Fixed-Term Employment Policy Template for India

A fixed-term employment policy sets out when your company hires employees directly for a defined period, such as a project, a season or a temporary peak, and on what terms. Fixed-term employment is allowed under the Industrial Relations Code, a fixed-term worker holds full employee status, and gratuity is paid pro rata without the five-year minimum. The policy keeps these contracts genuine, fair and properly documented.

When to use it: Adopt it before you hire anyone on a fixed-term contract for a project, season or temporary need, rather than through a contractor. Have a labour law adviser vet it before the managing director signs it, because the contract wording carries real weight here. Use it for every fixed-term appointment letter and renewal, and review the list of fixed-term employees and their end dates every quarter.

Fixed-term employment policy template

Copy the text below and replace everything in square brackets with your company details.

1. Purpose

This policy explains when [Company Name] engages employees for a fixed term, the terms they receive, and how renewal, early exit and settlement are handled.

2. Scope

It applies to employees engaged directly by [Company Name] for a period stated in writing. It does not cover workers supplied by contractors, interns or consultants.

3. Definitions

Fixed-term employee: an employee engaged on the Company's rolls for a period, or until an event, stated in the appointment letter.
Term: the period from the start date to the end date or end event.
Renewal: a written agreement, made before the term ends, to extend it for a further period.

4. Policy

Fixed-term employment is used for time-bound work, such as a project, a seasonal peak, cover for an employee on long leave or a pilot, and not to keep a permanent role filled indefinitely.
Each fixed-term employee receives an appointment letter stating the start date, the end date or end event, the role, pay and other terms.
Fixed-term employees receive the same hours of work, wages, allowances and other benefits as permanent employees doing the same or similar work, pro rata where a benefit depends on length of service.
They are covered for PF, ESI, bonus and leave on the same basis as permanent employees, wherever they meet the eligibility conditions.
Gratuity is paid pro rata for the service completed, without the five-year minimum that applies to permanent employees.
A term may be renewed by written agreement before the end date. Renewals are approved by [Designation] and reviewed when the total period passes [Number] months.
Employment ends on the end date unless it is renewed, and HR confirms the end in writing [Number] days in advance.
Before the end date, the Company may end the employment only with [Number] days' notice or pay in lieu, or for misconduct established after due process. The employee may resign with [Number] days' notice.
Wages due are paid within two working days of the last working day, and the rest of the full and final settlement, including pro rata gratuity and leave encashment where applicable, within [Number] days.
Fixed-term employees may apply for permanent vacancies, and if selected their probation may be reduced or waived.

5. Procedure

The hiring manager raises a requisition marked fixed-term, stating the reason and the period.
HR issues the appointment letter and records the end date.
[30] days before the end date, HR asks the manager whether to renew, convert or end the employment.
HR issues a renewal letter, a conversion letter or an end-of-term letter with the settlement details.

6. Responsibilities

Hiring managers: use fixed terms only for genuinely time-bound work and decide on renewal on time.
HR: issue letters, track end dates, ensure equal terms and settle dues on time.
Finance: include pro rata gratuity and other dues in the settlement.

7. Exceptions

Where a project is extended at short notice, [Designation] may approve a renewal after the end date, and HR records the reason and the new end date the same day.

8. Review

[HR Head Designation] reviews this policy every [12] months, and whenever rules on fixed-term employment change, checking whether any fixed-term role has in practice become permanent.

What to include

Genuine time-bound reasons

Record why each role is fixed-term: a project, a season, leave cover or a pilot. Rolling contracts for permanent work undermine the arrangement and invite disputes.

Equal terms

A fixed-term worker holds full employee status. Pay and benefits should match permanent colleagues doing the same work. See the fixed-term employment rules.

Pro rata gratuity

Build pro rata gratuity into the final settlement of every fixed-term employee. Unlike permanent staff, they do not need five years of service to qualify.

End dates tracked

Track every end date and decide on renewal before it arrives. A person who keeps working after the end date with no letter creates uncertainty for both sides.

Early exit terms

State the notice or pay in lieu for ending the contract early from either side, so an early end does not become an argument.

Settlement on time

Pay wages due within two working days of the last working day and settle the remaining dues promptly. Fixed-term exits are planned, so there is no reason for delay.

Common mistakes to avoid

Renewing the same person on back-to-back fixed-term contracts for years to avoid making the role permanent.
Paying fixed-term staff less than permanent colleagues doing the same work.
Leaving pro rata gratuity out of a fixed-term employee's final settlement.
Letting the end date pass while the person keeps working with no renewal letter.
Treating fixed-term employees like contract labour and leaving them off PF and ESI.

Run it in ZeniaHR

Create a Fixed-term employment type in the organization masters so fixed-term staff are easy to filter in employee records and reports. Their pay runs through Direct Payroll like everyone else's, and because paid days are bounded by the joining and exit dates, the final month is prorated automatically. Keep appointment and renewal letters in Employee Documents, record the exit through offboarding with the matching structured exit reason, and check the settlement with the gratuity and settlement reports.

Payroll Onboarding Employee records and exits

See it on your own data

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Frequently asked questions

What is fixed-term employment in India?

Fixed-term employment is direct employment for a set period stated in a written contract, such as for a project, season or temporary peak. It is allowed under the Industrial Relations Code, and a fixed-term worker holds full employee status. The employment ends on the stated date unless it is renewed in writing.

Are fixed-term employees entitled to gratuity?

Yes. Fixed-term employees receive gratuity pro rata for the service they complete, without the five-year minimum that applies to permanent employees. It is based on 15 days' wages for each completed year on the last drawn wages, applied in proportion to the service. See how gratuity is calculated.

Can a fixed-term contract be renewed?

Yes, by written agreement before the term ends. Each renewal should state the new end date and the reason the work is still time-bound. If the same role keeps being renewed for years, consider making it permanent, because repeated renewals for continuing work defeat the purpose of fixed-term employment.

How are fixed-term employees different from contract workers?

A fixed-term employee is hired directly by the company, on its own payroll, for a set period and with full employee status. A contract worker is employed by a contractor who supplies staff to the company. The two involve different documents, payroll arrangements and compliance responsibilities.