Most large organisations in India now run two workforces on the same payroll. Both have employee codes. Both have provident fund accounts. One of them is permanent. The other is on contracts that come with an end date, so for the last few weeks of every term those people wait to hear whether they will be kept on. I have managed both, and in my view the contract group is where most companies carry the largest people risk that nobody is really managing.
It is no longer a small group, either. According to the Labour Bureau’s Quarterly Employment Survey, the share of contractual employees in nine major non-farm sectors more than doubled, to nearly 18 per cent in the first half of FY23 from about 8.5 per cent earlier.
Most contract roles start for a good reason. There is a project, or a seasonal peak, or a freeze on hiring. Then the reason fades, and the role stays. Why? Usually because renewing a contract takes one signature and making a role permanent takes a budget discussion. So the same person is renewed every year, does the same job as the permanent colleague at the next desk, and is still left out when careers are discussed. Many HR teams run this group from a renewal tracker. I think that is a mistake. These people are part of the core workforce, and they should be managed that way.
What the New Codes Change
The four Labour Codes came into force on 21 November 2025 and replaced 29 older labour laws. For fixed-term staff, three parts of them matter.
The biggest is parity. A fixed-term worker has to be on par with a permanent worker who does the same or similar work in hours, wages, allowances and other benefits, and is eligible for all statutory benefits in proportion to the time served. If two people do the same job and sit in different pay bands only because one of them is on a contract, that is now very hard to defend.
Cost has moved too. Fixed-term staff now qualify for gratuity after one year of continuous service, while permanent staff still need five. Wages must also be at least half of total pay, and they now include basic pay, dearness allowance and retaining allowance. Put simply, a short contract set up mainly to save on benefits no longer saves much.
The exit rules cut the other way. When a fixed-term contract is simply not renewed at the end of its term, the retrenchment rules do not apply. That is the flexibility employers asked for, and I think it is fair. The catch is that the Code puts no cap on how many times a contract can be renewed. In one case the Centre for Labour Laws at NLIU has written about, the court ruled against an employer who put a break of a few days after every 89-day contract so that the worker would never become permanent. A company that uses renewal after renewal in place of a permanent hire should expect the same question to be asked of it.
Where it Goes Wrong?
The problem usually starts long before any audit. Nobody decides, role by role, why a job is on contract. A freeze comes in, the work still has to be done, and a contract hire fills the gap. A few years later, a core process depends on people whose jobs end every twelve months, and nobody in the room can say whether that was ever a choice.
Parity is often only on paper, too. Base pay may match. But contract staff get left out of variable pay, insurance top-ups, training budgets and internal job postings, because those policies were written for permanent staff and nobody went back to check. The Code puts “other benefits” inside its parity rule, so these gaps are now a compliance problem as well as a question of fairness.
Then there is the line manager. If one manager decides on renewal and there are no written criteria, renewal becomes a way to control people. Contract staff see this very quickly. The best of them leave.
What I Ask of the HR Teams?
Every contract role needs a written reason for being fixed-term, such as a project with an end date or funding that runs out. If the only reason is a headcount freeze, the role goes back to workforce planning.
I also want a parity audit that goes through every policy, including the ones the law does not require: variable pay, insurance, leave, training and who can apply for internal roles. Where a policy treats contract staff differently, someone in HR should be able to explain why in one sentence. If they cannot, the policy changes.
Renewals need a rule. After a set number of renewals in the same role, the company should decide formally whether to make the role permanent or close it. No artificial breaks between contracts. None. Contract status should play no part in induction, performance reviews or grievance handling. It is the same job, so it is the same process.
There should also be a clear route to a permanent job, with contract staff free to apply for permanent vacancies against published criteria. Of everything on this list, this is the one that keeps good people. It also gives the company candidates whose work it has already seen.
Then the board. It should see both workforces side by side: headcount, attrition, the number of renewals, the number of conversions and the full cost, including gratuity provisions for fixed-term staff. A board that only sees permanent headcount is approving a people plan for part of the company.
Who does the work, and on what terms? A contract role that has been renewed five times is, to my mind, a permanent role on weaker terms. Decide on purpose which roles are fixed-term, and give those people the parity the law now asks for. After that, make every renewal a real decision.
