Fixed-term contracts are becoming more and more common as employers seek to stretch budgets further and make efficient hiring decisions.
There are many pros and cons to using fixed-term contracts, and this article will give hiring managers and recruiters a better sense of when it might be appropriate to use a fixed-term contract, how it might work in practice, and what this type of contract means for both employees and employers.
What is a fixed-term contract?
A fixed-term contract is a contract given to someone for a set duration of time, or until the completion of an overall project or objective.
An individual is not considered to be on a fixed-term contract if they have this type of contract with an agency rather than their employer, or if they're a trainee, student, or on a placement.
Why do employers use them?
Employers use fixed-term contracts if they're looking to hire someone to carry out a project, achieve a certain objective, or cover a role for a particular person or period. If the employer won't need the services of the employee beyond the agreed period, a fixed-term contract makes sense.
Many employers use fixed-term contracts as a way of managing budgets closely and ensuring a full-time hire isn't made without the finances to support such a decision. This can be helpful in periods of uncertainty or change.
Gov.uk has a full explanation of the rights of both employer and employee when it comes to fixed-term contracts.
What is the duration of a fixed-term contract?
The duration of the fixed-term contract is whatever you set it as in the contract.
Unless stated otherwise, it can be hard to end a fixed-term contract early so careful consideration must be given to the appropriate duration of the contract.
It's also worth considering the value of the work or the individual employee to your organization. You might want to build in flexibility in case project overruns or it would be beneficial to have the employee working for you for slightly longer than you might originally anticipate.
When can employees with a fixed-term contract quit?
Employees taking up a fixed-term contract will expect to work until the end of the contract or through an agreed notice period.
In most cases, if an employee has worked for less than a month they are not required to give notice of contract termination.
Continual, open discussions throughout the period can be helpful if there's any uncertainty on either side.
What are the disadvantages of a fixed-term contract?
The main disadvantage for an employee is instability. As well as the lack of job security, the nature of a fixed-term role means progression, pay rises, and other perks of being a valued, long-standing employee are far less likely.
For an employer, the main disadvantage of a fixed-term contract is losing talent. Many people, especially in today's uncertain economy, would prefer the stability of a permanent role, which can make it hard for employers who want to extend a fixed-term contract but may not be in a position to make a role permanent.
How many times can a fixed-term contract be renewed?
In the UK, it's legal to keep an employee on successive fixed-term contracts for up to four years. At this point, if a contract isn't terminated the employee would automatically become a permanent member of staff.
If the employee has been working on fixed-term contracts for over two years, the employer must provide a 'fair' reason as to why their contract isn't being renewed.
In what cases can a fixed-term contract be terminated early?
If the employer has included a clause in the contract about early termination and gives the agreed notice period, they're entitled to end a fixed-term contract early.
There may be many reasons for doing this, but the most important thing is the clause in the contract capturing how this information will be shared with the employee, and under what timeframe.
Fixed-term contracts can also be ended early if both parties agree to it.
Can a fixed-term contract become permanent?
Yes. The most common way this happens is both parties want to take the arrangement from fixed-term to permanent, and a new contract is then drawn up to reflect the fact that the role has now changed.
If an employer continues to keep the same employee on a fixed-term contract for over four years, the position would become permanent by default.
What are the employee's rights under a fixed-term contract?
Employees on fixed-term contracts must not be treated any less favorably than those on permanent contracts (unless the employer can prove a strong business reason for doing so).
This means fixed-term employees are entitled to the same pay, conditions, benefits, and protections.
Employers will also need to ensure fixed-term employees are given the same access to employment information, such as permanent vacancies inside the organization.
The equivalent redundancy rights to full-time staff only kick in after two years as a fixed-term employee.
Do employers need to provide a reason for not renewing a fixed-term contract?
Fixed-term contracts end at the stated date unless agreed otherwise.
When this happens, it's counted as a dismissal and if the employee in question has been working on a fixed-term contract for over two years, the employer will have to show a 'fair' reason for not renewing. A 'fair' reason can be as simple as the project being complete or someone returning from maternity leave.
Pros and cons of fixed-term contracts
The biggest pro of fixed-term work, for employer and employee, is freedom and flexibility. For an employee, it may mean the chance to work on an exciting project or try out something for a while with minimal commitment. While for the employer, it can be a useful way of reducing spending or covering an under-resourced area.
The red tape around fixed-term employees can be slightly more difficult for an employer to manage if they haven't drawn up a suitable contract, so it's important to weigh up the pros and cons before deciding if fixed-term is the right route.
It can also be hard to see talented fixed-term employees being snapped up for permanent jobs elsewhere.
For employees, the biggest con is probably the lack of job security. It may mean missing out on promotions or pay rises they may otherwise have been working to in a permanent role, and more time spent looking for jobs when a contract does come to an end.
There can also be a lack of ownership of the role as the employee feels it's not 'theirs' and therefore they can't fully commit to it in the same way. But this is of course not true for everyone.
How to keep your employee data up-to-date
Keeping employee data up to date is always important, but especially so when you're dealing with fixed-term employees.
If you're looking for a smart and efficient way to do so, try Picked'sdigital files to manage data in a safe, secure, and accessible manner.
Not only is the system customizable, but it also includes useful analytics tools, workflow automation, and an integrated HR system that makes everything from recruiting to contacting staff easier and more efficient.