Fixed-Term Employment Under the New Labour Codes (2026)
What fixed-term employment means under the Industrial Relations Code, 2020, who it covers, how pay and benefits must match permanent staff, and how gratuity works on a pro-rata basis. Last verified October 2026.
Explainer · Labour Law · Industrial Relations Code
Fixed-term employment is a direct hire on a written contract for a set period under Section 2(o) of the Industrial Relations Code, 2020. The worker is not routed through a contractor, and their hours, wages, allowances and benefits cannot be lower than a permanent worker doing the same job. The four labour codes came into force on 21 November 2025, so fixed-term employment is now the statutory route for time-bound hiring across India. This guide explains what it is, who it covers, the benefits a fixed-term worker must get, and how gratuity is paid. Last verified October 2026.
- What it is: a direct hire on a written contract for a fixed period, under Section 2(o) of the Industrial Relations Code, 2020.
- Parity: hours, wages, allowances and benefits cannot be less than a permanent worker doing the same work.
- Gratuity: payable after one year of service, on a pro-rata basis, under the Code on Social Security, 2020.
- End of term: normal expiry of a fixed term is not retrenchment, so no retrenchment compensation is due.
01The problem with short-term hiring
Employers often need staff for a project, a season, or a fixed term, but not forever. For years there was no clean legal way to do this. Companies used contract labour, casual hires, or rolling temporary letters, and workers on these terms usually got lower pay and no end-of-service benefit. This led to disputes about whether a worker was really permanent, and whether the break in service was fair.
Fixed-term employment is the answer the law now gives. It lets an employer hire directly for a set period, with a clear start and end date, while protecting the worker with the same pay and benefits as a permanent employee. The idea is to make short-term work honest on both sides.
02What fixed-term employment is
Fixed-term employment is defined in Section 2(o) of the Industrial Relations Code, 2020. In plain terms, it is the engagement of a worker on a written contract for a fixed period.
Three features matter:
- Written contract: the term must be set out in writing, with a clear start and end date.
- Direct employment: the worker is on the employer rolls, not supplied through a contractor or staffing agency.
- Parity: the law attaches a proviso that the worker hours, wages, allowances and other benefits cannot be less than a permanent worker doing the same or similar work.
Why the parity rule is the heart of it
The whole point of the category is that a fixed term cannot be used to pay someone less for the same work. Equal pay and equal benefits are built into the definition itself, not left to negotiation.
03Who it applies to
Fixed-term employment applies to a worker hired directly by an establishment on a written, time-bound contract. It can be used across sectors, since the Industrial Employment (Standing Orders) rules were opened up to allow fixed-term hiring in all industries from 2018, and the Industrial Relations Code now carries this forward nationally.
It does not cover a worker supplied through a contractor. That is contract labour, governed by a different part of the law. If a dispute is about whether someone is really a fixed-term employee or a disguised permanent worker, courts and tribunals look at the real nature of the engagement, not just the label on the letter.
04Equal pay and benefits
A fixed-term worker must get the same treatment as a permanent worker doing the same job. This is the core protection in Section 2(o).
| Item | Fixed-term worker entitlement |
|---|---|
| Hours of work | Same as a permanent worker in the same role |
| Wages and allowances | Not less than a permanent worker doing similar work |
| Statutory benefits | Provident fund, ESI and other benefits, on a pro-rata basis |
| Gratuity | Payable after one year of service, on a pro-rata basis |
Because many statutory benefits normally need a qualifying period, the law makes clear that a fixed-term worker gets them in proportion to the service actually rendered, even if that period is shorter than what a permanent worker would need.
05Gratuity for fixed-term staff
A fixed-term employee is eligible for gratuity after one year of service, not the usual five years. This is the single biggest change for short-term workers.
The calculation sits in the Code on Social Security, 2020. Section 53 provides that for a worker on fixed-term employment, the employer pays gratuity on a pro-rata basis. So a worker who completes the term still walks away with an end-of-service payment, worked out for the actual period served.
A fixed-term worker earns gratuity after one year of service, paid on a pro-rata basis, not after the five years a permanent worker normally needs.
For how gratuity is calculated and claimed in general, see gratuity rules in India.
06End of term and disputes
When a fixed-term contract simply ends on its due date, that is not retrenchment. The worker does not get retrenchment compensation for a normal expiry, because the end date was known from the start. If you want the rules for ending a permanent worker, see retrenchment and lay-off under the labour codes.
Disputes still happen. A worker may argue the contract was a sham to avoid permanency, that renewals made the role permanent in substance, or that pay and benefits were not at parity. These are industrial disputes, raised before the conciliation officer and, if unresolved, the industrial tribunal. The conditions of service for larger establishments are also set out in their certified standing orders.
07Where Claw fits
Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.
Parity, sham contracts and the effect of repeated renewals are decided in labour courts and industrial tribunals, and the reasoning rests on how earlier benches read the same arguments. Claw gives you that back catalogue, more than 30 crore judgments, with any search answered in under five seconds, so you can pull how a tribunal treated a disguised fixed-term engagement or a parity claim. The live matters sit alongside it, cases, orders and hearings across 9,102 courts, benches and forums, traceable by party or advocate name. Claw does not use the documents you upload to train its AI models.
Open a free Claw account to follow a fixed-term dispute and read how parity has been enforced. The case search across Indian courts hub covers the wider body of law.
08Sources and further reading
- India Code (official text of the Industrial Relations Code, 2020 and Code on Social Security, 2020): indiacode.nic.in
- Ministry of Labour and Employment (labour codes and notifications): labour.gov.in
- PRS Legislative Research (labour code overviews): prsindia.org
- Claw: clawlaw.in
This explainer is general information, not legal advice. The labour codes and their rules are still settling, so check the current text and state rules and take advice from counsel before you act.
09Frequently asked questions
What is fixed-term employment under the labour codes?
It is a direct hire on a written contract for a fixed period, defined in Section 2(o) of the Industrial Relations Code, 2020. The worker is on the employer rolls, not supplied by a contractor, and gets pay and benefits at par with a permanent worker doing the same job.
Do fixed-term employees get gratuity?
Yes. A fixed-term employee is eligible for gratuity after one year of service, paid on a pro-rata basis under the Code on Social Security, 2020. This is shorter than the five-year wait that applies to permanent workers.
Can a fixed-term worker be paid less than a permanent worker?
No. The definition in Section 2(o) requires that the hours, wages, allowances and other benefits of a fixed-term worker are not less than a permanent worker doing the same or similar work.
Is the end of a fixed-term contract treated as retrenchment?
No. When a fixed-term contract ends on its due date, that is not retrenchment, so retrenchment compensation is not payable. A dispute can still arise if the worker claims the contract was a sham.
Are the labour codes in force?
Yes. The four labour codes, including the Industrial Relations Code, 2020 and the Code on Social Security, 2020, came into force on 21 November 2025. Some rules were notified later, so check the current state rules for details.
Can I track a fixed-term employment dispute in Claw?
Yes. Claw follows a fixed-term dispute through its cases, orders and hearings across 9,102 courts, benches and forums by party or advocate name, and lets you search more than 30 crore judgments in under five seconds for parity and sham-contract rulings. It researches and tracks the matter but does not give legal advice.