A fixed-term employment contract is a great way for businesses to secure talented workers on a temporary basis, whether that’s a short or long period of time. By including an end date within a contract, there are rules and regulations that you need to address.
To avoid any confusion between your employment contract and indentured servitude, read on to our complete guide to fixed-term contracts.
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What is a fixed-term contract?
First thing’s first, let’s examine what does “fixed term” mean? The term “fixed-term contract” means a short term contract for a specific period of time. This type of fixed contract can be used for temporary or seasonal workers, usually due to decreased demand during other parts of the year. Unless renewed, a fixed-term contract will expire by a predetermined end date.
While other countries may have more restrictions, labour laws do not limit the duration of a fixed-term employment contract or the circumstances under which it can be offered. Though is not regulated, these contracts typically last between one and three years.
What are some positions which require a fixed-term contract?
Fixed-term employment is ideal for temporary positions such as:
Project work – If a business is in need of specific skills to complete a project but will no longer require a specialist when the project is complete.
Seasonal work – When a business requires more employees during a high season. This may be around the winter holidays for retail stores or summer holidays for hotels.
Maternity cover – If a permanent employee goes on maternity leave, a business may need a temporary team member to take over her duties.
Are fixed-term employment contracts “At-Will” Agreements?
In the UK, if there is no written contract or if the term of the contract is not specified, it is considered to be “at-will.” This means that either employee or employer can sever the relationship at any time for any reason so long as it is not discriminatory.
To avoid complications down the line, employees on fixed-term contracts should not be considered “at-will” workers. However, employers may include “early termination” clauses in fixed-term employment contracts to the same effect. (We’ll get into that a little later.)
How is a fixed-term contract different from a permanent contract?
Permanent employees are hired to work on an ongoing basis in what is called indefinite term employment. A fixed-term employment agreement meanwhile comes with an end date.
Fixed-term contract employee benefits may be similar to those of a permanent employee, but a fixed-term employee lacks long term job security.
How is a fixed-term contract different from a casual contract?
A casual contract is also a shorter-term contract, although casual contracts would be more typical for freelancers and gig workers who may technically be self-employed. Casual contract employees may fill similar positions to full or part-time fixed-term contract employees, but a casual employee may not be guaranteed a minimum number of hours or ongoing employment.
Fixed term employment: Risks and Rewards
Fixed contracts may allow employers to build a more flexible workforce on a budget, but they also come with serious risks. Left unmitigated, these risks can do a business real harm. Businesses that prepare adequately, however, should have nothing to fear.
Early termination of fixed-term employment
A fixed-term employee dismissed before the expiration of their contract may be entitled to the compensation they would have received if they had worked to the contract’s end date. Employers can avoid this pitfall by including an “early termination clause.” This will provide guidelines for ending the relationship early “without cause” and state clearly how much the employer will pay for the severance in lieu of the term’s full salary.
Unfair dismissal fixed term contract
According to employment law, fixed term contracts may make employers who violate the terms liable for larger sums than they would be without a contract. However, it’s important to remember the opposite can also be true: a thoughtfully-written contract will protect the employer’s interests as well as their employees.
Employers must be careful that their words match their actions. Implied contracts are those which are not written or verbalised, but which can be extrapolated from the employer’s behaviour. For example, if an employee works beyond the end date without having a new contract in place, whether intentionally or inadvertently, the employment relationship may be considered indefinite. Employers may also wish to avoid implementing a series of successive, fixed-term contracts for the same reason.
If an employer can manage these sticky situations, a fixed-term contract can offer a business many benefits:
- The opportunity to benefit from the knowledge and skills of a specialist for a set time period
- Increased flexibility for both employers and employees
- Effective forecasting of resources and budgets according to workforce requirements
What’s included in a fixed-term contract template?
There are many things to keep in mind when creating a fixed-term employment contract. Fixed-term contract employment rights may vary by state, so it is important that businesses check that their contracts are in compliance with local labour laws.
All employment contracts, regardless of whether they are fixed term, should include the following:
- Job title and description
- Compensation and bonuses
- Benefits, sick leave, and vacation terms
- Any applicable collective bargaining agreements
- Performance review criteria
- Termination benefits and notice periods
In addition to this information, fixed-term contracts also should also include:
- When the contract ends. This can be a fixed date, the end of a project, or the end of a season.
- An early termination clause. As we mentioned above, fixed-term contract termination clauses will help the employer to avoid paying an employee’s salary for the fixed term even after the employee has been dismissed. An employer should include a fixed-term contract notice period as well as severance pay.
- Language determining whether it is or is not an at-will agreement. It is better to write this explicitly to avoid confusion down the road.
- Procedure for fixed-term employment contract renewal. Employers should include information about if and how the fixed contract can be renewed. Is it automatic? Does it require sign-off from one party or both? This will clarify the employment arrangement and clear the way for future negotiations.
Moving Forward with Fixed Term Contracts
Using fixed-term employment contracts may be the best way for your company to keep the budget balanced while getting moving key projects forward. By proceeding with caution, your company can avoid infringing on fixed-term employee rights. This means mitigating risks and liability while holding on to all the perks of fixed term contracts. Furthermore, it’s less risky and allows you to choose whether you want to change your employee’s fixed term contract to permanent continuous employment.
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