Key things you should know about fixed term contracts

Fixed term contracts can be a really helpful way to bring people into your business when you need extra hands for a specific reason. They give flexibility, help manage costs, and make it easier to plan ahead. But they do come with rules, and if those rules are missed, things can get tricky. Especially due to changes under the Employment Rights Act… (more on that below).

In this article, we walk you through what you need to know about fixed term contracts. We explain when they make sense, what needs to be included, the rights people have, and how to end them fairly.

What are fixed term contracts?

As the name suggests, fixed term contracts are for a fixed period of time.

They are used where there is a clear reason why a role is only needed for a set period, rather than on an ongoing basis.

Before using a fixed term contract, it’s important to understand whether the individual is a fixed term employee or a fixed term worker. This matters because employees have greater statutory rights than workers, which can affect cost, risk and how you manage the relationship.

More details on this can be found here: Employment Staus – Employed or Self-Employed. 

Typically, people carrying out casual and seasonal work, including those people on zero hours contracts are considered to be workers rather than employees.  On the other hand, people who are engaged in a specific piece of work for a defined period, or on a specific rota of work, would be considered to be an employee.

The simple way to test this is to assess the mutuality of obligation.  By this we mean the extent to which an employer is obliged to provide work and the extent to which the individual is able to accept or reject the offer of work.

When should I use a fixed term contract of employment?

Fixed term contracts are commonly used where there is a genuine, time-limited need. For example:

• To resource a specific project
• To cover long-term sickness absence
• To cover family-related leave, such as maternity or adoption leave
• Where funding is linked to a particular piece of work or activity

This list isn’t exhaustive, but it gives a good flavour of when a fixed term contract is likely to be appropriate.

What to include in a fixed term contract

It might sound obvious, but clarity is everything with fixed term contracts.

You should clearly set out when and how the contract will end. This might be:

• On a specific date
• When a project is completed
• When a particular event happens, such as the return of an employee from maternity leave or the end of funding

The contract should make it clear that employment will end in line with that reason.

We also strongly recommend including an early termination clause. This gives you flexibility if circumstances change. For example, if someone returns early from maternity leave and the cover role is no longer needed, the contract explains how things will end and what notice applies. That clarity helps everyone involved.

What rights do fixed term employees have?

Fixed term employees have the same statutory rights as permanent employees.

Under the Fixed Term Employees (Prevention of less favourable treatment) Regulations 2002, they must not be treated less favourably than comparable permanent employees doing the same or similar work, unless there is a clear and objective reason.

This protection does not apply to the following groups:

• workers (rather than employees as described above);
• temporary staff from an agency;
• apprentices who are employed on a fixed term apprenticeship contract;
• students on work experience placements for one year of less which is part of a higher education course; or
• people employed on a training or work experience scheme specifically designed to help them find work.

How do I end a fixed term contract?

A fixed term contract comes to an end in one of the following situations:

• when the contract ends after a specified period;
• when a project to which the individual was appointed comes to an end; or
• when the contract ends due to a particular event occurring such as the non-renewal of external funding for a post.

In law, the non-renewal of a fixed term contract is classed as a dismissal.

Currently, an employee needs two years’ continuous service to bring a claim for unfair dismissal. However, this is set to change.

Under proposed changes to the Employment Rights Act, employees are expected to be able to claim unfair dismissal after six months’ service, rather than two years. This change is expected to come into effect in January 2027.

This means employers will need to be even more careful to get the reason and the process right when ending fixed term contracts.

Employees with sufficient service may also be entitled to redundancy pay if the reason for ending the contract is redundancy.

To defend an unfair dismissal claim, you will need to show:

• The fixed term contract was used for a genuine reason
• Both sides understood why the contract was time-limited
• The reason for the fixed term genuinely came to an end

While the ACAS Code of Practice does not strictly apply, you still need to act reasonably and fairly. In practice, that means:

• Meeting with the employee before the contract ends
• Explaining why it is ending and why it won’t be renewed
• Giving them the opportunity to appeal

You should follow this process even where the end date has been clear from day one.

What is the employment status of an individual who has had successive fixed term contracts?

If someone has been employed on successive fixed term contracts for four years or more, they will usually gain permanent employee status automatically.

The only exception is where you can objectively justify the continued use of fixed term contracts.

Advice from Fitzgerald

Here is some important advice from Lisa Alexander about the utilisation of fixed term contracts in the workplace:

Fixed-term contracts can have many advantages for organisations. For example, they can be highly beneficial at:

• resourcing a specific short-term project or seasonal period;
• covering staff absences (think maternity and long-term absences!); or
• ensuring that the employment commitment is linked to associated funding.

As a result, these kinds of contracts often help employers to predict staffing costs more accurately.

However, the advantages must be considered against their challenges. 

Often, a fixed-term contract can be seen as less desirable for jobseekers, who generally favour permanent positions. Therefore, finding the right talent to support the organisation can take time. 

Plus, the non-renewal of a fixed-term contract still constitutes as a dismissal in law, which means that an employee could claim unfair dismissal and there is not a fair reason for dismissal or they can argue that a fair procedure has not been followed.

Employers will also need to bear in mind that if an individual on a fixed-term contract has been employed for 4 years or more, they may automatically become a permanent employee, unless the employer can demonstrate a good business reason for not doing so, or there is a collective agreement in place that waives this right. 

So, in summary, fixed-term contracts can be a highly effective tool for organisations to utilise, but only if they’re correctly managed.

Lisa Alexander

Employer FAQs on fixed term contracts

Here are some common questions we see from our clients around the use of fixed-term contracts.

How we can help

From drafting fixed term contracts to advising on how and when to use them, we’re here to help. If you’d like to talk this through or want support with a specific situation, give us a call on 0330 223 5253 or email office@fitzgeraldhr.co.uk. We’d love to chat.

Further reading

• Issuing contracts of employment
• Use of fixed term contracts in schools
• Zero Hours Contracts: A guide for employers
• Employment Rights Act