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Knowledge Base » Business » What is a Fixed-Term Contract?

What is a Fixed-Term Contract?

Last updated on 28th April 2023

In the UK, the number of fixed-term contracts in the workplace is said to be around 6%. However, other European nations have much higher percentages of fixed-term contracts, with France, Italy and Germany all somewhere in the region of 13% to 16%.

Spain tops the charts with 23% of all employment contracts being on a fixed-term basis. If you’re unsure what a fixed-term contract is and how they work, read on.

What is a fixed-term contract?

Fixed-term contracts are a specific type of employment contract where the following two things apply:

  • There is a contract of employment in place.
  • The contract ends either on:
    – Completion of a specific project or task,
    – On a specified date outlined at the start of the employment, or
    – When funding for a role or project runs out.

Fixed-term employees can also work casually or seasonally, for periods of three to six months, during peak periods such as around Christmas time in department stores or during the summer months at a seaside resort.

The duration of fixed-term contracts is not regulated although they usually last between one and three years. When a fixed-term contract, or series of successive fixed-term contracts, lasts for more than four years, the employee should automatically be considered a permanent employee (i.e., under a permanent, indefinite contract), unless the employer can justify objectively why this should not be the case.

For clarity, the following examples are not examples of fixed-term contracts:

  • A contract with an agency rather than a company.
  • A work-experience, trainee, or student placement.
  • A ‘contract of apprenticeship’.
  • An armed forces worker.
An apprenticeship isn't a fixed-term contract

The importance of fixed-term contracts

Fixed-term contracts are useful for both employers and employees. They can be useful for covering staff absences or maternity/parental leave, managing and completing specific projects or coping with increased business demands in the short term.

Employees employed on a fixed-term contract are protected by the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002, which stipulates that “an employee on a fixed-term contract has the right not to be treated less favourably than the employer treats a comparable permanent employee.” This refers to both the terms of the contract and being subjected to detriment and/or failure to act by the employer.

To clarify this further, employees on fixed-term contracts have the same rights to training and opportunities for securing a permanent position in the company as permanent employees. This is important for both employees and employers and so the details of fixed-term contracts must be clear and robust from the outset. Employers should offer workers on fixed-term contracts the same contractual benefits that they offer permanent employees. This includes pension schemes or other benefits unless the employer has a clear and justifiable reason why this should not be the case. Details such as these are often found in an employee handbook.

What types of fixed-term contracts are there?

There are four types of fixed-term contracts that businesses usually follow:

1. Simple fixed-term contracts.

2. Fixed-term contracts with a notice clause.

3. Initial term contracts.

4. Evergreen contracts.

Simple fixed-term contracts expire automatically at the end of the term or the occurrence of an event (project completion, for example) without any notice being given. These contracts are fairly inflexible on the employer’s part as they cannot be terminated early.

Fixed-term contracts with a notice clause are more common. This offers early termination of the contract on notice before the term’s expiry. If no notice is given, the original stipulated expiration date/event applies and the contract will expire automatically.

Initial term contracts include a period within the fixed term where no notice may be served. After this period, notice can be served. The same applies as above concerning when/how the fixed-term contract will come to an end if no notice is served before its end date.

For evergreen contracts, these automatically renew at the end of the fixed term for another fixed period, unless the employer or employee gives notice.

Of the four types of fixed-term contracts outlined above, only simple fixed-term contracts and fixed-term contracts with a notice clause are covered by the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. The reason for this is because initial term contracts and evergreen contracts do not necessarily end automatically after a given term on completing a particular task, for example.

What is the difference between a fixed-term contract and a temporary contract?

As explained above, fixed-term contracts are contracts that either terminate automatically by a set date or on completion of a set task such as a project. They’re also protected and supported by the Fixed-Term Employees Regulations.

Temporary contracts differ from fixed-term contracts in a few ways. Firstly, whilst there is some overlap in that temporary contracts and fixed-term contracts may only last a short time, temporary contracts do not have a fixed end date. If a business requires additional employees for busy periods but does not know how long the busy period might last, they may take on additional staff on temporary contracts to cover the period with the flexibility to terminate the contract on notice when it suits the business. For this reason, temporary contracts can be seen as a more flexible option. This type of contract can cover agency and casual workers too.

What rights do employees and employers have with fixed-term employment contracts?

As already outlined, a fixed-term worker has the same rights as a permanent employee in that they should not be treated less favourably than their permanent employees in comparable roles. If they are treated differently such as being subjected to a detriment by an act on the behalf of the employer or as a result of the employer’s purposeful failure to act, the employer has broken the Fixed-Term Employees Regulations 2002.

Fixed-term employees must only compare their treatment with comparable permanent employees. This means someone who is employed in the same establishment in the same role that carries out work that is the same or ‘broadly similar’. Fixed-term employees cannot compare their treatment with hypothetical employees or those who have previously worked for the establishment. If no comparable employees exist, they must seek comparison with other employees in any of the employer’s other establishments.

When it comes to less favourable treatment, this applies to their right to receive the same training as those on permanent contracts as well as having the same opportunities to obtain a permanent role within the business. This means that fixed-term employees must be notified of permanent up-and-coming positions at the same time as permanent employees.

When the Regulations refer to ‘detriment’, this also includes bullying, harassment and dismissal as well as when fixed-term employees are not awarded the same contractual terms or benefits as permanent employees. This includes the ability to pay into a pension, receive a bonus or participate in a medical insurance scheme. Less favourable treatment would also include exclusion from pay rises for length of service. Essentially, anyone on a fixed-term contract should not be subject to any disadvantage simply because of their fixed-term status.

Employers must also apply the same appraisal system to fixed-term employees as they do to permanent employees. There should also be no additional conditions imposed on a fixed-term employee when it comes to appraisals in comparison to those imposed on permanent employees. This means that those on fixed-term contracts should not be expected to reach additional or higher targets in comparison to their permanently contracted employees.

If an employee states that they have experienced detriment or less favourable treatment due to their fixed-term contract status, the onus is on the employer to evidence any justification for decisions they have made. They may need to prove their case at an employment tribunal.

Signing a fixed-term contract

What is a fixed-term contract in teaching?

In the education sector, the same regulations to protect those on fixed-term contracts apply.

For teaching staff, fixed-term contracts usually arise as a result of the following:

  • A person employed whilst another member of staff’s permanent post is pending until a set date.
  • To cover a secondment that will end on a set date.
  • To cover educational or in-service training that will end on a set date.
  • To cover a post whilst the substantive post-holder is on maternity leave or long-term sick leave.
  • To cover a position whilst the substantive post-holder is absent for any other reason and where the end date of this is unknown. This could be for sabbatical leave.
  • To cover part of a post whilst the substantive post-holder has a temporary reduction in hours such as in the case of a phased return to work.

Aside from these reasons, there are other kinds of fixed-term contracts in teaching that apply to a particular task. However, these are uncommon in the education sector due to the nature of the roles.

Some examples of this include:

  • A fixed-term post to implement a new curriculum or scheme of learning.
  • A fixed-term post to cover an increase in workload on a short-term basis.

The National Education Union (NEU) has long since campaigned against the misuse of temporary and fixed-term contracts in schools. This includes where educational establishments are anticipating budget restrictions or a falling roll and so offer fixed-term contracts so that they do not need to go through redundancy processes further down the line. They also oppose the practice of schools or colleges using temporary contracts as a probationary period before confirming staff appointments on a permanent contract at a later date.

However, fixed-term contracts are often preferable to agency or supply work as they offer greater security for both the educational establishment and the employee. They also mean that the employee would receive the benefits of sick pay, maternity pay and pension contributions whereas agency and supply work would not offer such benefits.

Are there any benefits of fixed-term contracts for employees?

Employees on a fixed-term contract have the same rights as comparable colleagues on permanent contracts. This means that they have the same rights to sick pay, maternity pay, parental leave, bonuses (pro-rata) and pension contributions, as well as the same rights to be notified of any up-and-coming permanent roles and promotions.

Fixed-term employees also have the right to claim unfair dismissal after two consecutive years of employment. After four years on a fixed-term contract (or successive fixed-term contracts), an employee is automatically considered a permanent employee except in the circumstances that an employer can objectively justify another successive contract that is on a fixed-term basis.

Aside from these benefits in the workplace, those who work on fixed-term contracts have other benefits too:

Earnings

Fixed-term contracts often offer higher pay than comparable permanent contracts. There may be a fixed project fee or a day rate, which is more than what this would be were you employed on a permanent basis. This compensates somewhat for the fact that the fixed-term contract will come to an end and the employee could end up out of work for a time.

Experience

With shorter-term roles, an employee can gain a wider range of experience than other employees in their field, especially if they change roles often. This experience will be a great bonus when someone decides to apply for a permanent position. A well-rounded candidate is often what employers are looking for. However, it’s also something to take with caution. Some employers will not look too favourably on someone who has a series of short-term roles in a short space of time. It can give the impression of someone who does not have much stickability and someone who is likely to leave after a short time.

Flexibility

Those who tend to work in fixed-term contracts often enjoy the flexibility that it brings. Knowing that a role is coming to an end after a period of time allows the employee to look for their next opportunity. This could be to do something completely different or to go down a route from a previous role that they had particular enjoyment in. This allows employees to progress in their chosen field without feeling the need or pressure to move higher up.

Fixed-term contracts also allow workers to move locations frequently, which for some travellers is great. Moving around and trying out different roles or aspects of roles also allows people to find something that they really enjoy before settling down into a permanent contract if they wish.

Aside from these aspects, those working on fixed-term contracts can choose to take a bit of a gap from employed work if they can afford it. They could leave a month’s gap between one contract and the next to give themselves a break or to allow themselves to spend more time at home, for example.

Enjoyment

Fixed-term project work often allows people to fully engage in something that they might otherwise not have the opportunity to do. Many fixed-term positions can take employees all over the world and give the employee much more enjoyment and opportunities than they otherwise would have had in the UK.

What are the drawbacks of a fixed-term contract for employees?

Of course, as with anything in life, fixed-term contracts can have their drawbacks for employees too.

The job hunt

For many, this is what puts them off seeking fixed-term contracts. Job hunting can be demoralising. You can spend hours applying for a post only to find you weren’t successful and have to start applying for another and do the whole thing again. With fixed-term contracts, this happens at the end of every contract and so happens more frequently than for those who choose to move jobs from one permanent contract to another.

The issue of long-term security

Having a fixed-term contract is sometimes daunting. It means that you don’t necessarily know what you’re going to be earning in a few months. You may not have paid much into a pension scheme as you’re not with an employer for too long. Also, securing a mortgage will be more difficult if you do not have a permanent position.

No promotions

Fixed-term contracts with set end dates also don’t tend to come with the opportunity for promotion. Of course, promotions may be advertised, but these may be on a permanent basis when the employee wishes to continue working on a fixed-term basis. It can therefore be more difficult to work your way up the ladder. However, this can be mitigated by a vast range of experience in different establishments, meaning that the employee could eventually start to apply for roles that are higher up the ranks than their current role or experience level.

Job hunting

What length is a typical fixed-term contract?

Fixed-term contracts usually set out an end date of between three months to two years. However, this can and does vary. For fixed-term contracts that are based on project completion, the end date can be estimated but is not set in stone. For fixed-term contracts that are reliant on a funding stream, such as in the charity sector, usually the employer will be able to estimate the minimum duration of the funding stream with a possibility to extend it if additional funding is secured.

To answer the question, there is no set length for a fixed-term contract. However, certain rights apply to employees if they are employed in a fixed-term role for certain lengths of time.

Fixed-term contracts under three months

Those who are employed on a fixed-term contract that is less than three months long have the right to a one-week notice period in the case that the employment is terminated before the contract’s end date if they have worked in the establishment for a minimum of a month. The employee can also terminate the contract but must work a minimum of a week’s notice.

Fixed-term contracts of up to six months

Those employed on fixed-term contracts of six months or less tend to be seasonal workers during peak times.

Fixed-term contracts over two years

Those who have a fixed-term contract of at least two years, or who have worked a series of successive fixed-term contracts for this period, have the same rights to redundancy and severance pay as permanent employees within the same establishment.

After two years, workers also have the right not to be unfairly dismissed and are entitled to a written statement of reasons why their employer is not renewing their contract.

If an employer wishes to end a fixed-term contract earlier than the specified date and the employee has worked for over two years, they must give a notice period of a minimum of one week for every year the employee has worked.

Fixed-term contracts over four years

When an employee has been working on a fixed-term contract or successive fixed-term contracts for four years or more, their position is considered permanent unless their employer is able to show why this should not be the case. Having said this, staff associations, employers and unions can collectively agree to remove this automatic right in such circumstances.

Final thoughts on, what is a fixed-term contract?

Fixed-term contracts offer flexibility and experience as well as offering employees the same rights that comparable workers on permanent contracts have. However, fixed-term contracts aren’t for everyone. They don’t always offer the same level of financial security nor the same opportunities for working your way up the career ladder. Nevertheless, many people in the UK work on a fixed-term contract basis, even if this is much less than our European neighbours.

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About the author

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Laura Allan

Laura is a former Modern Foreign Languages teacher who now works as a writer and translator. She is also acting Chair of Governors at her children’s primary school. Outside of work, Laura enjoys running and performing in amateur productions.



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