Hi all,

My company employs certain people (such as civil engineers/ fitters/ operators/ supervisors etc.) on time bound contracts for specific projects who work in their individual capacity and not through any 3rd party contractor. These people are not field labour. These people are being paid through normal payroll system of permanent employees, and even have employee ids. They do not raise any monthly invoice per se. Their remuneration consists of normal salary breakup such as Basic/ HRA/ other allowances. Company is even deducting PF & ESI for such people. My query is:

1) Is this legally allowed?

2) Is my company supposed to deduct ESI/ PF for them?

3) Won't these people be covered under CL Act?

4) If yes to (3), do they need to have CL License individually?

5) What will be the status if contract expires? Are they deemed to be permanent employees on expiry of contract?

6) Legal repurcussions in case they continue to work & get paid inspite of contract being expired?

7) Any other potential violations in this kind of setup?

Any guidance would be greatly appreciated.


Vivek A.

From India, New Delhi
Dear Mr.Vivek

The workmen/employees referred to by you are usually called "fixed term employees".

Item No.1. This is legally permissible subject to the following condition:

(a) If the company or "industrial establishment" is one to which the Industrial Employment (Standing Orders) Act is applicable and if these employees referred to by you are also "workmen" as defined under section 2(i) of the Industrial Employment (Standing Orders) Act, then the certified standing orders applicable to your "industrial establishment" should contain a sub-clause "fixed term employees" in the clause relating to classification of workmen in the certified standing orders.

Item No.2. ESI and PF are to be deducted subject to the provisions of the respective laws.

Item No.3. They are not covered under the C.L.(R and A) Act. as they are not engaged through a contractor and are employed directly by the company.

Item No 4 not applicable in view of the response to item No.3.

Item No 5. If they are employed beyond the period specified in the fixed term contract, they will continue to earn wages/salary for the extended period according to the terms and conditions agreed upon already. They cannot claim permanency. This is subject to the condition that there are no laws which regulate the grant of permanency on the worker being employed for a particular number of days during a specified period of years. I am not referring to the 240 days referred to in the Industrial Disputes Act. For example in Tamilnadu there is a law called the Tamilnadu Industrial Establishments (Conferment of Permanent Status to Workmen) Act 1981. According to this Act if in an industrial establishment to which the Tamilnadu Industrial Establishments (Conferment of Permanent Status to Workmen) Act 1981 is applicable, a worker has worked for 480 days in a period of twenty four calendar months becomes a permanent worker of that industrial establishment. So if there is such a law in your State and if the conditions specified by that law is fulfilled these "fixed term employees" may claim and will get permanency even though they have worked as fixed term employees.

Item No.6. Answered at Item No.5

Item No.7. No other major issues regarding such employment.

With regards

From India, Madras
Dear Mr.Harikrishnan
Can such fixed term employees continued to work by signing a fresh agreement every year and as such if they work continuously for 6 years, are they are eligible for Gratuity? Please explain.

From India, Mumbai

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