A fixed-term employee is the plant's own worker on a written contract with an end date, paid and treated like a permanent worker on the same job, with gratuity after one year. Contract labour is the contractor's worker, supplied under a licence, and barred from the plant's core activity except in three cases. The two are not interchangeable ways of getting the same person through the gate. One is a direct hire with an expiry date; the other is a bought-in service. Which one fits depends on what the work is and who the plant wants to be the employer.
What fixed-term employment is, in the Code's words
Section 2(o) of the Industrial Relations Code 2020 defines fixed term employment as "the engagement of a worker on the basis of a written contract of employment for a fixed period", and then attaches three conditions that are the whole point of the category. The worker's "hours of work, wages, allowances and other benefits shall not be less than that of a permanent worker doing the same work or work of similar nature". The worker is "eligible for all statutory benefits available to a permanent worker proportionately according to the period of service rendered by him even if his period of employment does not extend to the qualifying period". And the worker "shall be eligible for gratuity if he renders service under the contract for a period of one year".
The Code on Social Security 2020 carries the gratuity point into section 53: the five-year continuous-service condition "shall not be necessary where the termination of the employment of any employee is due to ... expiration of fixed term employment", and for a fixed-term employee "the employer shall pay gratuity on pro rata basis". The Ministry's March 2026 FAQ answers the eleven-month question directly: a fixed-term employee is eligible for gratuity on completing one year of service under the contract, counted from its start (Q14, Q19). The same FAQ closes the door that matters for this comparison: "Fixed Term Employment covers employees directly engaged by the employer" (Q10). A contractor's worker on a twelve-month deployment is not a fixed-term employee of the plant, whatever the deployment letter says.
Two more provisions shape the category. Section 2(zh)(iv) of the IR Code excludes from "retrenchment" the "termination of service of the worker as a result of completion of tenure of fixed term employment", so the contract ending on its date is not a retrenchment and carries no retrenchment notice or compensation. And the Model Standing Orders 2026, notified on 8 May 2026 for the manufacturing, mining and services sectors, list fixed-term employment as a classification of worker alongside permanent, temporary, probationer and badli [VERIFY: S.O. 2312(E) and the classification clause]. The 2018 central rule that barred converting existing permanent posts to fixed-term was not carried into the Code or its 2026 rules [VERIFY: absence of a conversion bar in the IR (Central) Rules 2026, G.S.R. 342(E)].
What contract labour is, by contrast
Section 2(m) of the OSH Code defines contract labour as a worker "hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer", and expressly excludes a worker who is regularly employed by the contractor on the contractor's own terms with increments and social security. The employer of record is the contractor. The plant is the principal employer, with the duties this site has described elsewhere: engaging only a licensed contractor once the chapter applies at 50 contract labour (s.45, s.47), paying wages in full if the contractor fails to (s.55(3)), paying ESI and EPF contributions in the first instance and recovering them (Code on Social Security, s.31), and keeping contract labour out of core activity except under the three exceptions in section 57.
That last point is the one that decides most cases. Section 57 prohibits contract labour in core activity unless the work is ordinarily done through a contractor at that establishment, does not need full-time workers for most of the day, or is a sudden increase in volume to be finished by a specified time. A fixed-term employee carries no such restriction: the plant may put its own worker, on any tenure, on any work it likes. Where the need is for hands on the line for a defined period, and none of the three exceptions is comfortably available, fixed-term is the route the Code leaves open.
Side by side
| Fixed-term employee | Contract labour | |
|---|---|---|
| Employer of record | The establishment (IR Code s.2(o); FAQ Mar 2026 Q10) | The contractor (OSH Code s.2(m)) |
| Contract | Written contract of employment for a fixed period, with an appointment letter (OSH Code s.6(1)(f)) | Service contract between establishment and contractor; the worker's contract is with the contractor |
| Wages and hours | Not less than a permanent worker on the same or similar work (s.2(o)(a)) | Contractor's rates, subject to minimum wages and, under the Tamil Nadu draft rules, parity with direct workers on the same work [VERIFY: draft rule number] |
| PF and ESI | Establishment's own registration; from day one | Contractor's registration; the establishment pays in the first instance and recovers (SS Code s.31) |
| Gratuity | Pro rata after one year of service (IR s.2(o)(c); SS s.53) | Contractor's liability after five years' continuous service with the contractor (SS s.53) |
| End of engagement | Expiry of tenure is not retrenchment (IR s.2(zh)(iv)) | Work order ends; the worker stays the contractor's employee |
| Core activity | No restriction | Prohibited except under the three exceptions in OSH s.57 |
| Licence | None | Contractor licence once the contractor or establishment is at 50 contract labour (OSH s.45, s.47) |
| Who runs recruitment, payroll and compliance | The plant | The contractor, with the plant's principal-employer checks |
| Counts towards the establishment's headcount | Yes, for every threshold in the three Codes | For OSH welfare thresholds yes; for the IR Code's 300-worker thresholds the position depends on the definition of worker [VERIFY] |
When each one fits
Use fixed-term where the work is core, the end date is real and the plant wants to be the employer. A product run with a known close, a line added for a customer programme of eighteen months, cover for a permanent worker on long leave: each is core-activity work with a date on it, and each is exactly the case section 57 makes awkward for contract labour. The plant carries the recruitment, the payroll, the PF and ESI registrations, the appointment letter and, after twelve months, a pro-rata gratuity. On a monthly wage of ₹18,000 that gratuity is fifteen days' wages for the year, about ₹10,400 on the customary 26-day month [VERIFY: the divisor under the SS Code rules; 26 days was the Payment of Gratuity Act practice], and it falls due whether or not the contract is renewed.
Use contract labour where the work is one of the eleven support activities the Code carves out of core activity, or sits inside one of the three exceptions, and where the plant wants a contractor to own recruitment, replacement and the monthly compliance. Housekeeping, security, canteen, loading and unloading, and the seasonal surge with a specified end are the textbook cases. The plant's cost is the contractor's rate, which carries the contractor's own gratuity, licence deposit and margin, and the plant's obligation is to check rather than to run: licence, challans, wage intimation, headcount against the licence.
- The wrong answer is a contractor's worker doing a fixed-term employee's job. A twelve-month deployment of contract labour on the assembly line, outside the three exceptions, is a section 57 contravention for the principal employer; relabelling it fixed-term in the contractor's paperwork changes nothing, because the FAQ is clear the category is for direct hires.
- The other wrong answer is fixed-term used as a permanent hire that never becomes one. Serial twelve-month contracts on the same post buy the plant a worker with full parity and annual gratuity and none of the flexibility it thought it was buying; the 90-day attrition pattern described on this site applies to both routes.
- Fixed-term does not skip the standing orders. In an establishment with 300 or more workers the certified standing orders govern the fixed-term category too, and the Model Standing Orders 2026 list it as a class [VERIFY: threshold under IR Code s.28 and the classification clause].
- Both routes need an appointment letter. Section 6(1)(f) of the OSH Code requires one for every employee; for contract labour it comes from the contractor, and the principal employer should see it.
Whether a particular role at a particular plant is core activity, whether one of the section 57 exceptions is available, and how the IR Code's thresholds count a mixed workforce are questions on the facts for the site's own counsel; this post describes the two routes, not which one a given plant must take.
Sources
- Industrial Relations Code, 2020 (Act 35 of 2020), Gazette of India Extraordinary, 29 September 2020 — s.2(o) (fixed term employment and its three conditions), s.2(zh)(iv) (completion of tenure is not retrenchment), s.28 (standing orders threshold), First Schedule item 1 (classification of workers). Opened and read; quoted verbatim.
- Code on Social Security, 2020 (Act 36 of 2020), Gazette text hosted by the Ministry of Labour and Employment — s.31 (contributions for contractor employees), s.53 (gratuity: five-year condition waived on expiry of fixed term; pro rata). Opened and read.
- Occupational Safety, Health and Working Conditions Code, 2020 (Act 37 of 2020), Gazette text hosted by DGFASLI — s.2(m) (contract labour), s.6(1)(f) (appointment letter), s.45, s.47, s.55(3), s.57. Opened and read.
- Ministry of Labour and Employment, Additional FAQs on Labour Codes (as on 16 March 2026) — Q10 (fixed term employment covers employees directly engaged by the employer), Q14 and Q19 (gratuity on one year from the start of the contract). Opened and read.
- Ministry of Labour and Employment, FAQs on the OSH Code, 2020 (January 2026) — Q12 (fixed-term workers covered; appointment letters, health check-ups). Opened and read.
- Model Standing Orders, 2026, S.O. 2312(E) dated 8 May 2026, and Industrial Relations (Central) Rules, 2026, G.S.R. 342(E) dated 8 May 2026 [VERIFY: notification numbers and the classification clause; read via secondary summaries, the Gazette copies were not opened]