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Firms can now hire employees on a fixed term contract


https://wap.business-standard.com/ar...0500035_1.html

Till the 1970s or so the organized sector could only hire full time permanent employees with no flexibility for part time employees, contract labour or flexibility of any kind. This was driven first by the agenda of the then powerful political worker unions whose interests lay in protecting their own rather than generating employment at large for the economy. They were also shamefully dishonest and money spinning rackets. On the second point this was driven by narrow minded bureaucrats who saw employment creators {entrepreneurs} as enemies of the socialist order they were trying to create.

Then sometime in the 1980s/early 1990s contract labour got regularized in steps. That generated employment in larger numbers than hitherto for low skilled and semi skilled jobs. Most of us who work in corporates are familiar with this contract labour - security, tea boys, housekeeping, temporary shop floor low skilled workers etc.

Now the Govt is bringing in a third intermediate labour aimed at the skilled employee {most on this forum} - a fixed term contract with direct employment with the primary corporation and all the regular benefit except that it is for a fixed tenure. Many who are employees will disagree.

As a person who has been an employer and job creator most of my life this strikes me as a sensible move. It will encourage job creation by the primary employer instead of trying to outsource non-core or ancillary work to a smaller lower wage vendor. As an employer the more flexibility you have to hire, terminate, invest, exit investment the more you are motivated to invest, build facilities/factories and create jobs. Employees, however, may see this as a sell out.

Hitherto the closest thing you had to this was a consultant's contract with some very high end workers - pilots, doctors, lawyers. Now pretty much all employees can be on a fixed term basis. Less security maybe. More job creation maybe. We'll also see contracts with a slightly higher starting salary but no increment. We used to employ pilots in this way with each having his or her unique contract.

I suspect a lot of IT jobs of code writing will rapidly move to fixed term contracts.

From what I understood, this would be more beneficial to industries like apparel/garments where work is periodic, for e.g. before a festival season. Employers can hire workers for a fixed 100 day or so term.

Do fixed term workers get PF benefit?

I've already seen this being practised by those in the EPC business.

Merits

1. Employee gets a fixed income every month without having to wait for "retention pay" which some companies build into CTC ; this component is sometimes as high as 33% of the CTC

2. Employee gets a performance award too after completion of the year

3. Lower notice period should the employee decide to separate.

3. Employer has the option to de-hire the employee once the project is over; no strings attached.

4. Works best for those above 50, who are 3/4 ths into their professional life.

5. keeps the employee on his/ her toes to demonstrate performance :D

6. PF contribution from the employer as part of compensation

7. Travel, deputation and relocation policies of the company apply to full time contract employees too.

Demerits

1. No rise in salary for the employee in the tenure of the contract

2. No promotions.

3. Lower job security

4. Low loyalty to the company ( this is already a trend in jobs these days), and thus may not work in the long term interests of the company

Ah, so no one in private sector will have job security now.
But then, does it exist today? What exactly is meant by permanent employee?
In Sales or P&L roles you may get not more than few quarters to err.

Also in disagreement with VNarayan, this move will certainly not lead to higher starting "salaries". The salary is a price for certain profile and skill and the availability of people to cater this demand.

The only change we are making here is instead of owning certain liabilities like medical insurance and "employee benefits" you are giving full cash to the worker and he is responsible for his well being and benefits. Perhaps you meant transfer of the cost associated with these benefits to the worker as cash? I wouldn't be surprised if that differential also gets diluted due to market pressures.

In a way this will lead to overall reduction of manpower cost.

By the way, many of the skilled work is already happening through contract workers, even in IT domain. So what different happens here?

Perhaps what he meant was better salaries than via Contractors currently. As an example, a large percentage of the Automobile workers are on contract. Now, companies can hire directly instead of routing via contractors who add their commissions and also shortchange labor.

Its still going to be a mix and match.

I have seen cases where employees who were hired via a contracting firm were paid significantly more than what their counterparts who were permanent employees in the primary firm were being paid(for that skill/experience level).

Apart from a possible increase in contractual roles, the main change from this policy would be that employees will need to look at their contracts more carefully to understand what they're getting and losing out in the "deal".

Am a bit unclear on the difference though- I've seen several contractors at the IT companies I've worked for. So how is this different? They were all employed as full-time employees with other firms though, and those firms placed them as contractors in the companies I worked for. So I guess that will be the difference now, contractors can be employed directly as contractors with the end-user firm?

If that's the case, good move. While I've always been a full-time employee so far in my career, I can see a time, perhaps in 5-10 years, where I'd prefer to work as a contractor for a few months/per-project basis.

Again, am a bit unclear about how this would be different from hiring a freelancer?
(thanks in advance for any clarifications)

You are referring to people with a particular skill set. It's obvious that I will pay more to a chef if I am hiring him for few days or weeks vs a permanent or a longer contract term. How I see this is, say, currently Maruti has 40% of their labor via contractors and they charge Maruti a fixed sum and also exploit labor, keeping some of the benefits. Now, if companies want, they can hire labor directly say for 2 or 3 Years and save on the contractor costs. Workers will also benefit with salaries coming from the company, they will get access to loans etc which are difficult when you are not on rolls of a large company.


No, I don't think this new policy is for such individuals who wants to work as contractor. But instead of you becoming a contractor, you can offer yourself as contract employee. Maybe you will not get IT benefits as you may otherwise qualify in case of contractor.

As a fellow member pointed out, I too have worked with people who were on a "fixed term contract" which is to say that there was a clear end date (could be renewed of course) and of course little or no benefits like medical and retirals offered. This may or may not be accompanied by a better salary.

The only barrier to companies implementing this wholesale, at least in white collar sector, was for companies to be seen as denying benefits to such employees. Of course, retention would also be an issue unless all companies follow suit. So what changes? The government blessing this?

Not sure how this pans out among factory workers. Already many biggies use the ruse of "casual labor" to deny benefits and competitive salaries to workmen. Fixed contracts and the underlying uncertainty is difficult for the blue collar workers who are not as mobile as their white collared counterparts

I think an independent contractor can be tax efficient if planned well. Business expenses can be set off unlike a salaried person.
The demerits will be lack of job security and other employee benefits

Question - are employers currently obligated to retain employees beyond a certain period of time even if they are not performing as per expectation? I think most organizations lay off people every year if performance is not satisfactory anyways. Also fixed term contracts exist already in the skilled sector.

Long tenured employees provide a benefit that short term employees may not - better understanding of the company and its culture and knowing what is "best" for the company's interest while making key decisions. The annual increments/bonuses are anyways there for those who perform above average and it serves as sufficient motivation?

Most doctors in corporate hospitals already are employed though “retainership” contracts, usually for a year at a time. With a certain percentage increase in the salary paid when the contract is renewed.
The downside for the employee is that there is no job security. Many have bitterly experienced this this year with COVID. Also usually no employee benefits or rights of any kind.
The good part is that one can change employers quite easily if and when greener pastures are available.
Never knew it wasn’t legal in other sectors till now..

I don't think this will work out for all industries. Like Narayan sir pointed out, it maybe beneficial for Aviation and other areas.

However for certain other industries it may be as harmful. There are many areas where HR is grappling with high attrition and cannot sustain the required head count, if fixed term contracts become a norm then it may not be cost effective for businesses in the long run. Consultants being one such example, where the employee will move with his network each time he jumps a company, despite checks and balances. It is happening and it effects the overall revenue projections in the long run.

Stability at times is not only cost effective but also brings order to the work culture of organization. It inculcates loyalty which works wonders if groomed in a right manner. We had some unfortunate attrition due to covid -19 deaths, and we are finding it extremely difficult to find their replacements, be it cost or the skills.

Its good to have flexibility with these new rulings but its venturing into unknown territory for many of us, impacting the employee-employer relationship specially in India.

Fixed term workers are definitely a big no for unskilled workers. A worker once employed with at least relative assurance of job security even through the word of mouth transcends the employee into disciplined and effective individual specially when it comes to female workers. I agree there might be longer learning curve but it can be done.

This has potential to negatively impact the IT services companies that supply workforce for local projects and works. Basically the company that was hiring from bigger contractors such as Infosys or Wipro (or any other) can now hire contract workers directly and to address any seasonality. The question would be about the cost of hiring activity itself.

In other sectors like manufacturing, this creates a legal framework for seasonal hiring. In effect the round about manners or the non transparent mechanisms will lose their utility.

This will also reduce the abuse of labor laws by unions and such.