Fixed Term Contracts: Over recent years, flexible working is in demand with both employees and employers.
Therefore different types of employment contracts have been more common.
The fixed-term employment contracts have increased in popularity recently.
COVID-19 pandemic has made many candidates look for job security and opt for permanent or fixed-term contracts instead of freelance jobs.
This blog post is divided into the following sections:
The different types of employment contracts
What is Fixed Term Contracts
Advantage of Fixed Term Contracts
Disadvantages of Fixed Term Contracts compared to permanent roles
Myths about Fixed Term Employment Contracts
Final thought
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The different types of employment contracts:
1. Full and part-time contracts:
Full and part-time contracts are generally offered for permanent positions.
When an individual is a full or part-time employee through a contract, the employer must provide a written statement of employment document.
This document involves a holiday entitlement, pension benefits, parental leave allowances, and details on statutory sick pay (SSP).
Income tax and National Insurance Contributions (NICs) are deducted at source by the employer under a PAYE scheme and submitted to the HMRC.
2. Freelancers, Consultant and Contractors:
Individuals who are freelancers, consultants and contractors are generally considered as self-employed.
This means that it’s the individual’s responsibility to look after income tax and NICs. Check out our guide on the IRS-35.
Such contracts may include start and end dates, remuneration based on the project, or a fixed daily rate.
Individuals under these contacts may not be entitled to the same rights as employees, although they do get to negotiate terms and manage their own schedule.
3. Agency staff:
Agency contractors have their contracts agreed and managed by an employment agency or recruitment consultancy.
They generally work on a temporary basis, and the length of the contract will depend on the demand of their employer and their availability.
It would be the agency’s responsibility to make sure their employee’s rights are protected.
After the 12 week’s continuous employment in the same role, agency workers are then entitled to the same rights as permanent contractors of the company.
4. Zero hour contracts:
Zero-hours contracts specify that an employee works only when required by the employer.
Zero hour contractors are entitled to the same annual leaves as permanent contractors, and their employers required paying them at least the national minimum wage to work.
Zero hour contractors can also seek employment elsewhere.
Besides, their contract would not be valid if it prevented them from accepting or looking for work from another employer.
5. Fixed-Term Contracts:
Let’s know Fixed Term Contracts in more details,
What is Fixed Term Contracts?
Businesses use a fixed-term employment contract when they have a specific end date for the required work or project.
That work may be maternity cover, long term sickness cover, seasonal work, or where funding can be provided for a specific project.
To become a fixed-term employee, the candidate will have a contract with the company rather than an agency.
Tax and NICs for candidates on fixed-term contracts will be deducted and paid under the employer’s PAYE scheme.
When you are employed on a fixed-term contract, your written statement of terms and conditions should state the expected end date of the contract with the reason for a fixed-term of the period.
Advantage of Fixed Term Contracts:
It gives flexibility:
Fixed-term contracts allow you to focus on roles you are good at, avoiding a race to the promotion and dealing with office politics.
If you’re confident that you will find new roles easily in the future, then Fixed Contacts offers you the freedom to spend more time outside of work.
No long term commitments:
With Fixed-term contracts, you’ll have more time to test waters before deciding on a career path. Sometimes various roles and industries look glossy from outside, and your perception change when you start working.
I recall a friend who loved becoming an actuary and landed on a 12 months fixed-contract with a reputable accounting firm. Only to find out, this isn’t her cup of tea.
You’ll get interesting work:
Fixed-term contracts could provide work you might not be able to find on a permanent contract.
For instance, if you’re a web developer, then a fixed-term contract could be an excellent way to work with a programming language you like.
You might earn more:
Often companies need to hire individuals on short term jobs to work on temporary projects.
You can potentially earn more than you would if you were on a permanent contract in such cases.
It is a beneficial experience:
Even if you’re normally looking for a permanent job, fixed-term contracts might have real value for your CV.
Besides, there might be a chance of being offered a permanent role if you do a good performance.
Disadvantages of Fixed Term Contracts compared to permanent roles:
There are also several drawbacks of Fixed Term Contracts such as,
No long term security:
With a fixed-term contract, you’ll be looking for new opportunities and contracts either within or outside your existing organisation. Many candidates don’t find it particularly attractive, mostly when you have fixed monthly commitments and a limited amount of savings.
It may take more time to look for a new job:
It involves more administrative work- looking more roles, applying, interviews and so on.
No or limited scope of career progression within the same role:
Usually, there is limited scope for progression because you’ll be only at a company for a specific time.
Changing perception:
Spending more time in contracting roles gives you flexibility; however, it can change employers’ perceptions of you and your CV. It can create an impression that your preferred roles are contracted and not permanent- even though it is not valid.
Myths about Fixed Term Employment Contracts:
- Employers can save money by giving fixed-term contractors less valuable benefits.
Under the fixed-term employees’ regulation 2002, an employer must not treat fixed-term contractors less favorably than permanent contractors that do the same or broadly same work.
That means employers are required to provide fixed-term employees with the same pay and benefits as permanent staff.
It will be against the law if employers exclude fixed-term contractors from benefits such as pensions, private medical and income protection etc.
Parity and pay benefits but any form of less favourable treatment towards the fixed-term employees are against the low.
As an instance – not offering the same career development opportunities offered to permanent contractors.
- It’s not a Fixed Term Employment Contract if there’s any notice clause in the contract.
A fixed-term contract can end without the requirement of any notice on the specified date in the contract; however, you will find an early termination clause in almost all contracts.
For instance, it’s possible to have an 18 months fixed-term contract which can be terminated at any time on 4 week’s written notice after the first 9 months.
An individual working under such a contract would still enjoy the benefit of the fixed term contract.
- Fixed-Term Employment contractor can opt out of any entitlement to a statutory redundancy payment.
Fixed-term employees could opt out of claims for a statutory redundancy payment and unfair dismissal.
But both of these exemptions were removed after regulations came into the force.
Fixed-term contractor’s rights to a statutory redundancy payment are the same as that of a permanent employee.
- Employers are not at risk of an unfair dismissal claim if they don’t renew a fixed-term contract.
Non-renewal of a fixed-term contract upon its expiry constitutes a dismissal.
Just as permanent employees, fixed-term employees having more than two years of service can benefit from statutory protection against unfair dismissal.
So, employers who do not renew a fixed-term contract should ensure that they follow a fair procedure.
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- The ACAS code doesn’t apply to a fixed-term employee.
The Advisory, Conciliation and Arbitration Service (ACAS) code expressly states that it doesn’t apply to the non-renewal of fixed-term contracts on their expiry.
However, there may be occasions where a fixed-term employee was dismissed early for misconduct or capability, and in such case, the ACAS code would be relevant.
- Employers can keep a person on a fixed-term contract indefinitely.
A fixed-term contractor employed on a succession of contract for more than four years may apply to an employment tribunal for a declaration that they have become a permanent employee.
For instance, if the contract doesn’t contain a notice clause and the employee stays on as a permanent employee after the fixed-term stated in the contract lapsed, there’s a potential for a dispute about the notice’s length required to terminate the contract.
- There’s no issue in letting all the fixed-term employees go before employer make permanent employees redundant.
In case an employer wants to make cost savings, fixed-term contractors are normally first in the firing line.
It’s seen as a simple solution to just let fixed-term contracts expire without its renewal.
In such cases, employers should follow a fair redundancy process.
Choosing not to renew fixed-term employees purely based on their fixed-term status is likely to be against low and give rise to a claim for unfair dismissal.
Final thought:
Fixed-term employment indeed provides greater freedom over employment terms, but it’s also true that fixed-term employees have less protection than a permanent employee.
Before making a choice always ask yourself: what is better for you – permanent contracts or fixed-term contracts?
