Contract Staffing, Fixed Term Employment and Gig Workers
There are three ways to engage someone who is not a permanent employee, and they are not interchangeable. Each has its own statute, its own threshold and its own obligations, and choosing one for convenience rather than for what the work actually is remains the most common and most expensive error in this area.
- Fixed term employment, and the one-year gratuity
- Contract labour at the raised threshold, and the core activity prohibition
- Gig and platform work, and what is actually in force
- Which route fits which work
- The state layer that survives the Codes
Three routes, compared on what actually separates them
| Route | Who employs the person | The distinguishing obligation |
|---|---|---|
| Fixed term employment | You do, directly, for a fixed period under a written contract | Parity with permanent staff on hours, wages, allowances and benefits, and proportionate statutory benefits regardless of qualifying periods |
| Contract labour | A contractor does; you are the principal employer | The contract labour provisions apply at fifty or more, and contract labour may not be engaged in core activities except in defined cases |
| Gig and platform work | Nobody, in the traditional sense; the arrangement sits outside the employer-employee relationship by definition | Aggregator registration and data obligations, and a welfare contribution whose rate has not yet been notified |
The route follows from what the work is. Engaging a person through a contractor to do core work, or calling continuing employment a gig, is where disputes come from.
A real option, with a real cost
The Industrial Relations Code defines fixed term employment as the engagement of a worker on the basis of a written contract of employment for a fixed period, and attaches three conditions in the definition itself. Hours of work, wages, allowances and other benefits must not be less than those of a permanent worker doing the same work or work of a similar nature. All statutory benefits available to a permanent worker are available proportionately according to the period of service rendered, even if that period does not extend to the qualifying period the statute would otherwise require. And gratuity is payable where the worker renders service under the contract for a period of one year, a position dating from 21 November 2025. The entitlement sits in the Industrial Relations Code definition but the gratuity machinery sits in the Code on Social Security, so the Industrial Relations Code alone is not the right citation for the computation.
There is a second, quieter advantage. The Code's definition of retrenchment excludes termination as a result of non-renewal of the contract of employment on its expiry. A fixed term contract that ends on its date is not a retrenchment, which removes the procedural consequences that would otherwise attach. What it is not is a way to hold someone on rolling short contracts to avoid permanent status, since parity applies from day one and proportionate benefits accrue throughout.
One distinction worth stating because it is regularly generalised away: the one-year gratuity rule is for fixed term employees, not for contract labour engaged through a contractor. Contract labour engaged through a contractor continues on the five-year rule, payable by the contractor. A page that states one year across all non-permanent staff is wrong.
A higher threshold, and a prohibition that has not moved
Section 45 of the Occupational Safety, Health and Working Conditions Code applies the contract labour chapter to every establishment in which fifty or more contract labour are employed, or were employed on any day of the preceding twelve months, and to every manpower supply contractor who has employed fifty or more contract labour on any day of the preceding twelve months. The threshold under the repealed Contract Labour (Regulation and Abolition) Act, 1970 was twenty. The Press Information Bureau states the increase in terms.
That is a genuine liberalisation for smaller users, and it is also where the misreading starts. Falling below fifty takes an establishment outside the chapter's licensing and registration machinery. It does not make contract labour a substitute for employment, and it does not touch the prohibition below.
Section 57 prohibits engaging contract labour in core activities of an establishment, subject to three exceptions: where the normal functioning of the establishment is such that the activity is ordinarily done through a contractor, where the activities are such that they do not require full-time workers for the major portion of the day, and where there is a sudden increase in the volume of work in the core activity that must be completed within a specified time.
Section 2(1)(p) defines core activity as any activity for which the establishment is set up, including any activity essential or necessary to it. The proviso then lists activities that are not to be regarded as essential or necessary if the establishment is not itself set up for that activity: sanitation including sweeping, cleaning, dusting and waste collection and disposal; watch and ward including security; canteen and catering; loading and unloading; running hospitals, educational and training institutions, guest houses and clubs as support services; courier services as a support service; civil and other construction work including maintenance; gardening and lawn maintenance; housekeeping and laundry as support services; transport including ambulance services; and any activity of an intermittent nature even if it otherwise constitutes a core activity.
That is not an unconditional list. Running a hospital is core activity for a hospital, catering is core for a caterer, transport is core for a transport undertaking and construction is core for a construction business. The exclusion bites only where the establishment was not set up to perform that activity, so the right description is activities ordinarily treated as non-core support activities rather than a list of non-core activities.
Licensing. A manpower supply contractor within section 45 cannot supply or engage contract labour except under a licence, by section 47; the Central Rules state expressly that no licence is required up to forty-nine. In the central sphere the contractor applies electronically on the Shram Suvidha Portal in Form XXI and the licence issues in Form XXII, valid for five years, non-transferable, and capped at the maximum number of contract labour stated in it. The same Form XXI covers grant, renewal and amendment, a contractor operating in more than one state may take a single licence under rule 88, and the authority must decide a multi-state or all-India application within forty-five days failing which the licence is auto-generated. Renewal runs between ninety and thirty days before expiry, and each work order must be notified on the portal within fifteen days of receipt. An undischarged insolvent, or a contractor convicted in the preceding two years of an offence punishable with imprisonment exceeding three months, is ineligible.
Rule 90 generally requires a bank guarantee of ₹1,000 for each contract labour covered by the application, with aggregate caps of ₹10 crore, ₹15 crore and ₹20 crore for workforces from 100,000, 150,000 and 200,000 respectively. Licence fees run from ₹1,000 for fifty to a hundred workers to ₹40,000 above 20,001. These are the Central Rules; where the state is the appropriate government its own authority, portal, security, fees and forms apply.
What falls back on the principal employer
Wages. The contractor pays, on a wage period not exceeding a month and by the seventh day after it ends, ordinarily by bank transfer. If the contractor does not pay within that period the principal employer must pay the full wages or the unpaid balance within fifteen days, recovering it by deduction from money payable under the contract, as a debt, or from contractor security held. The labour authority may also use the contractor statutory security or bank guarantee to pay unpaid minimum wages. Provident fund and state insurance are worse, because the liability is first-instance rather than residual. Under section 17 of the Code on Social Security the principal employer is responsible in the first instance for provident fund contributions for employees engaged through a contractor, and under section 31 for both employer and employee state insurance contributions for employees engaged directly or through an immediate employer. It may recover from the contractor, and the contractor may deduct only the employee share from the worker. Rule 93(4) of the Central Rules requires all contract labour to be enrolled with the provident fund and insurance authorities where those provisions apply. A contractor holding its own registration or code number does not remove any of this.
A framework in force, and a contribution rate that is not
The Code on Social Security defines a gig worker as a person who performs work or participates in a work arrangement and earns from such activities outside of a traditional employer-employee relationship, defines platform worker separately, and defines an aggregator as a digital intermediary or a marketplace for a buyer or user of a service to connect with the seller or service provider. Those definitions are in force.
So are real obligations. Under the Social Security (Central) Rules, 2026, reported as G.S.R. 344(E) of 8 May 2026, an aggregator was required to share worker data electronically within forty-five days of commencement, a deadline of 21 June 2026, through onboarding and application programming interface integration with the e-Shram portal, with new workers registered in real time or daily and exits shared in real time. Provisional contributions are due by 30 June annually with audited statements by 31 October, and late contributions carry interest at one per cent per month. A worker qualifies for benefits on ninety days with a single aggregator or a hundred and twenty days across aggregators in the previous financial year.
The welfare contribution has not started, and the page should not say aggregators must contribute one to two per cent. As at 17 September 2026 the Central Government had notified neither the rate under section 114(4) nor the commencement date required by section 114(5), so no contribution is presently payable. The one to two per cent that is widely quoted is the statutory range within which the Government must choose, not a rate in force, and the five per cent of amounts paid or payable to gig and platform workers is a ceiling on the contribution once activated, not an alternative rate. The 2026 Rules build the collection and reporting machinery, including Forms XX and XXI, but do not fix the rate or commence the monetary obligation.
The operational obligations above are live regardless, which is the part that matters this year: registration, worker data submission and the reporting machinery all apply now.
An ordinary employer that engages freelancers is not an aggregator. The Seventh Schedule lists nine categories: ride sharing services; food and grocery delivery; logistics; e-marketplaces under both marketplace and inventory models, wholesale or retail, business to business or business to consumer; professional services providers; healthcare; travel and hospitality; content and media services; and any other goods and services provider platform.
The Schedule cannot be applied by sector label alone. Section 2(2) first requires the entity to be a digital intermediary or marketplace through which a buyer or user of a service connects with the seller or service provider. A company that engages freelancers or independent contractors directly for its own business is not intermediating between anybody, and is therefore not an aggregator merely because it uses independent contractors. The answer changes if it operates a website, application or other marketplace connecting customers with those contractors. The ninth category is broad but still refers to a provider platform, and it does not displace the threshold definition.
Which route fits which work
Use fixed term where the work is genuinely time-bound
A project with an end date, a defined replacement for absence, a seasonal peak. The work is yours, the direction is yours, and the arrangement is honest about that. Budget for parity from day one and for gratuity at one year.
Use contract labour where the activity is genuinely not core
Facilities, security, catering, and specialist services ordinarily bought in. Check the activity against the core activity prohibition before the threshold question, because the prohibition applies regardless of numbers.
Use a platform arrangement only where the work really sits outside employment
The definition turns on the absence of a traditional employer-employee relationship. Continuing work under your direction, on your premises, to your schedule, is employment whatever the contract is called.
Do not choose on cost alone
The cost differences between these routes have narrowed considerably under the Codes, because parity and proportionate benefits attach to fixed term employment and because platform arrangements now carry their own obligations. Choosing on the old cost logic is likely to produce the wrong structure and no saving.
What the Codes did not centralise
State shops and establishments legislation continues to matter, and it cannot be mapped generically. Each state and union territory keeps its own legislation, its own exemptions and its own notifications, so there is no national answer to give here. What there is not, and what a reader should be careful of, is any suggestion that the Labour Codes have displaced state shops and establishments law. They have not.
For a given set of locations the mapping has to cover registration and renewal; daily and weekly hour limits; spread-over, rest intervals and overtime; weekly closure and weekly off; annual, casual and sick leave; opening and closing hours; employment of women at night including consent, transport and security conditions; registers, notices and returns; how the rules apply to remote and home-based employees; and which provisions are displaced by the Codes, which sit alongside them and which are more beneficial and therefore prevail.
That is engagement work rather than page content, and it is the layer most often missed when a company that has hired in one state starts hiring in another. Tell us the states and we will map them.
Questions about non-permanent engagement
Can we convert permanent roles to fixed term?
Converting an existing permanent employee to fixed term is a change to the terms of employment and is not something to do unilaterally. Fixed term is a way of structuring new engagements that are genuinely time-bound, not a mechanism for changing the status of continuing work.
Is a consultant agreement safer than an employment contract?
Not if the substance is employment. What determines the relationship is control, integration into the business, and how the work is actually performed, not the heading on the agreement. A consultancy label over an employment relationship tends to be tested at exit, when it is least convenient.
What happens if we have forty-nine contract labour?
The contract labour chapter does not apply, but the count is on any day of the preceding twelve months rather than today, and the core activity prohibition applies regardless of the number. Managing to just under the threshold is a position that needs watching rather than a solution.
Where to go next
Talent Acquisition
Back to the main page: how we recruit, what we take on, and how to reach us.
Hiring Under the Labour Codes: What an Offer Must Now Say
What actually commenced on 21 November 2025 and what did not, the appointment letter that is now a statutory obligation, the redefined meaning of wages and what it does to a salary structure, and the registrations a first hire triggers.
Executive Search and Senior Appointments
Leadership hiring where the appointment is also a corporate act: key managerial personnel, director appointments and the checks that precede them, and the independent director databank and proficiency test.
Screening, Background Verification and Candidate Data
What may be checked and what may not, the data protection regime that is commencing in phases rather than all at once, and the difference between an applicant and an employee that the statute does not clearly resolve.
Campus Hiring, Internships and Apprenticeships
The employer side of campus recruitment, the legal difference between an intern, an apprentice and an employee, apprenticeship obligations and stipends, and the incentive schemes currently running.
Send an enquiry
Tell us what the work actually is: how long it lasts, who directs it, and whether it is central to what your business does. The right route follows from those three answers rather than from the cost comparison.
Position as at 17 September 2026. Reviewed every six months.
This page is general information, not professional advice. Indian employment law is in the middle of the largest transition it has had in seventy years. The four Labour Codes commenced on 21 November 2025, two of them only in part, repealing twenty-nine central Acts. New central rules under two of the Codes were notified in May 2026 and new provident fund and pension schemes in June 2026, one of which was corrected in August 2026. The Digital Personal Data Protection Act is commencing in phases that run to 2027. Several positions on these pages are marked as unresolved because the primary source could not be read, and a page that pretended otherwise would be worth less than one that says so. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.