What’s the difference between fixed-term and permanent contracts?

Even if you’re looking for a permanent position, taking up a fixed-term contract can be beneficial for your career.

Sometimes an employer has the need to fill a job role for a temporary period. For example, they may have an employee who needs to take some time out for maternity leave. Or they may have a project which will last a few months and needs specialised support for a set period. Fixed-term contracts are a way they can flexibly take on staff.

There are various types of fixed term contracts but, generally speaking, they are identifiable by having a “set” end, usually by reference to a specific date or on completion of a given task. The Fixed Term Employee Regulations apply to certain fixed term contracts, designed to prevent the less favourable treatment of fixed-term employees as compared to permanent employees. However, those Regulations have certain exclusions, including agency workers, students doing work experience, or an apprenticeship contract. The Regulations also only apply to “employees”, not the wider legal definition of “workers”.

Fixed-term employees will be paid in the same way as permanent employees and pay the full amount of income tax and national insurance under Pay as your Earn (PAYE), just like permanent employees do.

What are the advantages of fixed-term contracts?

Job candidates should understand the benefits of working under fixed-term contracts.

  • It’s valuable experience. Even if you’re ideally looking for a permanent role, it might have real value for your CV. Also, there might be a chance of being offered a permanent position if you do a good job.
  • You might earn more. Often, companies need to hire people on short-term jobs to work on temporary projects. You can potentially earn more than you would if you were on a permanent contract.
  • You might get interesting work. Fixed-term contracts could provide work you might not be able to find on a permanent contract. For example, if you’re a software developer, a fixed-term contract could be the only way to work with a coding language you enjoy.
  • It gives you flexibility. You can focus on roles you’re good at, without the pressure of moving to more senior managerial positions. Also, if you’re confident that you’ll find new roles easily in the future, it offers you the freedom to spend extended amounts of time out of work.
  • You can avoid a long-term commitment. You have more time to “dip your toe in the water” and test how well you will fit in with a new company, with the knowledge there’s a specified end date.
What's the difference between fixed-term and permanent contracts?

Image: Adobe Stock

What are the disadvantages of fixed-term contracts compared to permanent roles?

Job candidates should also understand the drawbacks of working under a fixed-term contract.

  • You don’t have long-term security. The flexibility of fixed-term contracts is also a disadvantage for some, as it means you’ll have periods hunting for a new position, rather than having the security of a permanent role.
  • You may spend more time hunting for jobs. You will also need to deal with more administration, particularly in the time between roles, and regularly prepare for job interviews.
  • Promotion may be unlikely. Because you will only be at a set company for a specific amount of time, you may not be able to progress like you would in a permanent position.
  • Recruiters could look at you differently. If you do spend a long period in fixed-term contract roles, it may change the way that recruiters look at your CV. They may automatically assume you’re looking for short term/fixed term contract roles, even if what you’re looking for is permanent.
  • It suggests you can’t commit. When looking at your CV, consecutive fixed-term positions may suggest to recruiters that you won’t be committed enough to stay at one company for a long period (even if that’s what you would, in reality, prefer).

Employee benefits

As a fixed term employee, you should generally get the same pay and conditions (and the same or equivalent benefits package) as permanent staff. Generally speaking, employers must not treat employees on fixed-term contracts less favourably than permanent employees doing the same job and fixed-term employees should also receive the same information about permanent vacancies in the company as other permanent employees do.

However, there may be certain differences in treatment which employers are be able to justify. For example, if you’ve been hired on a three-month contract, a company may not offer you a company car, which somebody on a permanent contract would get, because it wouldn’t be cost effective. This is called ‘objective justification’.

If you’ve been with an employer for two years or more, whether it is on permanent or fixed-term contracts, you’ll have the same employment rights, including the right not to be unfairly dismissed, wrongfully dismissed, or dismissed for a discriminatory reason.

What's the difference between fixed-term and permanent contracts?

Image: Adobe Stock

Renewing a fixed-term contract and your rights

The process for ending/renewing a fixed-term contract can be slightly confusing, and very much depends on the wording of the particular contract in question, but here are some things to remember:

  • Fixed-term contracts normally end when they reach the agreed end date. Depending on the wording of the contract, employers don’t always have to give notice. However, as this may count as a ‘dismissal’, the employer should follow any dismissal procedure (if necessary) fairly.
  • After two years’ service, you have the right not to be unfairly dismissed. You’re also entitled to a written statement of reasons for the dismissal after one year’s service. If the reason for non-renewal of your fixed term contract is redundancy (and you have 2 years’ continuous service), you will qualify for a statutory redundancy payment in the same way that a permanent employee would.
  • If an employer ends a contract earlier, you have the right to a notice period. It will depend on what the specific contract says but, as a minimum, the period of notice will be one week if you’ve worked continuously for at least one month (and 1 week for each year you’ve worked, if you’ve worked continuously for 2 years or more).
  • Understand implied agreements. If you work past the end of a fixed-term contract without it being formally renewed, there can be an ‘implied agreement’ that the end date has changed. An employer will have to give notice.
  • Fixed-term contracts can become permanent. If you’re on fixed-term contracts for four or more years you’ll automatically become a permanent employee, unless an employer can show there’s a good business reason for that not to happen.
  • You need to give notice. If you’re on a fixed-term contract and decide to end it early, you must hand in your notice at least one week in advance if you’ve worked for an employer for a month or more. However, this could be more depending on what’s stated in your contract.

Staying on as a permanent employee

If you’re employed on a fixed-term contract, you may have an advantage over other candidates if any new roles come up. For some employers, fixed-term contracts are a safe way to evaluate individuals for a significant period, while for employees, it’s an effective way to get hired in a role that may not necessarily come up if you’re solely looking at permanent positions.

If you’re looking for a permanent role, try to get an understanding of whether there’s a possibility of being kept on after your contract ends in your position. If not, then find out about other roles. If there is potential, make sure you make a considered effort to show what you would offer in a permanent position, and be a positive ambassador for the company internally and externally.

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