Fixed-term contract

01 February 2022

Businesses use all kinds of employment contracts, to meet company and workforce needs.

Fixed-term contracts (or FTCs) are widely used. They allow individuals to work with freer and more flexible conditions. And this means, employers’ benefit from a fully functioning workforce.

Whilst these contracts can help you meet staff needs, they still come with vital legal obligations.

If you fail to provide legal rights and entitlements to these workers, you could face discrimination and unfair dismissal claims. Both of which lead to costly hearings, expensive penalties, and business disruption.

In this guide, we’ll discover what fixed-term contracts are, staff entitlements, and your legal duties for ending or extending them.

What is a fixed-term contract?

A fixed-term contract is an employment contract where workers are hired for a limited time.

There are many reasons for using these contracts, like for parental leave, sickness absence, seasonal employment.

They’re generally used for temporarily covering employees who are off–without replacing them. For example, you may an employee a six-month fixed-term contract for maternity leave.

What are the advantages of fixed-term contracts for employers?

There are several advantages in providing fixed employment. Employers benefit from:

  • Hiring specialists for a short period.
  • An increase in production from hiring a complete workforce.
  • Increase in performance as employees work around their conditions.

However, onboarding might become harder as many people will desire stable work. And hiring a full workforce constantly can become expensive.

Your staff also benefit from working under these contracts. These include being able to:

  • Work in several places or sectors.
  • Gain broader work experience.
  • Earn more money.
  • Work with freedom and flexibility.

The downside is that workers could present a lack of commitment. This means they could miss out on opportunities for permanent placements or promotions.

What are the requirements for fixed-term contracts?

There are certain requirements needed for an employee to qualify for these contracts. Workers are eligible if a fixed term contract:

  • Lasts for a set period (like, a twelve-month fixed-term contract).
  • Ends after a specific task has finished (like, completion of a project).
  • Ends after a specific event has occurred (like, running out of funds).

Agency workers and apprentices can work on a fixed term contract. Some students or trainees can as well, depending on whether they’re employed or engaged as a volunteer.

Legislation for fixed-term contracts

The legal rules fixed-term contracts come under, the Fixed Term Employee (Prevention of Less Favourable Treatment) Regulations 2002.

The law states you cannot treat workers less favourably compared to permanent employees (workplace discrimination). For example, if permanent employees receive holiday entitlements, fixed-term contract workers must receive them too.

This form of equality is important, especially if both employees are doing the same or largely similar job. However, if you have different rules, you must show good business reasons for doing so.

Employment rights for fixed-term employees

Workers are entitled to certain employee benefits and rights. Remember, they still pay income tax and national insurance under PAYE, just like permanent employees.

If you neglect their rights or unfairly dismiss them, you could face costly penalties in employment tribunals.

Some fixed term contracts worker rights include:

  • Receiving the same pay and benefits as permanent employees.
  • Information on permanent vacancies and promotional opportunities.
  • Protection against redundancy or dismissal.

How to manage fixed-term contracts in the workplace?

It’s possible to meet several outcomes when managing a fixed-term contract. You may want to end their placement permanently, extend it, or even shorten it.

Whatever the circumstances are, there are legal rules which need to be followed for each factor.

Ending a fixed-term contract

The contracts will naturally come to an end, especially when an agreement and date has already been reached.

Here, you are not required to provide workers with the minimum notice period.

Working less than a fixed-term contract

In some cases, you might need staff to work less than what you stated. Be careful not to breach contracts by ending them early–especially without mutual agreement.

If you have a term on leaving early, you still need to provide a notice period for fixed-term contract workers. The notice length is:

  • One week, if they’ve continuously worked for at least one month.
  • One week for every service year, if they’ve continuously worked for two years or more.

If a worker wants to leave early, they must hand in their notice one week in advance. But this is only required for those who’ve worked for one month or more.

Working more than a fixed-term contract

You might want to employ workers longer their contractual end date. If you both mutually agree to this, this stands as an implied agreement.

Here, workers are entitled to employment rights like, proper notice if they face dismissal.

Not renewing a fixed-term contract

When an employment contract isn’t renewed at all, it’s considered as a dismissal.

If the worker has two years of service, you need to show a fair reason for not renewing their contract. Workers have a right:

  • Not to be unfairly dismissed after two years’ service.
  • To be given a written statement of reasons for not renewing their contract.

Sometimes, the reason for not renewing their contract is because of redundancy. Those with more than two years’ service could be entitled to statutory redundancy payment.

Those with four or more service years automatically have a right to become permanent employees. If you don’t agree with this, you need to:

  • Show a good business reason against permanent employment.
  • Have a collective agreement with unions to remove this right.

Get expert guidance on fixed-term contracts with Peninsula

When it comes to fixed term employment, the biggest obligation you have is ensuring fair and legal treatment to everyone.

If you neglect the rights and entitlements of workers, you could discriminate against them. And this could lead to hefty compensation payment and expensive legal hearings.

Peninsula offers expert guidance on fixed-term employment contracts and all manners of legal agreements. Our clients get access to 24-hour HR advice who will ensure your contracts and hiring procedures follow the law.

Get in touch today; or use our call back form to arrange a more convenient time for you. Call us on 0800 028 2420

Suggested Resources