Fixed Term Employment (FTE) Under the Industrial Relations Code, 2020 – A Complete HR Compliance Guide
Introduction
Most HR professionals in India are already using Fixed Term Employment — but very few are using it correctly.
Some believe fixed-term employees are just another form of temporary staff. Others assume that repeated renewals automatically make employees permanent. A few think fixed-term contracts are a safe way to avoid retrenchment, notice pay, or long-term liability. All these beliefs are partly true, partly dangerous.
With the Industrial Relations Code, 2020, Fixed Term Employment is no longer a grey area. It is a clearly defined legal employment model with full statutory protection for employees and strict expectations from employers. One wrong clause, one careless renewal, or one ignored Standing Order can turn a “safe” contract into a legal dispute.
This guide explains Fixed Term Employment the way HR actually needs it — practical, compliant, and risk-aware — so flexibility never comes at the cost of litigation.
Why Every HR Manager Must Understand FTE Properly
India’s labour law framework is undergoing its biggest transformation in decades with the introduction of the four Labour Codes. Among these changes, Fixed Term Employment (FTE) has emerged as one of the most discussed — and misunderstood — concepts in HR circles.
Many HR professionals still confuse fixed-term employment with contract labour or temporary hiring. Others see it only as a cost-saving or flexibility tool, without fully understanding the legal responsibilities attached to it. This gap in understanding has already resulted in avoidable disputes, audit objections, and litigation.
Fixed Term Employment was not introduced to dilute employee rights. On the contrary, it was introduced to balance business flexibility with statutory protection for employees. The intention of the law is clear: if an employer wants flexibility in tenure, the employee must receive full equality in wages, benefits, and social security.
This article is written to give HR professionals practical clarity, not legal jargon. It explains FTE the way a mentor would explain it to a junior HR — calmly, clearly, and with real-world relevance.
Read: Can Contract Workers Ask for Permanency in India? Legal HR Guide
What Is Fixed Term Employment (FTE)? – Meaning in Simple Words
Fixed Term Employment (FTE) means the company hires a person directly, but only for a clearly defined period, through a written employment contract, while giving that person all statutory benefits equal to a permanent employee.
This point is often misunderstood in practice. The law does not treat a fixed-term employee as a “lesser” employee. The only difference is tenure, not legal status.
In simple terms, a fixed-term employee is permanent in rights but temporary in duration.
Legal Meaning Under the Industrial Relations Code, 2020
As per the definition of ‘fixed term employment’ provided Section 2(34) of the Social Security Code, 2020 and Section 2(o) of the Industrial Relations Code, 2020 formally recognizes fixed-term employment and removes earlier ambiguity. Under the Code, a fixed-term employee is someone who:
• Is engaged through a written contract (verbal arrangements are unsafe)
• Is appointed for a fixed, predetermined period
• Is entitled to wages, allowances, leave, and social security at par with permanent employees doing similar work
• Whose employment automatically comes to an end when the contract period expires
This automatic ending is legally called cessation, not termination. This distinction is important. Cessation happens by operation of the contract itself, whereas termination involves an active decision by the employer and attracts additional legal scrutiny.
Why Fixed Term Employment Is Not Contract Labour
This distinction is critical for HR compliance.
• The company itself is the employer
• There is no contractor or third party
• The employer carries full responsibility for wages, PF, ESI, bonus, leave, gratuity, and standing orders
In contract labour:
• The contractor is the employer
• The principal employer has limited and indirect responsibility
Treating fixed-term employees like contract workers—by denying benefits or distancing employer responsibility—is one of the most common and costly HR mistakes under the new labour law framework.
Read: Contract Workers Union & Charter of Demands: Legal Duties of PE & Contractor in India
From Informal Practice to Recognised Law: The Real Story Behind Fixed Term Employment in India
For many years, fixed-term employment in India existed more as a practice than as a clear legal concept. Before 2018, employers could hire people for limited periods mainly through government notifications or industry-specific permissions. There was no uniform rule that applied across sectors. Because of this, HR teams often relied on short-term or back-to-back contracts, sometimes without clarity on employee rights. This uncertainty created space for misuse and frequent disputes.
Employees working for years on “temporary” contracts questioned their status, while employers faced litigation because the law did not clearly explain where flexibility ended and unfair practice began. Courts had to interpret each case on its facts, which made outcomes unpredictable.
The turning point came with the 2018 amendment to the Industrial Employment (Standing Orders) Rules. For the first time, fixed-term employment was formally recognised across industries, with a clear condition that such employees must receive wages and benefits equal to permanent employees. It also discouraged converting permanent roles into fixed-term positions purely for convenience.
This clarity was strengthened further through the Industrial Relations Code, 2020, which placed fixed-term employment firmly within the statutory framework. Today, FTE is no longer an informal workaround—it is a recognised employment model with defined rights, duties, and legal boundaries, offering certainty to both employers and employees.
Applicability of Fixed Term Employment (FTE): Who Can Legally Use FTEC and Under What Conditions?
One of the most practical questions HR professionals ask is whether Fixed Term Employment can be used by all employers or only by certain types of establishments. The answer lies in understanding how Fixed Term Employment fits into India’s broader labour law framework.
Under the Industrial Relations Code, 2020, Fixed Term Employment is not restricted to a specific industry or sector. The Code applies to factories, commercial establishments, industrial and non-industrial workplaces, and broadly to any organisation where an employer–employee relationship exists. This means that manufacturing units, service organisations, IT companies, logistics firms, and even non-traditional workplaces can legally engage fixed-term employees, provided they follow the conditions laid down in the Code. In short, any employer covered under the Industrial Relations Code can use FTE, but only with full statutory compliance.
However, an additional layer of responsibility applies to establishments covered under the Industrial Employment (Standing Orders) Act, 1946. This Act generally applies to industrial establishments employing 100 or more workmen, though in some states the threshold is lower. For these employers, fixed-term employment must strictly align with Certified or Model Standing Orders. Importantly, the law discourages converting permanent positions into fixed-term roles merely to reduce legal or financial obligations.
For HR, this means FTE is widely available—but not unrestricted. Intent, compliance, and alignment with standing orders determine whether its use is lawful.
Read: POSH Case Study: Vinod Narayan Kachave Judgment & Bombay High Court
Do Standing Orders Apply to Fixed Term Employees? A Clear Answer HR Cannot Ignore
Yes—Standing Orders fully apply to fixed-term employees, and this is no longer a matter of interpretation or internal policy choice. Many HR professionals still assume that because a worker is hired for a limited period, service rules or standing orders do not apply. This assumption is legally incorrect and risky.
The position became very clear after the 2018 amendment to the Model Standing Orders, where fixed-term employment was expressly recognised as a valid category of employment. Once included in the standing orders framework, fixed-term employees automatically came within the same discipline, conduct, and service condition structure as permanent employees. In other words, HR cannot treat fixed-term employees as “outside the system” or governed only by individual contracts.
From a practical HR standpoint, this means that standing orders govern fixed-term employees in day-to-day operations. Rules relating to working hours, shift patterns, attendance, leave eligibility, misconduct, disciplinary procedures, and workplace safety apply equally to them. If a fixed-term employee commits misconduct, the same disciplinary process must be followed. If leave is granted under standing orders, fixed-term employees are entitled to it proportionately.
Ignoring standing orders while dealing with fixed-term employees is not a small procedural lapse—it is a serious compliance failure. In disputes, courts and labour authorities examine standing orders first, not employment contracts. For HR, alignment with standing orders is not optional; it is a legal necessity.
Can an Employer Renew Fixed-Term Contracts Again and Again? A Simple Explanation for HR
This is one of the most common questions HR professionals ask, and also one of the most misunderstood. Many HR teams worry that renewing a fixed-term contract automatically makes an employee permanent. That is not what the law says.
Under the Industrial Relations Code, 2020, there is no limit mentioned on how many times a fixed-term contract can be renewed. The law also does not fix any maximum number of years for fixed-term employment. An employer is allowed to re-hire the same employee again after the contract period ends. So, from a legal point of view, renewals are permitted.
However, Indian labour law looks beyond what is written in the contract. Courts focus on how the arrangement works in reality. If a fixed-term employee is doing work that is permanent and regular in nature, and the same person is renewed continuously for many years, courts may question the employer’s intention. If it appears that fixed-term contracts are being used only to avoid permanency, retrenchment compensation, or long-term benefits, the arrangement can be treated as a sham or camouflage.
From a practical HR angle, renewals are safer when the work is clearly project-based or seasonal, and when each renewal is supported by proper documentation. Renewals become risky when the role is core to the business and the employee functions like a permanent staff member.
In short, renewals are allowed, but misuse invites legal trouble.
Read: Procedure to Follow in Case of Death in Karnataka Factories
Benefits and Rights of Fixed Term Employees: Equal in Law, Equal in Dignity
One of the most important principles behind Fixed Term Employment is equality of treatment. The law is very clear that a fixed-term employee is not a second-class employee. The only difference between a fixed-term employee and a permanent employee is the length of the contract, not the rights attached to the job.
Wages and Allowances
Fixed-term employees must be paid at the same rate as permanent employees doing similar work. This includes basic wages, allowances, and any other regular payments linked to the role. Employers cannot justify lower pay by saying the employment is temporary.
If the role attracts overtime, fixed-term employees are also entitled to overtime wages under the same conditions as permanent staff. From a compliance perspective, unequal pay for equal work is one of the fastest ways to invite disputes.
Social Security and Statutory Benefits
Fixed-term employees are fully covered under India’s social security framework. They are entitled to EPF, ESI (where applicable), bonus (subject to eligibility), paid leave, national and festival holidays, and all workplace safety and welfare facilities. In day-to-day HR practice, this means fixed-term employees must be included in the same statutory registers and benefit schemes as permanent employees.
Gratuity After One Year – A Significant Protection
A major and often overlooked benefit is gratuity eligibility after just one year of service. Unlike permanent employees, fixed-term employees do not have to complete five years. Gratuity is paid on a pro-rata basis, recognising the time actually worked.
This provision shows the intent of the law clearly: flexibility for employers, but financial security and dignity for employees.
Read: Gratuity Eligibility: Does 4.8 Years Qualify Under Indian Law?
Contract Expiry vs Termination: Why Fixed Term Employment Allows a Clean Legal Exit
One of the biggest advantages of Fixed Term Employment, when used correctly, is the clarity around exit. Many HR professionals worry that ending a fixed-term contract may attract the same legal consequences as terminating a permanent employee. The law makes a clear distinction here.
When a fixed-term employment contract reaches its agreed end date, the employment relationship ends automatically. This is not treated as termination or retrenchment. As a result:
• No notice period is required
• No retrenchment compensation is payable
• There is no obligation to give reasons or conduct an exit inquiry
This automatic ending is legally referred to as contractual expiry or cessation of employment. It happens by the operation of the contract itself, not by an employer’s decision. That is why courts generally view such exits as lawful, provided the contract is genuine and the terms are clear.
However, the protection applies only when the contract runs its full course. If an employer ends the employment before the contract expiry, the situation changes completely. Early termination must follow normal disciplinary and legal principles, including valid reasons, due process, and compliance with standing orders or service rules.
For HR professionals, the lesson is simple:
Expiry of a fixed-term contract is legally clean. Arbitrary or premature termination is not.
Read: Understanding Notice Period in India
Mandatory Clauses HR Must Include in a Fixed Term Employment Contract
A fixed-term employment contract is only as strong as the clauses written into it. In practice, most disputes around FTEC do not arise because the law is unclear, but because the contract is poorly drafted. For HR, a clear and compliant contract is the first line of legal protection.
Every fixed-term employment contract must clearly mention the start date and end date of employment. This removes ambiguity and establishes that the engagement is genuinely time-bound. The contract should also describe the job role and responsibilities in simple, specific terms, so there is no confusion about the nature of work. Details of wages, allowances, statutory benefits, and payment cycles must be transparently stated, along with working hours, weekly offs, and leave entitlements. Most importantly, the contract must include an auto-cessation clause, clearly stating that employment will automatically end on the expiry date without the need for notice.
Equally important is what HR must not include. Clauses that waive statutory benefits are invalid in law. Forced resignation or blank resignation clauses are dangerous and unethical. Promises of automatic renewal or vague tenure language weaken the employer’s legal position.
A well-drafted contract protects both the organisation and the employee—and reflects responsible HR practice.
Penalties and Legal Consequences for Employers Misusing Fixed Term Employment
Many employers assume that because the Industrial Relations Code, 2020 does not mention a separate penalty section specifically called “misuse of Fixed Term Employment”, there is little legal risk involved. This assumption is incorrect. While the law does not label a standalone offence, misuse of FTEC still attracts serious legal consequences through general labour law principles and industrial dispute mechanisms.
Problems arise when fixed-term employment is used in ways the law never intended. Employers face legal risk if they convert permanent roles into fixed-term positions, deny statutory benefits that are legally required, or create artificial breaks only to avoid continuity of service. Violating Certified or Model Standing Orders or using FTEC purely to escape permanency obligations also exposes the employer to challenge.
In such cases, Labour Courts and Industrial Tribunals do not rely only on the employment contract. They examine the actual nature of work and the real employment relationship. If misuse is established, courts may order reinstatement of the employee, payment of back wages, continuity of service, or even declare the fixed-term arrangement a sham or camouflage. Employers may also face penalties under general contravention provisions of labour laws.
The key HR lesson is simple: intent matters. Fixed-term employment works only when used honestly and lawfully, not as a shortcut to avoid employee rights.
Advantages and Disadvantages of Fixed Term Employment – At a Glance
Advantages for Employers
• Workforce flexibility to meet project-based or seasonal needs
• Predictable and clean exit on contract expiry
• No retrenchment compensation when the contract ends naturally
• Useful for short-term, specialised, or time-bound roles
• Better control over manpower planning
Disadvantages for Employers
• Legal risk if misused, especially for permanent or core roles
• Full statutory benefit cost, same as permanent employees
• Judicial scrutiny on repeated renewals of the same employee
• High documentation and compliance burden
Advantages for Employees
• Equal wages and allowances compared to permanent employees
• Full social security coverage (PF, ESI, bonus eligibility)
• Gratuity eligibility after one year of service
• Clear written contract defining role and tenure
Disadvantages for Employees
• No long-term job security beyond the contract period
• Limited career progression within the organisation
• Dependence on employer for renewals
• Psychological and financial uncertainty despite legal protections
This balanced view helps HR use Fixed Term Employment responsibly and lawfully.
Common HR Mistakes in Fixed Term Employment Implementation
Many problems with Fixed Term Employment come not from the law, but from how HR applies it. A common mistake is treating fixed-term employees like temporary or contract labour and denying them equal benefits. Some employers fail to issue clear written contracts, relying on informal arrangements. Others ignore Standing Orders or give verbal renewal assurances, which create false expectations and legal risk. These small lapses often turn compliant FTEC into costly disputes.
• Treating FTE as temporary labour
• No written contracts
• Unequal benefits
• Ignoring Standing Orders
• Verbal renewals and assurances
Read: Warning Letter to Employee: Legal Procedure & HR Guide
Best Practices for HR – How to Use FTE Safely and Legally
Fixed Term Employment works best when HR uses it with clarity and honesty. Apply FTE only for genuine time-bound or project needs, not as a substitute for permanent roles. Always align contracts with Certified or Model Standing Orders and ensure equal wages and statutory benefits. Keep documentation clear and updated, and conduct periodic legal audits to catch risks early. Responsible use protects both the organisation and employees.
Conclusion – Fixed Term Employment as a Strategic HR Tool, not a Shortcut
Fixed Term Employment is a useful but sensitive HR tool. When used correctly, it gives employers flexibility while protecting employee dignity and legal rights. When misused, it quickly leads to disputes and loss of trust. For HR professionals, the responsibility is clear: use FTE for genuine business needs, not to avoid labour law obligations. The best protection is simple—right intent, clear contracts, and consistent compliance.
Read: EDLI Scheme 2025: A Comprehensive Guide.
Frequently Asked Questions (FAQs) on Fixed Term Employment – Practical Answers for HR
Does completing 240 days make a Fixed Term Employee permanent?
No. The concept of 240 days does not convert a fixed-term employee into a permanent employee. Permanency depends on the nature of appointment, not the number of days worked. If the contract is genuine and time-bound, completion of 240 days alone does not change the employee’s status.
Can a fixed-term employee raise an industrial dispute?
Yes. Fixed-term employees have the same right to raise an industrial dispute as permanent employees if their legal or statutory rights are violated, such as denial of benefits or unfair termination.
Is notice required when a fixed-term contract expires?
No. When the contract reaches its end date, employment ends automatically. Since this is a contractual expiry and not termination, no notice period is required.
Can a fixed-term employee be terminated for misconduct?
Yes. If misconduct occurs, the employer can take disciplinary action, but due process must be followed as per standing orders or service rules.
Can fixed-term employees join unions?
Yes. Fixed-term employees have the right to join or form trade unions like any other employee.