Fixed term employment contracts: What you need to know

Employment contracts offer a great alternative to permanent roles, giving you the flexibility to explore new opportunities. While they come with their own unique set of pros and cons, understanding the details before you sign can set you up for success. 

In this guide, we’ll dive into everything you need to know about fixed-term contracts, compare them to permanent roles, and share tips to help you decide if a fixed-term contract is the perfect fit for your career journey. 

What are fixed-term employment contracts? 

A fixed-term employment contract specifies a set duration for employment, typically lasting six months, one year, or two years. Unlike permanent contracts, which offer ongoing employment, fixed-term contracts conclude after the agreed period ends. 

Whether a fixed-term contract is ideal depends on your career preferences, and understanding the key benefits, drawbacks, and legal rights will help you make an informed decision. 

Types of employment contracts: Permanent vs. fixed-term contracts 

There are two main types of employment contracts: permanent and fixed-term. Let’s compare the two to help you better understand their differences. 

1. Permanent employment contracts 

A permanent contract offers ongoing employment until the employee chooses to leave or is let go for valid reasons. Permanent employees typically have stronger job security, career development opportunities, and access to additional benefits like health insurance, bonuses, and paid time off. 

Legal rights and employer obligations: 

• Job security: As a permanent employee, you have greater protection from unfair dismissal. Employers must follow a process if they wish to terminate your employment, which often includes warnings, a probation period, or performance reviews. 

• Benefits: Permanent employees are generally entitled to health insurance, superannuation, sick leave, and paid vacation days. 

• Career growth: Employers typically invest in permanent employees, offering them opportunities for training, promotions, and salary increases. 

2. Fixed-term employment contracts 

A fixed-term contract is a temporary agreement that lasts for a predetermined period. These contracts are commonly used for seasonal roles, project-based work, or when employers need extra help. While some fixed-term contracts may lead to permanent positions, this isn’t guaranteed. 

Legal rights and employer obligations: 

• Employment rights: Fixed-term employees have the same basic rights as permanent employees, including wages, annual leave, and protection against unfair dismissal. However, some benefits, such as health insurance or long-term career development opportunities, might be limited. 

• Obligations for employers: Employers must ensure that the terms of the contract are clear, including duration, job description, and remuneration. If an employer wishes to terminate a fixed-term contract before it ends, they must provide a valid reason and comply with any termination clauses in the agreement. 

Comparison table: Key differences between permanent and fixed-term contracts 

The benefits of fixed-term employment contracts 

Working under a fixed-term contract might not offer the same stability as a permanent role, but there are several benefits to consider: 

1. Flexibility 

Fixed-term contracts offer flexibility by allowing you to work for multiple employers or take on various roles. Whether you’re looking to explore new industries, travel, or experience different work environments, fixed-term contracts provide the freedom to pursue short-term opportunities without job-hopping stigma. 

2. Potential for higher earnings 

Fixed-term contracts often offer higher pay compared to permanent roles to compensate for the lack of job security. Specialized workers or those filling short-term needs may command a higher hourly or project-based rate. 

3. Valuable work experience 

A diverse range of work experiences on your resume can make you more attractive to future employers. Fixed-term roles allow you to expand your skill set and broaden your professional network, which can lead to new career opportunities. 

4. No long-term commitment 

If you enjoy the idea of not being tied to one company, fixed-term contracts offer the freedom to evaluate potential long-term roles without a major commitment. You’ll get insight into company culture, work dynamics, and job expectations, allowing you to decide if it’s the right fit for you. 

The drawbacks of fixed-term employment contracts 

While fixed-term contracts have their perks, they also come with several potential downsides: 

1. Job insecurity 

Fixed-term contracts come with an inherent lack of stability. When the contract ends, you may be left without work until you secure a new position. Depending on the nature of the contract, you may not have the option to transition into a permanent role. 

Legal rights and considerations: 

• No guarantee of extension: While fixed-term employees have the same rights to a fair dismissal as permanent employees, there is no obligation for an employer to offer permanent employment after a fixed-term contract expires. 

• Notification of end date: Employers are required to notify fixed-term employees when their contract is nearing its end, but they do not have to offer a permanent position. 

2. Limited job benefits 

Fixed-term employees often miss out on other perks that permanent employees enjoy, such as health insurance, wellness programs, or bonuses. 

Consideration: Some employers offer pro-rated benefits for fixed-term workers, but the extent and availability of benefits can vary greatly by employer. 

3. Limited career advancement 

Fixed-term employees may not have the same career growth opportunities as permanent workers. As a temporary worker, you’re employed for a specific skill set, and opportunities for promotions or salary increases are less likely unless you transition to a permanent position. 

Consideration: You may also find it difficult to participate in long-term projects or leadership roles, as these are often reserved for permanent employees. 

Other types of employment contracts 

Beyond permanent and fixed-term contracts, there are several other types of employment contracts that can vary depending on your career situation or the employer’s needs. Here’s an overview of some of the most common: 

1. Casual Employment Contracts 

Casual contracts are designed for workers who are hired on an as-needed basis without a guaranteed amount of work. Casual workers may be called in for shifts or projects and usually receive a higher hourly wage to compensate for the lack of job security, benefits, and paid leave. 

Legal rights and obligations: 

• Leave entitlements: Casual employees do not receive paid leave, but they are entitled to a casual loading, typically 25% higher than the base rate of pay, which compensates for this lack of leave. 

• Termination terms: Casual employees can be terminated at short notice or without notice if they no longer meet the employer’s needs. 

2. Temporary Employment Contracts 

Temporary contracts are similar to fixed-term contracts in that they specify a set period of time, but they are often used to cover absences such as maternity leave or long-term sickness. While fixed-term contracts often have specific end dates, temporary contracts may be extended depending on the situation. 

Legal rights and obligations: 

• Extension options: Temporary employees may be offered an extension depending on the employer’s needs or the specific reason for the temporary contract (e.g., filling in for someone on leave). 

• Termination terms: If a temporary contract ends early, employees may be entitled to severance or compensation, depending on the terms of the contract. 

3. Freelance/Contract Employment 

Freelance or contract employment is typically an arrangement where workers are self-employed but hired by an employer for a specific project or task. Freelancers have the flexibility to work with multiple clients, set their own rates, and manage their schedules. However, they do not have the same rights or job security as permanent employees. 

Legal rights and obligations: 

• Independence: Freelancers are responsible for their own taxes, benefits, and insurance. They generally work under terms outlined in a contract that details project scope, deadlines, and payment terms. 

• Job security: Freelancers are not entitled to paid leave or job security, and contracts may end once the project is completed. 

4. Part-time Employment Contracts 

Part-time contracts involve working fewer hours than a full-time employee. These employees may work a set number of hours each week, often with a fixed schedule. Part-time workers are typically entitled to the same benefits as full-time workers, but the benefits are often pro-rated according to the number of hours worked. 

Legal rights and obligations: 

• Leave entitlements: Part-time employees receive the same leave entitlements as full-time employees, but they are typically pro-rated based on the number of hours worked. 

• Termination terms: Part-time employees are entitled to the same protections as full-time employees, including protection from unfair dismissal. 

Key considerations before signing a fixed-term contract 

Before signing a fixed-term contract, there are several factors to consider to ensure the contract aligns with your needs: 

1. Contract duration 

Fixed-term contracts can’t exceed two years, including extensions. Be sure to understand the start and end dates clearly and know when your contract will end. This helps you plan for the next steps, whether that’s seeking a permanent role or moving on to a new opportunity. 

2. Job description 

Ensure that your role and responsibilities are clearly defined in the contract to avoid scope creep (being asked to do more than you’re being paid for) or confusion about job expectations. If the job description is vague, request more clarification before signing. 

3. Leave entitlements 

As a fixed-term employee, you’re entitled to annual leave, sick leave, and other basic entitlements. Be sure to understand your leave rights and consider negotiating for additional leave, especially if your contract is for a longer duration. 

4. Probation period 

Some fixed-term contracts include a probation period, which allows both the employee and employer to evaluate the fit. This period might be shorter than the probationary period for permanent employees, so it’s essential to understand the expectations and performance evaluations during this time. 

5. Termination terms 

Understand the conditions under which the employer can terminate the contract early. Unless both parties agree or there is a breach of contract, the employer can’t fire you without cause. Familiarize yourself with the termination clauses to avoid any surprises. 

6. Workplace benefits and perks 

Fixed-term employees often don’t receive the same benefits as permanent staff. However, some companies offer benefits such as wellness programs, healthcare discounts, or work-from-home allowances. Make sure you check your contract to know exactly what’s included. 

Transitioning from a fixed-term to a permanent contract 

It’s possible to transition from a fixed-term contract to a permanent one, but there are several factors to consider: 

1. Performance and fit 

Employers may offer permanent employment based on your performance during the contract period and your compatibility with the company culture. If you’ve proven yourself, it can be a natural transition. 

2. Employer needs 

The decision to offer permanent employment often depends on the employer's long-term needs. If they’re satisfied with your performance but only need temporary help, they may be reluctant to extend an offer. 

3. Contract renewal vs. transition 

If you’ve been on a fixed-term contract for a while, discuss the possibility of transitioning to permanent employment before your contract ends. Some employers may be open to converting your contract, while others may prefer to renew your existing contract. 

When evaluating fixed-term contracts, consider the benefits, such as flexibility and diverse work experience, as well as the drawbacks like job insecurity and limited career growth. Be sure to read and understand all the details in the contract to ensure it meets your expectations and protects your rights. 

Understanding your legal rights and obligations is essential for navigating fixed-term contracts. Whether transitioning to a permanent role or moving to a new contract, knowing your options and negotiating terms upfront can help ensure a smooth and rewarding employment experience. 

FAQs: Fixed-term employment contracts 

What are the rights of an employee under a fixed-term contract? 

Fixed-term employees are entitled to the same basic rights as permanent employees, including wages, annual leave, and protection against unfair dismissal. Specific rights may vary based on your award or contract agreement. 

Can an employee leave a fixed-term contract early? 

Yes, employees can leave a fixed-term contract, but they must fulfill the terms, including any notice periods, or negotiate with the employer. Breaking the contract early without proper notice could lead to legal consequences. 

Can a fixed-term contract become permanent? 

Yes, some employers may offer permanent employment after a fixed-term contract ends, but this is not guaranteed. It depends on the company’s needs and the employee's performance. 

What happens when a fixed-term contract ends? 

When a fixed-term contract ends, the employer must either offer a permanent role or another fixed-term contract. Fixed-term contracts cannot last more than two years, and they cannot be renewed more than once. 

What happens in the case of early termination? 

Fixed-term contracts may be terminated early if there is a cause, breach of contract, or mutual agreement between the parties. If terminated early without cause, the employee may be entitled to compensation or leave.