Fixed-term contracts: when and how to use them

A fixed-term contract is a flexible employment agreement that lasts for a specified period or until a particular task or project is completed. Unlike a permanent contract, which has no defined end date, a fixed-term contract has a predetermined termination point agreed upon in advance.

Not to be confused with other types of flexible contracts

While the difference between fixed-term and permanent contracts is clear, the distinction between fixed-term contracts and other flexible contracts is not as black and white. As a result, fixed-term contracts can sometimes be used in situations where other flexible working arrangements are more suitable and vice versa. Knowing the subtle differences between common types of flexible contract, as shown below, can help employers optimise their usage.

How fixed term contracts differ from casual contracts

Fixed-term contracts differ from casual contracts. A fixed-term contract specifies the number of weekly or monthly hours an employee must work, whereas casual contracts do not guarantee any hours. Casual employees are also not obligated to accept work when offered. If your project requires a minimum or fixed level of working hours, a fixed-term contract may be more suitable than a casual one

Fixed term contracts of employment vs self-employment agreements

Fixed-term contracts should not be confused with self-employed service agreements. Employees on fixed-term contracts have statutory employment rights, and income tax must be deducted at source (inside IR35). By contrast, self-employed individuals operating under a contract for services are not considered employees and must manage their own tax obligations, (outside IR35).

However, the distinction between employment and self-employment has been subject to scrutiny, particularly regarding disguised employment within fixed-term or temporary roles. HMRC has raised concerns that some self-employed individuals (operating outside IR35) were performing similar work to fixed-term employees (inside IR35) while benefiting from different tax treatment.

To address this, employers must determine a worker’s employment status using HMRC’s Employment Status Checker and apply the appropriate tax treatment. If a worker is deemed to be in an employment relationship (inside IR35), they will likely be considered an employee under employment law, and a fixed-term employment contract should be used. Given the complexities, seeking HR or legal advice is advisable if you are unsure.

When to use fixed-term contracts of employment

Fixed-term contracts are suitable for roles where the end date is predictable. Common applications include seasonal work, maternity cover, events, or project-based roles. Below are some industries and positions where fixed-term contracts are frequently used:

• TV & film production – scriptwriters, editors, crew members
  
  
• Journalism – freelance reporters, magazine contributors
  
  
• Graphic design & marketing – campaign-based roles
  
  
• Higher education – university lecturers, research assistants
  
  
• Education – teaching assistants, supply teachers
  
  
• Healthcare – locum doctors, agency nurses
  
  
• Software development – project-based app or website development
  
  
• Construction & engineering – project-specific roles
  
  
• Events & eospitality – festival staff, hotel seasonal workers
  
  
• Finance – project accountants

Choosing fixed term contracts over other contract types

Fixed-term employees have the same rights as permanent employees, including holiday pay, sick pay, and protection against unfair dismissal. However, while fixed-term contracts offer more structure than casual or employed arrangements, they are less flexible.

If the role involves unpredictable work patterns or could be considered genuinely self-employed, a more flexible arrangement might be preferable. But if the duration and workload are predictable, a fixed-term contract is the appropriate choice.

Ending a fixed-term contract

Fixed-term contracts typically end automatically on the agreed date. However, because ending a fixed-term contract is legally considered a dismissal, employers must ensure compliance with employment law, particularly if the employee has over two years of service.

If a contract is not being renewed, a fair reason must be provided, such as the completion of a project or the discontinuation of the role. Best practice involves having a meeting with the employee and providing a written statement explaining the non-renewal. Consulting an HR Manager before dismissing a fixed-term contract employee is advisable.

Early termination

If permitted within the contract, fixed-term agreements can end before the agreed date. Fixed-term employees are  entitled to a minimum notice period of:

• 1 week if they have worked continuously for at least 1 month
  
  
• 1 week per year of service if they have worked continuously for 2 years or more

To avoid complications, an early termination clause should be included in the contract. Without this, terminating the contract prematurely could be considered a breach.

The four-year rule: automatic conversion to permanent employment

If an employee has been on successive fixed-term contracts for four years or more, they automatically gain permanent employee status, unless the employer can demonstrate a legitimate reason for maintaining a fixed-term arrangement.

Fixed-term contracts offer a structured yet flexible way to manage temporary roles, project-based work, or specific assignments with a clear end date. They provide employees with the same rights as permanent staff while allowing employers to adapt to changing workforce needs. However, they are distinct from casual or self-employed agreements, and employers must ensure compliance with employment law, particularly around termination and tax treatment.