Is Fixed-Term Employment Reshaping India’s New Labour Regime?

Written by Shivangi Mathur, B.B.A. LL.B. student at the Indian Institute of Management, Rohtak.

Fixed-term employment (“FTE”) is one of the most controversial aspects of the reformed labour regime in India. The consolidation of the previous twenty-nine central labour statues into four labour codes, namely, the Code on Wages, 2019, Industrial Relations Code, 2020, Code on Social Security, 2020, and Occupational Safety, Health and Working Conditions Code, 2020 has led to new legal recognition for FTE. The codes were notified and brought into force on November 21, 2025 by the Ministry of Labour & Employment. They were part of a broader scheme to modernize labour law in view of Aatmanirbhar Bharat. The purpose of this paper is to examine the conceptual history of FTE, its legal framework, and the criticisms of this law by the people and the government’s reasons for this reform, to see how it affects labour law. 

Historical Antecedents

Fixed-Term Employment may be a new statutory term, however the underlying principle of hiring a worker for a limited purpose or limited time, along with corresponding wages and obligations, has its roots in classical Indian literature. Manusmriti and Kautilya’s Arthashastra (around 4th century BCE) provides a clear idea of the classification of hired laborers. For instance, it talks about karmakara, which refers to laborers hired at a pre-fixed wage.

पणो देयोऽवकृष्टस्य षडुत्कृष्टस्य वेतनम् ।
षाण्मासिकस्तथाच्छादो धान्यद्रोणस्तु मासिकः ॥

(paṇo deyo’vakṛṣṭasya ṣaḍutkṛṣṭasya vetanam |
ṣāṇmāsikastathācchādo dhānyadroṇastu māsikaḥ ||)

” One paṇa shall be given as wages to the lowest (servant), and six to the highest; likewise clothing every six months, and a droṇa of grain every month.”

Similarly, Naradasmriti introduces an elaborate classification of students, apprentices, hired servants, and officials into distinct categories of engaged labour, which is conceptually close to today’s distinction between permanent employees, apprentices, and fixed-term workers. Classical jurists insisted on the certainty and timeliness of wages, with digests attributed to Narada and Brihaspati requiring masters to pay wages as agreed and empowering the king to compel payment, with a fine, where wages went unpaid.

The Statutory Framework

According to the definition in Section 2(34) of the Social Security Code, 2020, a fixed-term worker is a worker hired directly by the employer without going through a contractor and would be hired for a defined duration of time, with the termination of the engagement occurring automatically on the conclusion of that period; Section 2(o) of the Industrial Relations Code, 2020 has the same definition as well. The code applies the parity principle to pay, benefits, and hours. Fixed-term employees’ entitlements are the same as those for a permanent employee on a proportionate basis, including gratuity after one year, instead of five years as stipulated previously by the Payment of Gratuity Act, 1972, and EPF, ESI, and maternity benefits on equivalent terms. Furthermore, the Codes state that one cannot disengage permanent employees by making them fixed-term workers to avoid fulfilling the obligations imposed by the law and require employers to record the reason for a fixed-term engagement. Additionally, the Occupational Safety, Health, and Working Conditions Code restricts third-party contract labour in an establishment’s “core activities” while placing no such restriction on FTE, since FTE is a direct employer-employee relationship.

The Core Criticisms

Four strands of criticism recur in the literature: 

1. that legitimising FTE for core activities creates a structural incentive to substitute permanent hiring with renewable fixed-term contracts, eroding the standard employment relationship; 
2. that short-term workers in India face a wage penalty attributable to tenurial insecurity; 
3. that FTE risks becoming one more formal channel for numerical flexibility within an already heavily informalised workforce; and 
4. that perceived job insecurity carries mental-health costs comparable to unemployment itself.

Assessing the Criticisms

Whilst these criticisms raise legitimate concerns about any flexible labour arrangement, they overstate the extent to which the provisions for regulated fixed-term employees threaten employment safety. The crucial point is that before the Codes, employers seeking flexible staffing did not refrain from temporary hiring, since they did so informally, through unregistered contract labour or successive short engagements outside any clear statutory category. Now, a regulated fixed-term employee who receives a written contract, wage parity, ESI and EPF coverage, and gratuity after one year represents a net expansion of protection. The anti-misuse safeguards are substantive rather than cosmetic. The wage-penalty evidence substantially predates the parity and pro-rata gratuity provisions, so it speaks to the pre-reform regime rather than to the Codes themselves. Likewise, informalisation of the Indian workforce long precedes the 2025 notification and is rooted in structural features of the economy; FTE, by giving project-based and seasonal work an enforceable formal status, arguably creates a statutory on-ramp out of informality rather than into it.

Comparative Analysis

The most obvious comparison is between FTE and the arrangements it replaces. Unregistered informal work and third-party contract labour typically leave a worker with no written contract, no wage clarity, and no statutory benefits; a regulated fixed-term employee, by contrast, receives all three plus pro-rata gratuity after one year, a threshold five years shorter than under the erstwhile Payment of Gratuity Act. Comparatively speaking, European labour markets have historically imposed far smaller wage penalties to short-term work than has been observed in India, a gap that researchers attribute to the absence, until now, of an equivalent statutory parity requirement in the Indian context. Comparing pre- and post-Code fixed-term work is therefore comparing two different legal categories.

Empirical Study 

Empirical research by Jain, Ghosh and Misra on the future of fixed-term employment in India found that, relative to European economies, low-wage short-term workers faced a wage penalty of approximately 60% attributable to tenurial insecurity, with the effect concentrated among unskilled and semi-skilled workers. Independent labour-market analyses suggest that well over 90% of India’s roughly 470-million-strong workforce remains in informal employment, a share that has grown across most employment categories over the past decade and a half. On the psychological dimension, a meta-analysis by Kim and von dem Knesebeck (2016), together with related Danish cohort studies, found that perceived job insecurity increases the risk of depressive symptoms to a level almost indistinguishable from that of unemployed individuals. Taken together, this evidence documents the real costs of tenurial insecurity, but as discussed above, it largely reflects conditions that predate the parity and anti-misuse provisions now in force.

Findings and Suggestions

The central finding of the study is that FTE, if properly implemented, is best understood as an expansion rather than a contraction of statutory protection, because the realistic alternative for most affected workers is unregulated informal engagement rather than a permanent post. However, this conclusion is conditional; it depends on the rigour with which the anti-misuse safeguards are enforced and on the pending central and state rules being finalised without diluting the parity principle. 

Accordingly, this paper suggests that: 

1. Labour commissioners and tribunals should be provided with resources to monitor and scrutinise successive fixed-term contracts covering permanent functions actively; 
2. The wage-penalty and informalisation data should be revisited periodically once the Codes are fully implemented, to test whether the parity provisions are closing the historical gap; and 
3. Further research should track outcomes for young and first-time entrants, for whom the realistic choice is often between a fixed-term post and no formal employment at all.

In India, Fixed-term employment sits at the intersection of an old idea and a current policy debate. The notion that labour may be lawfully engaged for a defined period, under a clear agreement, with enforceable wage obligations, has antecedents stretching back to Kautilya’s Arthashastra, even though “FTE” as a statutory category is a creation of the 2020 Labour Codes. The criticisms of  FTE highlight genuine threats associated with flexible labour markets in general, but largely refer to conditions that prevailed before the Codes, under informal and contract-labour arrangements that offered workers weaker protection, rather than to the regulated framework itself, which mandates wage parity, proportionate statutory benefits, and safeguards against misuse. Considering that around 12-15% of the youth have been unemployed in recent years, and with core-activity contract labour now restricted under the Occupational Safety, Health, and Working Conditions Code, FTE has emerged as the most effective legal route for direct, time-bound hiring in construction, apparel manufacturing, IT project delivery, and academic and research appointments. Ultimately, the reform’s verdict will depend less on the text of the Codes and more on the diligence of the pending rules and the consistency of enforcement against the anti-misuse provisions already on the statute book.

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