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Avoiding the Perils of Fixed-Term Contracts

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As a hiring manager, you wouldn’t knowingly expose your organisation to risk, but could you be doing so unwittingly?

We have recently seen a trend away from the use of contractors towards a preference for Fixed-Term Contracts (FTC) for short-term (less than two years) resource needs. While FTCs have a range of benefits, there are also some limitations around their use which are vital to be aware of.

Two main pitfalls tend to trip up employers. The first is around the conditions under which an FTC can be offered and the second is to do with extending the term of someone on an FTC. By understanding the nuances of the FTC, you can leverage the full value of this type of employment while ensuring you meet all your legal obligations as an employer.

Here’s what you need to know:

When Can You Use an FTC?

There are several well-defined scenarios in which an FTC can be utilised:

  • To cover for an employee taking parental leave or who has been seconded into another role
  • When a project requires specialist skills to complete a specific piece of work
  • To provide labour for seasonal work, for example, fruit picking

In these situations, FTCs are great ways to fill any temporary skill requirements your organisation has, and they also make it easier to manage and predict labour costs within strict budgets. However, it’s important to keep in mind that FTCs are not intended for providing additional capacity in a BAU situation, nor as a way to trial potential permanent employees. They are also not open to candidates on a temporary visa.

When hiring a fixed-term employee, be sure to clearly state the reason why the role is for a fixed term and specify the end date (and the reason for this date) in the written employment agreement. For example, you may need a fixed-term employee to support a particular project, so the FTC will end when their role on the project finishes.

Should the original reason for the FTC change at any point in the employment relationship, you must take care that the agreement still meets the criteria to ensure the fixed term remains valid, or you will be expected to treat the person as a permanent employee.

Can You Extend an FTC?

In short, yes. But care must be taken. Ask yourself: Does the original reason for the FTC still exist? If the piece of work has not been completed by the original date or the person being backfilled has not returned (but is still intending to) then an extension is probably merited. However, if the FTC no longer has its original justification then an extension will not be legal.

The real danger comes with multiple extensions. If you were to offer an employee a second FTC extension, then you may have created an expectation of ongoing employment. In this situation, this person is now a permanent employee in the eyes of the law. Under these circumstances, it is no longer possible to end their employment by letting their FTC run out, so it may be necessary to make them redundant and make any redundancy payments (for example, notice period plus annual leave entitlements) due to them.

In Summary

If you’re looking at hiring a fixed-term employee into your organisation, remember: You need to make sure you can justify the use of an FTC (and can continue to justify it), and should only keep the employee for as long as you need them. If in any doubt, talk to your HR or People and Culture expert and you can avoid exposing your organisation to unexpected risk.

For more advice or to find out about the quality fixed-term and contract talent we have available, please get in touch with me.