Fixed term employment contracts: What you need to know

Fixed term employment contracts: What you need to know
SEEK content teamupdated on 29 February, 2024
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If you’ve been browsing job boards, you may have noticed some organisations offering fixed-term employment contracts. As an alternative to permanent employment, fixed-term contracts come with their own pros and cons.

Before signing a fixed-term contract, it’s good to get the whole picture. Rather than an on-going permanent agreement between you and an employer, a fixed-term employment contract ends after a set amount of time, typically six months, a year or two years. Understanding this type of employment and its benefits and drawbacks will help you know if it’s a good fit for you. 

Types of employment contracts

There are two main types of employment contract: permanent and fixed-term employment. You may see these when looking for jobs or discussing employment terms with a potential employer. So how do they differ?

1. Permanent employment contracts 

These contracts offer ongoing employment, for an indeterminate time, until the employee decides to end their contract or they’re offered redundancy. An employer can also lawfully dismiss (fire) a permanent employee, depending on the situation. 

2. Fixed-term employment contracts 

These contracts provide employment for a specified period of time: a ‘fixed’ number of months or years. Fixed-term contracts are commonly used for project-based work, seasonal employment and temporary staff hiring. Sometimes fixed-term contracts can be used as a stepping stone to a permanent position at the organisation, but it is not guaranteed.

What are the benefits of a fixed-term contract?

Working under a fixed-term contract may not be as stable as a permanent contract, but it still offers some benefits. Here are the main benefits of a fixed-term contract, to help you decide if it’s right for you.

Flexibility

Fixed-term contracts mean you have guaranteed work for anywhere up to two years per agreement. If you value flexibility and like to work on different jobs for different employers, a fixed-term contract allows you to do this without the negative connotations of ‘job-hopping’. You can take on contracts of a few weeks, months or years – sometimes with the option of renewing them with the same company. Fixed-term contracts might be good if you like to travel, you want to work in a range of different industries or sectors, or you just enjoy the freedom of not being tied to one organisation.

Opportunity to earn more

Because fixed-term contracts don’t offer the same security and stability of permanent employment, employers often have to compensate by offering higher compensation. This is especially true for specialised workers who have a high level of expertise and are only required for a short period, to finish a one-time project. 

Fixed-term contracts also allow you to work for more than one employer at a time. For example, if you’re a web developer, you may be able to work two different part-time contracts simultaneously, creating two separate income streams.

Valuable experience

Having diverse work experience always looks good on your resumé  – as long as you’re not seen as job hopping. Fixed-term contracts give you the ability to work for a variety of employers, potentially learning more skills than you could in a single permanent role. This ability to work in different environments also helps you meet new people, expand your professional network and find new opportunities through your connections.

Helps avoid long-term commitment

Some fixed-term contracts come with the possibility of a permanent role at the end of the term. During your fixed-term contract, you can get to know the company, your co-workers and the culture, giving you insight into whether you’d like to work there long term. Not feeling obligated to a long-term professional commitment also comes with a sense of excitement and adventure, and potentially greater feelings of control over your career path. 

What are the drawbacks of a fixed-term contract?

There are also downsides to a fixed-term contract. According to the Fair Work Ombudsman, fixed-term contracts give you the same leave entitlements and protection against unfair dismissal as permanent employment contracts – but there are still potential disadvantages to consider. 

Job insecurity

Fixed-term contracts by nature don’t offer ongoing employment. At the end of the fixed term, you may have to find a new contract and potentially be without income for a period of time. While some fixed-term contracts lead to permanent positions, others – like those filling in for parental leave or for a one-time project – are likely to end completely. A lack of stability can make contract work less appealing.

Limited job benefits

Another disadvantage of fixed-term employment contracts in Australia is lack of job benefits. While you’re entitled to the same compensation and leave as a permanent employee, there are some benefits you will probably miss out on. Non-permanent employees generally don’t receive perks like discounted gym membership, parking, health insurance and access to employee assistance programs. Fixed-term employees don’t receive incentives or bonuses either.

Limited career advancements

Fixed-term employees don’t have access to the same training and career opportunities as permanent employees. As a temporary employee, you’re employed for your existing skill set, which is only needed for a short time, whereas a permanent employee is seen as a company investment. Even if you spend two years at one organisation, it’s unlikely you’ll have access to a promotion or raise, unless you become a permanent employee when your fixed-term contract ends.

Terms to be aware of in your fixed term employment contract

From December 2023, there are new rules that apply to fixed-term contracts, outlined on the Fair Work Ombudsman website. Before signing a contract, make sure you read through the Fixed Term Contract Information Statement (FTCIS) and the Fair Work Information Statement (FWIS), so you’re clear on your labour rights. Here are some sections to pay special attention to in your fixed-term employment contract. 

Duration of employment

When signing a fixed-term contract, make note of your contract’s start and end dates. If your contract does not include these dates, you need to ensure your employer adds them in before you sign it. In Australia, no fixed-term contract can be longer than two years, including extensions, and they can’t be extended or renewed more than once. After this time, companies must end the agreement or offer a permanent position.

Job description

It’s important that your fixed-term contract agreement clearly outlines your job role. This not only helps you understand exactly what is expected of you, but also protects you from scope creep (being asked to do more than you are being paid to do) and from unfair dismissal. If your contract job description seems vague or you need more clarification, don’t be afraid to ask your employer to clarify.

Annual leave

A fixed-term employee on full-time or part-time hours should receive the same leave entitlements as a permanent employee. Under Australia’s Fair Work Act, permanent employees and contractors are to receive a minimum of four weeks of annual leave or holiday pay for every 12 months worked. 

As a fixed-term employee, you can negotiate for more annual leave before you sign the contract. If your contract is for 12 months, negotiating an extra 10 days of annual leave would leave you more paid time at the end of the contract to find new employment and reduce the amount of time you won’t have an income. 

Probation period

Permanent workers typically receive a three- to six-month probation period that allows both them and the company to evaluate their suitability for the role. It gives both parties time to see whether it’s a good fit. But this may not be as straightforward with a fixed-term contract.

As fixed-term contracts can be short, probation periods may also be shorter. It’s important to know under a fixed-term contract, as with any employment contract, that you can be dismissed for not performing to the standard of the contract requirements. Thoroughly read your contract to make sure you understand your probationary period and how your performance will be evaluated during that time.

Termination

There’s a common misconception that employers can end fixed-term contracts without cause at any time. Unless both parties agree or there is a breach of contract, your employer can’t just fire you without warning. If they do, you can dispute the terms and lodge for unfair dismissal via Fair Work Australia. 

Workplace benefits and perks 

While you may be entitled to the same salary and leave entitlements as a permanent employee, there are benefits you won’t automatically receive. Workplaces might offer certain benefits to their permanent employees that you as a fixed-term employee don’t receive, like mental health support and wellness allowances. Some workplaces also offer things like medical and dental benefits as part of their permanent employees’ salary packages. As a fixed-term employee, you’ll need to check your agreement for any benefits, before assuming you’ll get them as part of accepting the role.

Job title

Your job title is a defining part of your professional identity, so it’s essential the title on your contract accurately reflects what you’ll be doing. This is important for your career progression, for your resumé, and for how people will recognise your role and what you’ll be doing within the organisation while you’re there. 

Ensure your job title reflects the duties and responsibilities outlined in the job description. For example, if the job title in the contract  is customer service officer, but the duties outlined include managing a team, you should discuss changing the title to customer service manager before you sign 

Notice

Your contract should include the minimum notice period you are required to give if you need to end your fixed-term agreement, or if your employer needs to end your contract before the end date. This is typically anywhere from two to four weeks, depending on your award, the role and the length and the terms of your contract. You are expected to give this notice, as is your employer, otherwise there may be a dispute of contract.

If you are resigning from your role, you should arrange for an in-person or video meeting with your direct manager, as well as provide your resignation in writing. This resignation letter acts as an official document of your notice and gives your employer the information they need to process the termination of the contract.

Sick leave

As a fixed-term employee, you receive the same entitlements as permanent staff, including sick leave (which includes personal and carer’s leave). Full-time workers are entitled to 10 days’ paid personal leave per year, or pro-rata for a part-time role.

It’s also worthwhile checking if your employer offers discounts on health insurance for fixed-term contract staff. This is a common benefit for full-time permanent employees, and may be a big benefit for you if it’s included.

Working arrangements

Fixed-term employment contracts provide employees with more flexible working arrangements. This may include being able to work from home or choose the number of hours you work per week. You can negotiate these terms as part of your contract – ensure they are included in your contract before you sign.

If you will be working from home, also ask about work-from-home allowances. Will you be required to buy or use your own equipment? Will they provide licensed software? Any conditions should be outlined in your contract.

Weighing up the pros and cons of a fixed-term contract will help you decide if it’s the right choice for you. Having more flexibility allows you to work for different employers for short periods of time, which can be more exciting and lucrative than being a permanent employee. On the other hand, job security and company perks might be more important to you. If you do opt for a fixed-term contract, make sure you check that your agreement includes all of the essential details outlined above and that your employer is aware of your entitlements and rights. 

FAQs

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

According to the Fair Work Ombudsman, fixed-term employees generally have the same entitlements as a permanent employee. This includes the same wages, penalty rates and leave entitlements. What a fixed-term contract is specifically entitled to depends on the award and agreement between the contractor and the company.

Can an employee leave a fixed-term contract?

Yes, an employee can leave a fixed-term contract where the business agrees or the business has breached the contract. There may be a notice period to end a fixed-term contract early, which will be outlined in the contract details. Terminating a contract early without satisfying the terms of the agreement can come with risks, such as legal action.

Can a fixed-term contract become permanent?

A company may offer a permanent position following a fixed-term contract. It is up to the employer and the contractor what these terms are and what works for both parties. 

What happens when a fixed-term contract ends?

As of December 2023, employers must either terminate the agreement at the end of a fixed-term contract or engage in a new fixed-term contract. Fixed-term contracts cannot be longer than two years at a time. When the fixed-term contract ends, it can either be extended or terminated. 

What happens in the case of early termination?

An employer can terminate a fixed-term contract early if:

  • there is a cause, 
  • there has been a breach of contract, or 
  • there has been a mutual agreement between the two parties. 

The specifics about terms for early termination and what happens (such as leave entitlements) will depend on the contract conditions. 

What are some remedies for infringement on a fixed-term contract

Any infringements on a fixed-term contract can be resolved between the parties privately. If the issue can’t be resolved, an application can be lodged with Fair Work Australia, who provides mediation and recommendations for resolving the matter. 

What needs to be in a fixed-term contract?

A fixed-term contract should outline the terms of the agreement and work to be completed including:

  • the date the contract starts and ends, 
  • details of the project, 
  • job description,
  • job outline,
  • leave entitlements,
  • compensation,
  • performance expectations and 
  • any other requirements for either party. 

What are the conditions of a fixed-term contract?

In Australia, a fixed-term contract can’t extend beyond a two-year period, including renewals and extensions. An employee can’t have more than two consecutive contracts for the same or similar work at the same organisation. Any other conditions are to be agreed on between the contractor and employer.

Can you negotiate a fixed-term contract?

Yes, you can negotiate some terms of a fixed-term contract. For example, you can negotiate compensation and benefits of your contract, as long as it is within employment regulations. A fixed-term agreement should benefit both you as the contractor and the employer.

What are the disadvantages of a fixed-term contract?

There are some disadvantages of a fixed-term contract, including:

Whether fixed-term contracts are right for you depends on your lifestyle, career aspirations and preferences.

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