India’s new labour codes reset flexible hiring: What changes for fixed-term and contract workers

With the four labour codes now live, the government has effectively rewritten the rules for how companies hire outside permanent roles. In plain terms: India’s workforce has long run on two parallel tracks, fixed-term direct hires and contract labour via agencies. The codes try to formalise both, but in different ways.

Think of this as the state saying:

“If you hire someone directly, even for a short term, you must treat them like staff. If you hire through a contractor, you can’t outsource your responsibility.”

What changes for fixed-term employees (FTEs)

• Benefits equal to permanent workers: FTEs will receive all benefits equal to permanent workers, including leave, medical benefits, and social security.


• Gratuity after one year: FTEs become eligible for gratuity after one year of continuous service, instead of five years.
  Equal wages: FTEs will receive wages equal to permanent staff doing the same work.


• Employment approach: The PIB note states that this promotes direct hiring and reduces excessive contractualisation.

What changes for contract workers

• Health and social security obligations: The principal employer will provide health benefits and social security benefits to contract workers.


• Preventive healthcare: Contract workers will receive free annual health check-ups (the PIB note also states this applies to all workers above age 40).


• Parity through fixed-term route: The PIB note links contract labour reforms with the expansion of fixed-term employment, stating FTEs will increase employability and ensure social security and legal protection similar to permanent employees.

Common provisions that affect both categories

• Mandatory appointment letters: Appointment letters are mandatory for all workers, providing written proof of employment, job security, and fixed employment terms.


• Universal minimum wage right: A statutory right to minimum wages applies to all workers under the Code on Wages, 2019.
  Timely wage payment: Employers must provide timely wages.


• Working hours and overtime rules: Working hours are capped at 8–12 hours per day and 48 hours per week, and overtime beyond prescribed hours must be consent-based and paid at least double the normal wage rate.


• Expanded ESIC coverage: ESIC coverage is extended pan-India; voluntary for establishments with fewer than 10 employees and mandatory even for one employee in hazardous processes.

Why this matters for the economy

• India’s formal sector has relied on flexible labour to avoid paperwork and long-term costs. The codes are trying to pull flexibility into the formal net instead of banning it. If it works:


• workers in project cycles (IT, media, export units, seasonal manufacturing) gain security without losing employability,


• firms get a cleaner path to hire flexibly without hiding behind contractors,


• and contract labour becomes less of a welfare loophole.

In sum, from November 21, 2025, fixed-term employees and contract workers fall under a consolidated labour framework in which FTEs must receive benefits and wages equal to permanent workers and become eligible for gratuity after one year, while principal employers are responsible for providing health and social security benefits to contract workers, including free annual health check-ups.

These changes operate alongside broader code-wide provisions such as mandatory appointment letters, universal minimum wage rights, timely wage payment, standardised working hours and overtime rules, and expanded ESIC coverage.