Quick answer: Fixed term employment is engagement on a written contract for a set period, with hours, wages and benefits no less than those of a comparable permanent worker. It is defined in section 2(o) of the Industrial Relations Code, 2020. Since 21 November 2025, fixed-term staff earn gratuity after one year, and the contract ending on schedule is not retrenchment.
- The contract must be written.
- Pay, hours, allowances and benefits must match permanent staff doing the same or similar work.
- Gratuity is payable pro rata after one year, with a part year over six months rounded up.
- Expiry of the term is not retrenchment, so no retrenchment compensation or Re-skilling Fund payment is due.
How does fixed-term employment work under the IR Code?
You hire for a defined period on full employee terms, and the job ends on the date you agreed. That is the whole bargain.
The Industrial Relations Code now writes the model into the statute itself. The parity rule is strict. A fixed-term analyst in Pune must get the same pay structure, PF, leave and bonus eligibility as a permanent analyst in the same team.
What you gain is a clean exit. Completion of the term does not count as retrenchment, so the notice, compensation and 15-day Re-skilling Fund payment for retrenched workers do not apply. The PRS copy of the IR Code text sets out the definition.
How much gratuity does a fixed-term employee get?
Fifteen days’ wages for each completed year, from the first year. Permanent staff wait five.
Let’s say you hire a project manager in Pune for 30 months, on a basic of ₹50,000 a month.
| Step | Working | Amount |
|---|---|---|
| Service | 2 years and 6 months | Rounds to 2 years (6 months is not over 6) |
| Daily rate | ₹50,000 ÷ 26 | ₹1,923.08 |
| Gratuity | ₹1,923.08 × 15 × 2 | ₹57,692 |
| Same role, 18-month contract | 1 year 6 months, rounds to 1 year | ₹28,846 |
Now stretch the first contract by a single month. At 2 years and 7 months, service rounds up to 3 years and gratuity becomes ₹86,538.
One month, ₹28,846. Set contract lengths deliberately. The formula is in section 53 of the Code on Social Security, and the central rules round any stretch over six months up to a full year.
What mistakes do employers make with fixed-term contracts?
Three show up again and again: rolling renewals, unequal pay and missing gratuity.
Renewing the same person on back-to-back one-year contracts for a permanent job invites a challenge that the arrangement is a sham. Lower pay breaks parity. And many payroll systems still assume five years before gratuity, so fixed-term exits get underpaid. Compare the model with a permanent employee before choosing, and see our overview of labour laws in India.
How does Remunance run fixed-term hires in India?
Remunance issues fixed-term appointment letters on its own entity, keeps pay at parity with comparable permanent roles and accrues gratuity from day one at cost. At the end of the term, we run the full and final settlement and release final wages within two working days. For a project team with a known end date, scope your fixed-term India hires with us.
What else do people ask about fixed-term employment?
Is a fixed-term employee entitled to gratuity in India?
Yes, after one year of continuous service, calculated pro rata at 15 days’ wages per completed year.
Can a fixed-term contract be renewed in India?
Yes. The IR Code sets no renewal cap, but repeated renewals for a permanent role can be challenged as a device to deny permanent status.
Can you end a fixed-term contract early?
Yes, under the contract’s notice clause and your standing orders. An early end initiated by you may be treated as termination, with its usual process.