Fixed term contracts
There can be confusion around the use of fixed term contracts and when it is appropriate to use them. Alongside this, employers aren’t always sure how they work and what they can do.
What is a fixed term contract?
Fixed term contracts are between a specific Organisation and employee and will have an end date stated or confirm that the employment will end upon the completion of a specific project.
When should you use a fixed term contract?
It could be that someone in your team is off on long-term sickness, they are on maternity leave and you need their work covered, or you have a project that needs to be completed. Whatever reason you use a fixed term contract, there are rules in place for how you manage this type of contract when it comes to it finishing.
If you’re issuing someone with a fixed term contract, its important to make sure that the terms of the contract are correct.
Fixed term employees have the right to be treated the same as those who are permanent. These rights are limited to the Organisation that they are working for and not any associated Companies. This means that they should have:
- The same pay and conditions;
- The same, or equivalent, benefits package;
- Information about permanent vacancies; and
- Protection against redundancy or dismissal.
There are a few key things you need to include:
- The position is fixed term;
- The start and end date of the contract;
- Confirmation that the contract will end on the agreed end date without the need for the employer to give notice; and
- How much notice should be given by either the Organisation or the employee to end the contract early.
Things to consider before the end of the contract
Whatever reason you’ve had to use a fixed term contract, when it’s getting close to the end date of it, you’ll need to review things. Do you still need someone in that position? Has the person they were covering returned to work? Have you got any other vacancies in the Organisation? How long have they been employed in total?
If there are other vacancies in the Organisation you should tell the employee about these and how they can apply for them.
Renewing a fixed term contract
If there is the need to keep the employee on longer than the original fixed term contract or if they are moving to another fixed term role, you can renew their contract. You should discuss the renewal or new role with them prior to the end of their current fixed term contract and give them the new contract on the first day of the renewal / new role.
There are occasions where someone can stay in your Organisation for a number of years on a fixed term contract. However, if they reach 4 years or more on a fixed term contract, they will automatically become a permanent employee. The only way around this would be to show that there is a good business reason for them not to become a permanent employee. However, if there are unions or staff associations, a collective agreement may be in place that removes the right to become a permanent employee after 4 years.
Finishing a fixed term contract early
Before you do this, you should always check that there is a clause in the contract that allows you to end it earlier than the end date that is specified in the contract.
If the employee has under 2 years’ service, and there is a clause that allows you to end the contract early, then you can bring this to an end. You would then need to look at whether you are going to require the person to work their notice period or if you will be paying them in lieu of it and ending the employment immediately. This will depend on your reasons for bringing the contract to an early finish.
If the employee has been with the Organisation for 2 years or more (including their notice period), and the reason you are not renewing their contract is because of redundancy, then they will have the same rights to redundancy payments as any permanent employees.