Fixed-term employment in India: what the Labour Codes changed

Introduction

Fixed-term employment in India is no longer a workaround. Until recently it was recognised only in specific sectors, which pushed employers towards contract labour arrangements for work that was genuinely temporary. The four Labour Codes, enforceable since 21 November 2025, give fixed-term employment statutory recognition across all sectors — and attach conditions that change the arithmetic.

The single most consequential change is gratuity. A fixed-term employee becomes eligible after one year of continuous service, where a permanent employee needs five. Employers who model fixed-term hiring as the cheaper option are working from the pre-Code position.

1. Statutory recognition across all sectors

The Industrial Relations Code places fixed-term employment on a statutory footing and removes the sectoral limitation. The trade-off is parity: a fixed-term employee must receive the same wages, the same hours and the same statutory benefits as a permanent employee doing similar work.

This is not a soft principle. It removes the cost arbitrage that made fixed-term hiring attractive as a substitute for permanent headcount, and leaves it as what it should be — an instrument for work that is genuinely time-bound.

2. Gratuity after one year, not five

Under the Codes, a fixed-term employee qualifies for gratuity after one year of continuous service. The five-year threshold continues to apply to permanent employees.

Two practical consequences follow. First, a series of one-year fixed terms is not a way to avoid gratuity — each qualifying term accrues it. Second, the cost of a fixed-term hire must be modelled with gratuity included from year one, which narrows or eliminates the saving that used to justify the structure.

3. ⚠️ The rollout is not uniform

The Codes are enforceable, but their operation depends on rules made under them — and those rules have not landed everywhere at the same time. The central rules were still in draft in early 2026, and while several states had notified their own, others had not.

The practical instruction is unglamorous: check the position in the state where the employee will actually work before relying on any specific mechanic. A provision that is settled in one state may still be in draft in the next. The Ministry of Labour and Employment published clarifying FAQs in March 2026, which is the right starting point when a question is genuinely unsettled.

4. Getting the contract signed and evidenced

Where parity is the legal test, the contract is the evidence. What a fixed-term agreement records — the term, the role, the wage, the benefits — is what determines whether the parity requirement is met, and it is what will be examined if it is questioned.

Electronic signature is well established for commercial and employment documents in India, and the operational benefit is the audit trail: who signed, when, and which version. Certyneo keeps that trail with the executed document, so a term agreed two renewals ago can be evidenced without reconstructing an email chain.

• Record the start of the FIRST term in the series — gratuity accrues on continuous service, not on the current contract.
• State the comparable permanent role's wage and benefits explicitly; parity is easier to demonstrate than to reconstruct.
• Sign each renewal before the previous term expires, so continuity is documented rather than inferred.
• Confirm the applicable state rules before relying on a specific mechanic.

Frequently asked questions

Can fixed-term employees be paid less than permanent staff?

No. The Codes require parity in wages, hours and statutory benefits with a permanent employee in a similar role. This is the central condition attached to the statutory recognition of fixed-term employment.

When does a fixed-term employee become eligible for gratuity?

After one year of continuous service, against five years for a permanent employee. This is the most significant departure from the pre-Code position and should be modelled into the cost of any fixed-term hire.

Is there a maximum number of renewals?

The Codes do not fix a renewal ceiling in the way several European systems do. The constraints operate through parity and through accrued entitlements — notably gratuity, which accrues on continuous service rather than on each separate contract.

Are the Labour Codes fully in force?

They are enforceable since 21 November 2025, but their operation depends on rules made under them. Central rules were still in draft in early 2026 and state notification has been uneven. Check the position in the relevant state before relying on a specific provision.

Can employment contracts be signed electronically in India?

Yes. Electronic signature is established for employment documentation, and the practical value lies in the audit trail — identity of the signatory, timestamp and document integrity — rather than in the form of the signature itself.

Key takeaways

Fixed-term employment in India moved from a sectoral exception to a recognised statutory form, and the price of that recognition is parity with permanent staff plus gratuity from year one. The structure is now legitimate and clear; it is no longer cheap.

Two things to carry into practice: model gratuity from the first year, and verify the applicable state rules before relying on any specific mechanic — the Codes are in force, their implementing rules are not uniformly in place.