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.
What are fixed term contracts?
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.
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.
Examples of when a fixed term contract of employment could be used.
- 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
What to include in a fixed term contract
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.
An early termination clause is also recommended. 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 period is set to reduce to six months 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.
Please get in touch for more advice and guidance if you are considering employing staff on a fixed term basis
