Legal Guide

What are the Different Types of Employment Contracts In India?

by Bhavya Choudhary · 4 min read

types of employment contracts

Introduction

It is a document that helps to form an official relationship between an employer and an employee. The employee is obligated to provide their services to the company if they enter into an employment contract and voluntarily affix their signature after reading all the terms and conditions.

What is an Employment Contract?

  • It is a legally binding document that contains a set of terms and conditions, rules and regulations, and duties and obligations between the employer and the employee. This helps to govern the official relationship between the two parties who give and take services.
  • The employee should be aware of every nitty-gritty detail before signing the employment agreement as it contains the crucial components that will build the working structures for their new position in the company. The agreement also safeguards the parties interest’s and provides job security. 

Laws Governing Employment in India 

The Indian government has a set of laws that governs and regulates every sector of employment and maintains a lawful working environment for both employers and employees.

These laws are as follows:

  • The Payment of Wages Act, 1936
  • The Trade Unions Act of 1926
  • The Minimum Wages Act of 1948
  • The Payment of Bonus Act, 1935
  • The Employees Compensation (Amendment) Act, 2017
  • The Maternity Benefit (Amendment) Act, 2017
  • The Employees State Insurance Act, 1948
  • The Industrial Disputes Act of 1947
  • The Contract Labour Act, 1970
  • The Payment Of Gratuity Act, 1972

Some other laws are also in place to manage different types of contracts and workers’ wages and rights. These are necessary so that the economy can function efficiently and increase production output.

Types of Employment Contracts 

There are 4 types of employment contracts that are available in India. The company and employees can choose which is fitting for them and take suitable action accordingly. 

1. Permanent Employment Contract

  • This type of employment contract is the most basic and commonly used agreement for employers and employees. 
  • The employee who works either full-time or part-time receives this type of employment contract. 
  • Such types of employment contracts have no designated end date attached to them as these types of employment contracts terminate when either the company or the employee wants to change their options.

2. Fixed-Term Contract

  • These types of employment contracts are used mainly by independent hirers. 
  • This type of employment contract has a stipulated ending duration attached to it with terms and conditions.
  • It is the type of employment contract that significantly describes the start and end period of the job, working hours, salary and bonus details, instructions for providing their services, and obligations. 
  • The rights in these types of employment contracts are provided to independent contractors while they are working for the company.

  3. Casual Employment Contract

  • This type of employment contract is a combination of both fixed-term and permanent contracts. 
  • It’s similar to a fixed-term contract in the context that there is a stipulated ending date for the job or termination of the agreement.
  • It’s similar to the permanent contract in the context that there are fixed working hours for the employees who join under it.

  4. Zero-hour worker Contract

  • This type of contract does not specify the fixed working hours for any employees.
  • The organization does not have to provide a notice of a designated time limit that an employee should have worked.
  • Flexibility and time management are considered for these types of employment contracts. 
  • The employees are not bound to work solely for a specified employer as they can choose to provide their services to other employers, too, while working for the previous one.
  • This type of employment contract is chosen by many for the benefit of fluidity in working environments.

Advantages of Employment Contracts in India

  • There are some Statutory advantages attached to the different types of employment contracts in India, which are beneficial for every employee.
  • The advantages can be of various types for each company as each organization provides a multitude of merits to its workers. There are still a few mandatory basic benefits that are acquired as an employee working under a company.

It is regulated by the Indian employment laws and regulations that manage the different types of employment contracts. These are as follows:

  • The social security benefit in India is not as developed as in other countries that provide it to their employees. A percentage of employees’ salaries are funded by Employee Insurance, provident funds, and gratuity funds. 
  • The holidays and leave entitlement is taken seriously as India is a country of numerous religions and festivals. Some employees are entitled to annual leave after they have completed a specific period of working days in India as per their type of employment contract.
  • Maternity/paternity leave: Any female employee who has completed 80 days in a company is entitled to receive maternity leave. It can be 3 months to 4 months as per their delivery date. The employer is obligated to provide the female employee their full salary during this leave period as decided on their type of employment contract.
  • Sick/disability leave: Sick employees also receive a leave as decided by the company. There are various provisions of the organization for this kind of leave, and it is not mandatory to provide compensation as per Indian law.
  • Pensions are received by the employees who are within the Employee’s provident fund scheme range. There are also some competitive benefits given to the employees, and they may hire a legal consultant for a legal consultation to know about the rules regarding such pension schemes.

Conclusion 

The employment contract is important as it defines the working structures and relationships between the employer and employee within their legal boundaries. It can be complex at times and they may hire a legal consultant for a legal consultation to understand each aspect thoroughly. 

The employee and employer can talk to a Business lawyer or draft a contract with the help of a professional to make it legally valid.

Bhavya Choudhary

Written by

Bhavya Choudhary

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