Dilemma – Hiring Fixed Term Employees or Permanent Employees

Background

With the introduction of the new labour codes, Fixed Term Employees (FTE) will be required to be provided with similar wages, allowances and other benefits as that of a permanent employee as a matter of right across all establishments. Earlier FTE’s were primarily regulated based on the terms and conditions stipulated in their contract and under the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 (Rules). The Rules amended the Industrial Employment (Standing Orders) Central Rules, 1946 and came into force on 16 March 2018. The amendment introduced fixed term employment irrespective of the nature of work and made the underlying provisions applicable to all sectors across specific to industrial establishments.

Who is a Fixed Term Employee?

Section 2(o) of the Industrial Relations Code, 2020 (IRC 2020) and Section 2(34) of the Code on Social Security, 2020 (SSC 2020) defines Fixed Term Employment as the engagement of worker on the basis of a written contract of employment for a fixed period. Fixed term employment is not a substitute or a replacement of regular on-roll employees. The object of including this term in the statute is to empower the employer to have flexible manpower to meet his requirements from an employment perspective.  Such requirement may be with reference to a given project either in the head office, branch office or at the client’s place or anywhere else, it may be to meet the increase in work including to meet the delivery schedule either for export or for business within the country or any other contingencies which necessitates additional manpower for a specific period.

FTE shall be eligible for all statutory benefits such as Employee State Insurance (ESI), Provident Fund (PF) and gratuity available to a permanent employee in proportion to the period of service rendered by him/her even if this period of employment does not extend to the qualifying period of employment required under the respective act. The hours of work, wages, allowances and other benefits of an FTE shall not be less than that of a permanent workman doing the same work or work similar in nature.  FTE shall not be entitled to any notice or pay in lieu thereof, if his/her services are terminated as a result of non-renewal of contract or on expiry of such contract period without it being renewed. Further, an FTE shall be eligible for all statutory benefits available to a permanent employee proportionately accordingly to the period of service rendered by him/her even if the period of employment does not extend to the qualifying period of employment in the statute.

Pros and Cons of Hiring an FTE over a Permanent Employee

Since the wages, allowances and other benefits are similar to that of permanent worker doing similar work, it would not be financially viable to engage an FTE on a long-term basis. However, companies may engage an FTE during a pandemic, emergent situations or any other unforeseen circumstances like natural calamity, war, etc. It is likely to be a cost-effective option for companies to deal with FTEs from both process and financial standpoint.  Moreover, FTEs are eligible for gratuity, if he/she renders service under the contract for a period of 1 year as compared to a permanent employee who is entitled to gratuity only after completion of 4 years 8 months of continuous service. As such, it is a more viable option for companies to engage with permanent employees as against FTEs.

FTEs are not entitled for retrenchment compensation as compared to permanent employees as a result of which the process of terminating an FTE is less complex as compared to a regular employee. In case of an FTE, employment ends at the expiration of the contract.

Considering the ongoing pandemic situation, disengagement of an FTE is easier as compared to a regular employee. Further, companies can charge their client in respect of expenses incurred towards the FTE resource whereas the same is not possible with respect to regular or permanent employees.

In addition, the engagement of FTE’s to replace contract labour will be a viable option as the company will be able to save cost on admin charges and monthly placement fees that are charged by the contractor. This also absolves the company of the risk of claims of permanency.

Conclusion

While the new labour codes have fixed the issue where FTEs were exploited by being hired for a fixed period and not being provided with any benefits as compared to a regular employee. By bringing the FTEs on par with regular employees, it has put the employers in a state of fix, whether to hire an FTE or a permanent worker or for that matter convert a permanent worker to FTE or vice versa.