How Do Fixed Term Contracts Work?

A fixed-term contract is an employment contract where an employee is contracted to work for a specific length of time, to finish a project, or until a specified event either happens or doesn’t happen. It typically expires automatically once the agreed-upon period of work has been met or the job is done, without any need for the employer to give notice. Both parties can agree to renew the contract once it has ended.

Fixed-term contracts are generally used for work that is project-based or seasonal in nature. Specialists that are hired to help deliver a project may be on fixed-term contracts. Additional retail workers coming in to help manage the increased workload over the holidays are often on fixed-term contracts. Office workers that go on parental leave or indefinite sick leave may also be covered by fixed-term employees.

Are there different types of fixed-term contracts?

There are fixed-term contracts that include a clause which allows for early termination on notice. It provides enough flexibility for both employer and employee to finish the employment contract before the expiry of the term for good reason.

Casual contracts are similar to fixed-term contracts, but they are usually reserved for freelancers and gig workers who are not guaranteed minimum hours of work or ongoing employment.

What are the rights of fixed-term contract employees?

Employees on fixed-term contracts are protected by the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. They have the right to not be treated less favourably than a comparable employee working under the same employer on a permanent contract, unless the employer can provide ‘objective justification’ for not doing so.

What this means is that fixed-term contract employees should be treated like a permanent employee doing the same job, with exceptions made for good business reasons. They have the right to:

• The same pay and conditions
• The same or equivalent benefits
• Access to the company pension scheme (unless the contract is for less than 2 years)
• Be informed of permanent employment opportunities in the organisation

Employers can choose to offer better overall terms and conditions to fixed-term employees, wherein such employees no longer have the right to the same pay, conditions, and benefits.

For example, an employee on a 3-month contract can be paid much higher than a permanent employee who does the same job. However, they may not be given access to a company car unlike the permanent employee, given that the business cost is not feasible for a temporary position.

A fixed-term contract that is not renewed is counted as a dismissal. Fixed-term employees who have been employed for at least two years have statutory protection from unfair dismissal, along with full redundancy rights.

Such legal protections are not granted to workers on fixed-term contracts, if they are:

• Contracted to an agency instead of the company they work for
• A student or trainee on work-experience placements
• A member of the armed forces

Employees on fixed-term contracts that are successively repeated or extended to more than four years automatically become permanent -employees, unless the employer can provide a justifiable reason for keeping them to a fixed-term contract.

What are the pros and cons of a fixed-term contract?

Fixed-term contracts have upsides and downsides for businesses looking to explore them as an employment option.

Pros

Flexibility

Compared to permanent contracts, fixed-term contracts give you much more freedom to meet the changing workload demands you face in your industry. This is especially true for sectors that have seasonal shifts in terms of capacity, such as retail and agriculture. You aren’t pressured to take on talent that you can’t actually afford to support in the long run just so you can tackle a lucrative project.

There will also be periods where permanent staff members have to go on extended leave, while you still have to meet certain work expectations in the time those crucial employees are unavailable. Fixed-term contracts can help you maintain the quality of work your company is known to deliver, even when you are technically down an important person in the organisation.

Opportunity for Evaluation

As a business with finite resources, finding workers that not only are highly qualified in terms of skill and experience, but also fit the company culture is challenging. There is always the chance that a hire with an impressive resume and who interviewed well may underperform. A fixed-term contract can serve as an evaluation tool to see if a worker would make for a valuable permanent addition to your organisation.

Cons

Difficulty in Recruitment

People naturally look for job security when job hunting, so advertising a position that is only on a fixed-term contract can lead to a hard time finding the right person to fill it. There may also be the perception that transitioning into a full-time role is difficult with less time spent with your company.

More Administrative Work

Relying on fixed-term contracts means having to constantly look for new hires and renew contracts frequently. Your company will be doing more administrative tasks to handle cycling workers in and out, along with all the necessary paperwork. An entire renewal system would have to be put in place to keep things manageable.

Draft secure fixed-term contracts

As an alternative to permanent employment, a fixed-term contract can provide the flexibility that your organisation may just need in today’s dynamic work environment. Much like any other however, there is so much legalese to understand when drafting fixed-term contracts.

Make sure your fixed-term contracts are in compliance with the law with the help of the HR Dept. We are experienced in drafting secure employment contracts, whether it’s for permanent or fixed-term employees. Contact us today to get started.