This article examines the growth of rural non-farm employment in the light of changing employment patterns in Punjab. To understand the processes and underlying determinants, the study uses secondary (Periodic Labour Force Surveys) and primary data collected from 200 rural households in two economically diverse districts of Punjab—Ludhiana and Fazilka. In addition, a follow-up survey was conducted, covering 133 of these households, to examine the changes in rural employment after 5 years. The analysis finds that rural households were significantly participating in the rural non-farm sector; however, the emerging opportunities remain highly unequal across social groups, gender, asset positions and locations. Due to an urbanized setting and more industry-based development in Ludhiana, non-farm employment was found to be relatively sustainable in nature, whereas it proved to be a source of income sustenance in Fazilka. However, in the pretext of the pandemic-led economic downturn, a large proportion of workers, especially socially deprived with low levels of education, joined back agricultural work. Further, the impact of economic shock has been uneven, varying widely across social groups, gender and educational levels. Thus, the loss of livelihood and income levels has halted the process of structural transformation and exacerbated the existing inequalities in access to non-farm sector opportunities.