The four Labour Codes, in force from 21 November 2025, give fixed-term employment a statutory identity for the first time, and with it a right to gratuity after a single year rather than five. For employers who turned to fixed-term hiring to stay flexible, the cost and parity rules have quietly changed, and the old assumptions no longer survive contact with the new law.
Fixed-term employment has existed in Indian workplaces for years, but it lived in the margins of the law, governed more by contract and convenience than by statute. The four Labour Codes, now in force from 21 November 2025, end that ambiguity by giving fixed-term employment a clear statutory definition and a set of rights that attach to it automatically. For the many employers who leaned on fixed-term contracts precisely because they seemed lighter to administer, the change is less a clarification than a repricing.
The first shift is parity. A fixed-term employee is now entitled to the same hours of work, wages, allowances and statutory benefits as a permanent employee doing the same or similar work, calculated on a pro-rata basis where the benefit depends on length of service. The practical effect is that the fixed-term label no longer buys a cheaper worker; it buys a worker on a defined tenure with substantially the same entitlements. Compensation design that assumed a discount for fixed-term hiring has to be redrawn.
The second shift, and the sharpest one, is gratuity. For a permanent employee, gratuity continues to require five years of continuous service. For a fixed-term employee, the Code compresses that qualifying period to the completion of one year of service, with gratuity payable on a pro-rata basis. An employer that renews a one-year fixed-term contract, or runs a project on successive fixed terms, now accrues gratuity liability far earlier than the familiar five-year horizon, and must provision for it from the outset rather than treating it as a distant contingency.
The third shift is what the new regime does not do, which is to turn non-renewal into termination. The expiry of a fixed term, where the contract simply runs its course, is not retrenchment, and the retrenchment machinery of notice, compensation and permission does not apply to it. That distinction is valuable, but it is also fragile: it holds only where the fixed term is genuine and the work is genuinely finite, and it weakens quickly where fixed-term contracts are used to fill what are in substance permanent roles.
That is where the grey area sits. Converting permanent positions into rolling fixed-term contracts to manage headcount, or stacking renewals to keep a worker perpetually on fixed terms while denying the security of permanence, invites the charge that the form does not match the substance. An adjudicator looking at a long chain of renewals on core, continuous work may treat the arrangement as permanent employment dressed as fixed-term, with the retrenchment protections and the longer-tenure consequences following. The saving in flexibility can become an exposure in litigation.
The disciplined response is to use fixed-term employment for what it was designed to do, genuinely time-bound or project-bound work, and to document that rationale honestly, while provisioning for the one-year gratuity accrual and the parity entitlements from day one rather than discovering them at exit.
