Direct hire against the alternatives
| Arrangement | Who employs | Who owes wages and contributions |
|---|---|---|
| Direct hire, permanent | You | You, with gratuity accruing and notice applying |
| Direct hire, fixed term | You | You, with the same conditions of service and pro rata gratuity |
| Contract staffing | The vendor | The vendor, with you liable as principal employer if it defaults |
| Consultant or professional | Nobody, in principle | The individual, if the relationship genuinely is not employment |
| Apprentice or trainee | You, under a specific regime | You, on the terms that regime prescribes |
| Gig and platform work | Contested and evolving | Subject to the social security provisions applying to gig and platform workers |
The row that costs employers money is contract staffing, because the protection it appears to offer is partial. Where a contractor fails to pay wages or contributions for workers deployed to you, the principal employer's responsibility is engaged, and you pay anyway without having had control over the arrangement.
Why off-roll is more expensive than it looks
Off-roll headcount is usually chosen to keep a headcount number down or to avoid termination difficulty. The arithmetic is rarely done properly.
- The vendor mark-up is charged on the full cost of employment, so the contributions you avoided are still in the invoice with a margin on top.
- You carry principal employer exposure for wages and contributions the vendor fails to make, and you have no visibility of whether the vendor is making them.
- Contractor licensing and registration requirements apply above prescribed thresholds, and the compliance work is yours to supervise even where the licence is theirs.
- Where the worker is in fact under your control, doing your core work, alongside your employees, an arrangement can be treated as employment with you regardless of the contract, and the liability arrives retrospectively.
- Retention is worse, so you pay the vendor mark-up on a population that turns over faster.
None of this makes contract staffing wrong. It makes it a decision to take deliberately, for work that is genuinely peripheral or genuinely fluctuating, with a vendor whose compliance you actually audit.
Fixed term employment as the middle path
Where the need is real but time-bound, the Labour Codes recognise fixed term employment and set the terms on which it can be used.
- A fixed term employee is your employee, on the same hours, wages and benefits as a permanent employee doing the same work, and is entitled to the statutory benefits proportionately.
- Gratuity accrues on a pro rata basis for fixed term employees, which changes the cost comparison against a permanent hire and against a contractor.
- The engagement ends on expiry of the term without the termination process that would otherwise apply, which is the point of the mechanism.
- It cannot be used to convert an existing permanent role, and repeated renewal for continuing work invites the arrangement being treated as permanent employment.
Verify the fixed term employment conditions and the pro rata gratuity position under the Industrial Relations Code, 2020 and the Code on Social Security, 2020 before designing a fixed term structure, including whether any minimum period or renewal limit applies.
Getting the direct hire right at the point of joining
- Issue an appointment letter that states the terms actually being offered, including the notice period, the probation position and what confirmation requires. The letter is what a dispute is decided on.
- Register the employee for provident fund and insurance where applicable from the joining date rather than after confirmation, since eligibility does not wait for your internal process.
- Collect the tax identifiers and previous employment particulars at joining. A mid-year joiner whose previous salary is not declared produces a shortfall the employer has to explain.
- Record continuous service from the correct date, including any period served through a vendor if the person is being converted, since that date drives gratuity and notice later.
- Where an agency placement fee is payable, tie it to joining and keep the replacement guarantee live, because early attrition among direct hires is concentrated in the first ninety days.
What the Industrial Relations Code, 2020 replaced
3 enactments stand repealed under s. 104, in force 21 November 2025.
- Trade Unions Act, 1926
- Industrial Employment (Standing Orders) Act, 1946
- Industrial Disputes Act, 1947
Across all four labour Codes, 29 enactments stand repealed. A policy or handbook that still cites one of them by name is describing rules that no longer exist.
Statutory reference
- Act
- Industrial Relations Code, 2020
- Section
- Industrial Relations Code, 2020: fixed term employment, including the requirement that a fixed term employee receive hours of work, wages, allowances and other benefits not less than those of a permanent employee doing the same or similar work, and eligibility for statutory benefits proportionately; termination on expiry of the term. Code on Social Security, 2020: gratuity for fixed term employees, who qualify after one year of service under the contract (section 2(o) of the Industrial Relations Code, 2020) rather than the ordinary five, and liability for contributions in respect of workers engaged through a contractor. Code on Wages, 2019: responsibility for payment of wages to contractor workers where the contractor fails to pay. Codes in force 21 November 2025
- Key limits
- Engaging a worker through a contractor does not remove the principal employer's responsibility for wages and contributions if the contractor defaults, and an arrangement can be assessed on its substance rather than on the contract label. Fixed term employees must receive terms not less favourable than comparable permanent employees and accrue gratuity pro rata. Verify the fixed term conditions, any renewal limits, the pro rata gratuity position and the contractor licensing thresholds before choosing an engagement model. The reference is historical and already framed as repealed: it records that the contract labour threshold rose from twenty to fifty. The 1970 Act has never been fetched or read, and its blocked record states that its repeal is known from s. 143 of the OSH Code alone, which is not sufficient to restate what it said.
Frequently asked questions
What is a direct hire?
A person taken onto your own payroll as your employee, whether you found them yourself or paid an agency a placement fee. The term describes the employment relationship, not the sourcing channel, and its opposite is contract staffing where a vendor employs the worker.
Is off-roll hiring cheaper?
Usually less than it appears. The vendor mark-up is charged on the full cost of employment, you retain principal employer exposure if the vendor fails to pay wages or contributions, and turnover in vendor-deployed populations is typically higher.
When should we use fixed term employment instead?
When the need is genuine but time-bound. A fixed term employee is yours, on terms not less favourable than a comparable permanent employee, accrues gratuity pro rata, and the engagement ends on expiry without a separate termination process.
Can we engage someone as a consultant to avoid employment obligations?
Only if the relationship genuinely is not employment. Control over how and when the work is done, integration into the organisation and exclusivity all point towards employment, and the assessment looks at the substance rather than the title of the agreement.
What date does continuous service run from for a converted contractor worker?
This should be decided and recorded at conversion rather than assumed, because it drives gratuity eligibility and notice entitlement later. Deciding it for the first time at exit, from incomplete vendor records, is where disputes come from.
How Engage handles engagement types
Engage records the engagement type against the person, so permanent, fixed term, apprentice and vendor-deployed populations are distinguishable in the same system rather than in separate spreadsheets. Continuous service runs from the correct date when a contractor worker is converted to a direct hire, which is what decides gratuity and notice years later.
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