Code on Wages, 2019. Section 17(2) on payment of wages on exit; section 26 on bonus eligibility.
- Occupational Safety, Health and Working Conditions Code, 2020. As hosted by DGFASLI, Ministry of Labour and Employment. Section 32 on annual leave with wages; section 55 on wages of contract labour.
- S.O. 5109(E), 17 September 2026. Ministry of Labour and Employment. PF wage ceiling of ₹25,000 a month.
- Press Information Bureau, "Government Makes the Four Labour Codes effective to Simplify and Streamline Labour Laws", 21 November 2025. Commencement date and the summary of fixed term employee benefits.
- Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, G.S.R. 235(E), 16 March 2018. Rule 3A on conversion of permanent posts. Superseded by the Industrial Relations (Central) Rules, 2026 and the Model Standing Orders, 2026.
