If you’re a business owner (specifically one that hires employees), it is very likely that you’ll find yourself offering a fixed term contract at some point in time. Fixed term contracts are ideal in situations where you need a specific role in your company fulfilled for a set period of time (due to permanent staff being on maternity or sick leave for example). While there are other options available to you, such as freelancers and contractors, often finding a suitable fixed-term employee is your best bet.
Whether you are an employer or an employee, a fixed term contract is a business function that you should have some basic knowledge about, especially before signing into one.
In this article we have a look at everything you need to know about fixed term contracts, starting from the basics and making our way to the finer details.
What is a fixed term contract?
In simple terms, a fixed term contract is an employment contract, between employee and employer, that is specifically created for a certain timeframe. There could either be an end date stipulated in the contract, or the contract will run until a certain task has been completed, or until a certain event does or doesn’t happen.
A fixed term contract is very similar to any other type of employment contract in that it should outline all the details of the job at hand, and these contracts come with many regulations attached to them.
When should a fixed term contract be used?
Fixed term contracts offer a convenient solution to a variety of different situations, and are great when finding someone to fill in for an employee who is currently on sick leave or maternity leave. Fixed term contracts are also incredibly handy during seasonal busy times or when your business experiences a short-term increased workload and you need to source employees for a fixed amount of time.
What should be included in a fixed term contract?
A fixed term contract should clearly state:
The starting date of the contract
The expected end date of the contract
The notice period for if the contract ends earlier than expected
The reason for the fixed term contract
The roles and tasks that the fixed-term employee will be responsible for
The remuneration that the employee signing into the fixed term contract will be paid
The more detailed the fixed-term contract is, the better it is for both parties. The employer and the employee will both know exactly what is expected of each of them. This means that there is less room for miscommunication or misunderstandings which could create issues later along the line.
What rights do fixed term employees have?
Fixed term employees are protected by regulations outlined in the Fixed-Term Employees ( Prevention of Less Favourable Treatment) Regulations 2002. These regulations ensure that fixed term employees are not treated any less favourably than permanent employees, and that no discrimination towards them takes place. Fixed-term employees are entitled to all the same benefits (pension, holiday, bonuses) as permanent employees, and should not be subject to unfair dismissal. Employees working under fixed term contracts should enjoy a comparable wage/salary to permanent workers, in that they should be receiving a similar pay to a permanent worker in a similar position.
Fixed-term employees also have the right to be informed about any permanent positions opening up within the company, and have their fixed contracts automatically turned into permanent contracts after working in the same position for four years.
All fixed term employees need to be paid through the PAYE system. This means that fixed-term employees will need to pay NICs and tax on their salaries if they meet the relevant thresholds. There have been instances of employers acting in a less than desired manner when it comes to their fixed-term employees, so if you are a fixed-term employee, take efforts to ensure that you are being paid through PAYE, and that your employer is paying your necessary taxes, etc.
When do these rights and regulations not apply to?
Keep in mind that casual staff, freelancers, agency temps, apprentices and contractors do not receive the same treatment and benefits that fixed-term employees do. They have their own set of contracts and regulations that apply to them.
What happens when fixed-term employees are dismissed?
When a fixed term contract expires it is seen as a dismissal, and because fixed-term employees should not be subject to unfair dismissals, it is very important that employers treat dismissals with care and attention to detail.
Every dismissal needs a valid reason, and the reason for fixed term employees’ dismissals is often redundancy as the job that they were employed to do has been completed, especially when it comes to expirations.
In cases of redundancy, the employer needs to carry out a fair redundancy procedure.
What is a fair redundancy procedure?
A fair redundancy procedure consists of:
Giving the fixed-term employee an opportunity to consult and talk about upcoming permanent employment positions in the business with a manager or an HR rep.
The reasons for redundancy should be fair and valid, and be in line with the terms laid out in the fixed term contract. Expiration is a valid reason.
If the employee has been working for the company for two years or more, they should receive statutory redundancy payment for the work that they have put into the company.
Other reasons for dismissal
The other most common reasons for dismissal of fixed-term employees are:
Capability (not having the capability to carry out the roles and tasks outlined in the contract)
Misconduct (breaking company rules and regulations, or behaving in a way that is not a good representation of the company)
Another common reason for dismissal is SOSR (Some Other Substantial Reason). SOSR is often the reason used for fixed-term employees coming in to fill a gap for another employee who is on maternity or sick leave. When the permanent employee comes back, this will be a substantial enough reason for dismissal. In the cases of a SOSR dismissal, fixed-term employees should still be offered a consultation about any permanent positions within the company, and have the terms of their contract clearly detailed when it comes to the expected end date of their contract.
What notice period do employers have to give fixed-term employees?
If the contract is coming to an end on the expected date that is listed in the fixed-term contract, the employer does not need to give the employee notice of this date, although it may be seen as polite to remind them of this date so that they can make the necessary arrangements.
There are certain situations in which the employer may wish to terminate the contract before the expected end date. The only time when this is acceptable, is when there is a specified notice agreement in the contract. The employer will need to give the employee a notice that the contract will be ending, and carry out all of the necessary contract expiry processes.
What happens when a fixed-term contract expires?
When a fixed-term contract expires, there are two things that could happen: the employer could want to continue using the services of the employee, or they could want to carry out the dismissal of the employee.
If the employer wants the employee to continue working for them, they will need to create a contract renewal or contract extension. The new contract could be another fixed-term contract or it could be permanent. If it is not detailed how much longer the contract will be extended for, it can be assumed that the contract is indefinite, and the employee will need to receive sufficient notice and valid reasoning should they be dismissed in this new scenario.
If an employer does not wish to keep on a fixed-term employee after the stipulated time period, the expiry will be treated as a dismissal, and it is most likely that in this case ‘redundancy’ will be the reasoning for the dismissal, unless there are other factors involved.
What sort of claims could a fixed-term employee make if they felt that there was some sort of infringement on their rights?
When you look at the position of fixed-term employees, in many ways they have more rights than permanent employees as they have a specific set of regulations put in place to protect them. This is why fixed-term employee claims are very common, and employers need to be very careful with how they treat their fixed-term employees.
Some of the most common claims to come from fixed-term employees, when they feel that their rights may have been disrespected or infringed, include:
Fixed term claim – These claims are made when fixed-term employees feel that they have been treated unfairly when it comes to the regulations laid out in the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002. This could have to do with bonuses, incentives, holidays, pensions, or a variety of other factors in the workplace that have to do with discrimination.
Unfair dismissal – If an employee does not follow the proper dismissal process, and/or does not give sufficient notice period (if due), fixed-term employees could claim for unfair dismissal.
Wrongful dismissal – If a fixed-term employee is dismissed unfairly before the end of their contract period, they could potentially claim for wrongful dismissal, and cases in which they win they claim would ensure that they receive the full payment up to date that they were meant to work until. If employers want to protect themselves from this happening they should ensure that there is an early termination clause in the contract.
Is it possible to continuously offer someone a fixed-term contract so that employing them as a permanent employee can be avoided?
The short answer to this is ‘no’. While many employers do try to take advantage of their fixed-term employees, once you have had someone working for you on a fixed-term contract basis for four years the fixed-term contract will automatically be treated as a permanent contract and the fixed-term employee should be treated as a permanent employee. There are however some cases in which the continuous use of a fixed-term contract can be justified and in those cases, fixed-term employees may not gain the opportunity to become permanent employees.
What should employers note about fixed-term contracts?
What employers need to remember when making use of fixed-term contracts is that they should not be used as a quick way to hire and fire staff. There are other forms of employment such as hiring in contractors, freelancers, and even apprenticeships if you are looking for something more casual. Fixed term contracts need to be taken seriously and you should understand exactly what they entail. Fixed-term employees have more rights than permanent employees in many ways, and you will need to treat these employees fairly if you want to avoid having to deal with claims.
That being said, fixed-term contracts can be a great way to find talented employees to fill the gap for busy seasons, when certain staff members are on leave, and when you have big projects to undertake.
What should employees know about fixed-term contracts?
If you are offered a fixed-term contract by an employer, it could be a very good opportunity for you (depending on the details of the contract of course). You may have the opportunity to enjoy a contract extension or permanent employment if enough time goes by. You have many regulations in place that protect you from less favourable treatment, unfair dismissal and wrongful dismissal. Ensure that you educate yourself on the rights that are applicable to you to ensure that you’re being treated fairly in the workplace.
No matter what type of employment contract it is that you are looking to sign into, you should make sure that you understand every bit of terminology explicitly. If there is anything you do not understand, research it yourself or have a legal professional advise you. There is no need to rush into signing anything and you can always request to make changes if there is anything that you feel is unfair, or that doesn’t suit you.