Fixed term employment in India works well once you price in equal benefits

Fixed term employment in India is a direct contract with an end date. Since 21 November 2025 it carries almost the same cost as a permanent job. Employers who still price it as the cheap option find the gap on the first payroll run. They find it again at the first exit. Write the contract properly, budget for equal pay and benefits, and plan the expiry date before anyone signs.

We run India payroll for global teams. This is the contract type that comes up most when a project has a clear finish line. It’s a good tool. It just isn’t the discount version of permanent hiring that many offer templates assume.

Fixed term employment in India means a written contract with a set end date

A fixed term employee is a worker you engage directly, under a written contract, for a defined period. The KS&K guide to the Industrial Relations Code adds two conditions. First, the engagement can’t run through a contractor or staffing agency. Second, an open ended contract with no defined term counts as permanent (KS&K employer guide).

The four labour codes took effect together on 21 November 2025 (according to the Press Information Bureau, PIB release on the labour codes). LKS Employment Law reads the Code as letting you use fixed term workers for any role. Temporary work isn’t the only use (LKS summary).

That’s useful. But the label protects nothing on its own. A role with no real end date is a permanent job wearing a short contract.

What a fixed term contract needs to say

The government’s compliance handbook lists an appointment letter for every employee as an employer duty (Ministry of Labour compliance handbook). For a time bound hire, we’d put five things in writing:

• The exact start and end dates.
• The role, the wage and how it’s structured.
• The leave, medical and social security cover, matched to permanent colleagues.
• How gratuity is treated at expiry.
• What happens if you both want to renew.

Fixed term staff get the same pay and benefits as permanent colleagues

The government’s own summary is blunt. Fixed term employees receive “all benefits equal to permanent workers, including leave, medical, and social security,” along with equal wages (PIB). So stop designing a thinner package for these hires. The saving you’re chasing is mostly gone.

What you still save is the open ended commitment. That’s a real benefit. In our experience it’s the only sound reason to choose this structure, so be clear with your finance team about it before you hire.

Gratuity is the line item that changed most

Fixed term employees now qualify for gratuity after one year of continuous service, not five. The compliance handbook sets the rate at 15 days’ wages for each completed year and says you must pay within 30 days of it becoming payable.

However, the detail is still settling. DLA Piper points out that two of the codes differ on pro rating. Its February 2026 update also notes the central rules weren’t yet in force (DLA Piper analysis). Confirm the current position with counsel before you finalise templates. Our full breakdown of gratuity for fixed term staff covers the formula and the wage base.

What fixed term employment in India costs next to other engagement types

The table below compares the three structures people most often confuse. It reflects the sources cited in this post, so treat it as a planning aid, not a legal opinion.

Point of comparison	Permanent employee	Fixed term employee	Genuine contractor
Contract	Open ended employment contract	Written contract with a set end date	Service agreement
Pay and benefits	Full statutory benefits	Equal to permanent staff doing similar work	Whatever the agreement says; no employee benefits if truly independent
Gratuity	After five years of continuous service	After one year of continuous service	Not as an employee
Ending the work	Notice and a statutory process	Contract ends on its date; the Code is silent on notice	As the agreement provides
Biggest risk	Exit cost and notice	Renewals that blur into permanent service	Misclassification

The last column deserves a warning. If a “contractor” works your hours, under your direction, in your team, the label won’t hold. Our guide to employee misclassification penalties in India shows how that exposure builds.

When a fixed term contract is the right call

Choose it when the work has a funded end date, such as a product build, a maternity cover or a pilot team. Choose a permanent contract when you expect the role to outlast the budget. Splitting a standing job into yearly contracts saves nothing and adds risk.

Expiry and renewal are where employers get caught

Most disputes don’t start on day one. They start in the last month of the contract. By then, nobody has decided what happens next, and the person involved can tell.

Letting a contract end on its date

LKS reads the Industrial Relations Code as excluding non renewal at expiry from the definition of retrenchment. It also notes the Code is silent on notice and compensation. Your contract and general law fill that gap. That’s a secondary reading, so have counsel confirm it for your case.

Meanwhile, the compliance handbook says all due wages must be paid within two working days of separation. We plan for that on expiry day too. Our guide to termination, severance and notice rules covers the wider exit picture.

Renewing without creating a permanent job by accident

I haven’t found a statutory cap on renewals in the sources reviewed for this post. That’s exactly why judgement matters. Three consecutive contracts for the same person doing the same work start to look like one continuous job. We treat them that way when we plan gratuity. That’s the cautious reading, not a quote from the statute.

Consider a company that hires a product analyst in Pune for twelve months, with ₹50,000 a month counted as wages. Gratuity for that one completed year is ₹28,846, which is 50,000 multiplied by 15, divided by 26. Accrue about ₹2,404 each month and the cheque at the end holds no surprises.

Don’t shorten a contract to eleven months to dodge that benefit. Splitting service to avoid a statutory entitlement invites disputes, and a probation clause won’t rescue it either. Our note on the probation period in India explains why those are separate tools.

How an Employer of Record runs fixed term contracts for you

When you hire through an Employer of Record in India, the EOR is the legal employer. It issues the written contract, runs payroll, tracks continuous service and pays dues on time, while you direct the work day to day.

You keep the decisions that drive cost: contract length, pay structure and renewals. Our 50 question guide to EOR services in India shows how responsibilities split between you and the provider. Meanwhile, our overview of statutory benefits in India lists what each contract has to carry.

Your next step is a contract by contract audit this week

Pull every fixed term contract you hold in India. Note four things for each: the end date, the number of renewals, whether leave and medical cover match permanent peers, and whether the person crosses one year of service in the next twelve months.

Anyone who fails the third check needs a corrected package now. Anyone who triggers the fourth needs a gratuity accrual starting this month. That list takes an hour to build, and it’s your real liability.

This post is general information, not legal advice. Confirm your specific position with qualified Indian employment counsel.