Organisations are under pressure to have flexible workforces due to rapid changes to business models, project-based working, and seasonal demand. To respond to their short-term talent needs without making a long-term commitment, organisations have adopted fixed-term employment as a structured hiring approach.
HR professionals and Employers in India need to understand Fixed-term Employment to ensure that they remain compliant with labour laws while also managing costs and productivity levels. This guide covers a detailed explanation of Fixed-term Employment, including legal requirements, employee rights, HR practices related to Fixed-term Employment, and how technology can simplify the management of the fixed-term employment relationship.
What Is Fixed-Term Employment?
Fixed-Term Employment is a type of employment where the employer hires an employee for a defined time frame specified in the employee contract. The employer’s relationship with the employee ends automatically when either the period or the project has been completed; there is no requirement to follow any specific procedure for terminating the relationship between the employer and employee.
The use of fixed-term employment gives companies the ability to employ individuals for specified time frames, but also protects the rights of the employee by providing statutory benefits and fair pay. Fixed-term employment is also typically used for projects, seasonal work, maternity leaves, or phases of expanding a business.
Types of Fixed-Term Employment Structures
HR teams can design fixed-term employment structures based on business needs and employee planning goals. Common types include:
1. Project-Based Fixed-Term Employment
Employers recruit individuals for the success of a particular project by having a predetermined set of goals, objectives, and timeframes for all deliverables.
The project’s timeframe is the most significant aspect of this type of employment because it prevents employers from being obligated to keep employees after completing a project.
2. Seasonal Fixed-Term Employment
During periods of the year when there is generally increased demand for products or services, some employers utilize the seasonal fixed-term employment model to allow them to bring on an employee for a short period of time.
Due to the fluctuating nature of demand in industries such as retail, agriculture, hospitality, and manufacturing, these types of business models are used frequently in order to effectively manage the workload fluctuations that occur as a result of increased demand.
3. Replacement-Based Fixed-Term Employment
Replacement-Based Fixed-Term Employment refers to temporary employment that has been created to replace permanent employees who are on leave for a variety of reasons, such as maternity leave or extended medical leave.
This structure allows for the continuous operation of the business while protecting the employment and benefits of the permanent employee during the time they are away.
4. Skill-Specific Fixed-Term Employment
Skill-Specific Fixed-Term Employment is when an employer hires someone for a temporary job that requires specialized skills that may not be available internally.
For example, employers often hire IT Consultants, Compliance Specialists, Auditors, and Technical Experts for specific business needs.
5. Business Expansion or Pilot Positions
Fixed-term employees provide support for a company expanding into a new business venture, such as opening a new market, launching a new product, or conducting a pilot testing program.
Utilizing fixed-term employees allows companies to test strategies, manage costs effectively, and evaluate the results of new projects prior to hiring permanent employees.
Legal Requirements and Frameworks for Fixed-Term Employment
Employers must comply with Indian labour laws while implementing fixed-term employment. Important legal requirements include:
1. Written Fixed-Term Employment Contract
An employer must provide an employee with a written fixed-term employment contract, identifying immediately the period of employment, the employee’s job position, salary plan, conditions under which the employee will work, and any legislative benefits.
2. Equal Pay for Equal Work
Fixed-term employees who are doing the same work as a permanent employee must be treated equally with regard to both salary and benefits to ensure a fair and legal workplace.
3. Compliance with Statutory Benefits
Under the relevant labour laws, the employer must provide to fixed-term employees all entitlements available to permanent employees, including, but not limited to, Provident Fund, ESI, eligibility for gratuity payments (after just 1 year of work), and statutory leave.
4. No Arbitrary Practice of Renewal of Fixed-Term Contracts
An employer must not repeatedly rehire an employee under a fixed-term contract in an attempt to prevent them from becoming a permanent employee. This denial of a permanent position is a violation of the employee’s right to job security and long-term employment.
5. Expiry of the Fixed-Term Employment Contract.
A fixed-term employment contract automatically ends on the expiration of the contract. There will be no severance pay owed to fixed-term employees, since the length of the contract has been agreed upon, along with a fixed end date.
6. Compliance with Labour Code
Fixed-term employment contracts and arrangements are subject to the rules of the Industrial Relations Code and each State’s labour law that sets forth the relationship between the employer and employee and how to manage the employees.
What are the Rights and Benefits of Fixed-Term Employees?
Fixed-term employees are legally allowed several protections and benefits during their employment period.
1. Equal Salary & Allowances
Each fixed-term employee is entitled to the same salary and benefits as a permanent employee in a similar role.
2. Statutory Social Security Benefits
All fixed-term employees are entitled to receive social security benefits such as ESI and Provident Fund from their first day of work.
3. Leave Entitlement
Every fixed-term employee is entitled to Earned Leave, Casual Leave, and Sick Leave per the Labour Laws and the Company Policies.
4. Gratuity Qualification
Any fixed-term employee whose employment has exceeded 1 year, inclusive of renewals, is also entitled to Gratuity benefits under labour laws.
5. Safe Working Environment
Employers have a responsibility to ensure a safe working environment for fixed-term employees, as well as to ensure compliance with the Sexual Harassment of Women (Prevention, Prohibition and Redressal) Act (POSH) and to treat them with dignity.
6. No Discrimination in Workplace Policies
Fixed-term employees must be provided an equal opportunity for accessing training, reviews, and facilities, as in any other employee whose employment is permanent.
7. Obligation to Exit Without Restructuring
Termination of the contract occurs through the contract expiry, and no redundancy procedures apply as long as the terms are set out in writing.
How Fixed-Term Employment Differ from Permanent Employment
| Aspect | Fixed-Term Employment | Permanent Employment |
| Duration | Defined start and end date | No fixed end date |
| Employment Contract | Fixed-term contract | Open-ended contract |
| Job Security | Limited to the contract period | Long-term job security |
| Statutory Benefits | Same as permanent employees | Same benefits |
| Termination | Automatic on expiry | Requires notice period |
| Cost to Employer | Predictable and controlled | Long-term cost commitment |
| Flexibility | High workforce flexibility | Limited flexibility |
How Fixed-Term Employment Works?
Understanding how fixed-term employment operates helps HR teams manage compliance and employee expectations easily.
1. Planning the Workforce
Human Resources will identify positions with short-term or project-based work fulfilment and agree on personnel needs according to project timelines, budgets, and objectives.
2. Drafting Contracts
A “fixed-term” contract is drafted to provide a clear understanding of the length of employment, job description and responsibilities, pay structure, working conditions, and available statutory rights.
3. Finding Employees for Fixed-Term Roles
Fixed-term employees are found, onboarded, and trained using the same processes as are done for permanent employees.
4. Payroll and Compliance for Fixed-Term Employees
The HR Management System will manage all payroll requirements (PF, ESI, taxes), track attendance and support the statutory compliance of fixed-term employees correctly.
5. Performance Reviews for Fixed-Term Employees
Performance of fixed-term employees is assessed at regular intervals using KPIs and performance management metrics to ensure productivity and that they meet business goals.
6. Monitoring Fixed-Term Contracts
Human Resources will closely monitor the start and end dates of fixed-term contracts to avoid unplanned contract extensions, non-compliance and lapsed contracts.
7. Separation Management of Fixed-Term Employees
Contract employment will end automatically on the expiry of a fixed-term agreement. At the time, the individual will be provided their final settlement per company policy and statutory law.
8. Possible Renewal and Conversion
Fixed-term contracts may be renewed or converted to permanent employment based on business needs and employee performance.
Why Companies Choose Fixed-Term Employment?
Fixed-term employment offers strategic advantages for employers across industries. Companies choose fixed-term employment for the following reasons:
1. Flexibility of the Workforce
A flexible workforce also allows companies to quickly scale up or down in terms of the number of employees based on various factors, including project requirements, seasonal fluctuations, and changes in the market.
2. Control of Costs
An additional benefit of fixed-term employment includes the opportunity for employers to manage their labour expenses more effectively than would be possible by having to pay full-time wages during fixed-term employment.
3. Faster Recruitment
With a fixed-term role, the hiring process is shorter since there are fewer levels of approval needed to fill an urgent vacancy.
4. Ability to Hire Specialized Skills
Using a fixed-term position allows an organization to obtain highly skilled specialists in job areas without requiring a permanent appointment, and thus creates long-term employment liabilities.
5. Reduced Legal Exposure
When fixed-term employment contracts are clearly written, there are fewer issues regarding issues about termination, downsizing, or employment continuity.
6. Better Planning for Workforce Needs
The Human Resources Department and the organization plan their workforce needs by aligning their costs with the timing of the business cycles, project timelines, and expansion strategies of the organization.
Conclusion
If your business wants to maintain flexibility but still remain compliant with regulations, then using fixed-term employment may be an effective way to do this. By implementing a fixed-term employment program that offers transparency, fair treatment, and operational efficiency to both parties, employers and employees alike will benefit.
However, if employers choose to manage their fixed-term contracts on a manual basis, they run the risk of creating compliance gaps, missing renewal dates, and incorrectly processing payroll. Savvy HRMS addresses these issues by providing an efficient way to manage all aspects of a fixed-term employment contract. This includes contracts, payroll, statutory compliance, attendance, and employee life cycle management through a single platform (HRMS).Book a free demo to handle fixed-term employment, contracts, payroll, and compliance easily using smart HR software.
