The termination date is written into the contract and is known in advance by both employee and employer before the start of employment.
This makes it different from a contract of indefinite duration, also known as a permanent contract. Permanent employees enjoy the security of not having their employment terminated on a fixed date.
Why employ someone on a fixed term contract?
There are several reasons why a fixed term contract may be the preferred type of contract used by an employer for a particular position.
A permanent employee may be on an agreed break from work, e.g. on parental leave, having an operation or recovering from sickness. In these circumstances, it will be known in advance how long the position has to be covered and there is no intention of replacing the original employee while he or she is not at work.
The employer may quite genuinely only need an employee for a specific period, e.g. seasonal work.
An employer may also choose to hire an employee on a fixed term contract to evaluate their potential as a suitable employee. It is a lot easier finding someone else if the person on the fixed term contract turns out to be unsuitable for some reason than trying to terminate someone who has been employed under the more exacting conditions of a permanent contract.
Advantages of fixed term contracts to the employee
It may be genuinely difficult for some employees to find a permanent position early on in their chosen career. One of the reasons why this is difficult is that an employer is looking for an employee who has just the ‘right amount of experience.’ Taking on a fixed term contract position is a great way of gaining experience. In fact it is quite possible that the terms of the contract may be changed at the end of the termination date to allow a transition to a permanent job if the employer is satisfied with what has been done up to then.
The fixed term contract may also be an easy way out for an employee who is looking for another job after completing their term with the original employer. When the contract expires, there is no need to give notice. It is easy to let another prospective employer know why that person wants to change jobs and when it is possible to start work.
Disadvantages of fixed term contracts to the employee
As well as advantages, there are potential disadvantages to taking on a fixed term contract. The main disadvantage is that there is no real feeling of security beyond the termination date. This can make it more difficult securing loans or arranging mortgages etc as well as making more personal commitments like starting a family.
The employee on a fixed term contract may have to spend considerable time looking for another job, which would not be a concern for a permanent employee.
While only seeking temporary contracts may suit the person for a while in their life, it may be seen as an unattractive feature to potential employers after a time as they may feel that the employee has not developed a commitment to any of their jobs so far and may therefore not last if they are employed.
Conditions of work compared
Generally, in the U.K. at least, employees on fixed term contracts should enjoy the same benefits and conditions as an equivalent employee (1) on a contract of indefinite duration. That means they should be paid the same salary, holiday provisions, sick pay entitlements and rights to unfair dismissal if their job is terminated before the agreed date. Income tax and national insurance contributions should be withdrawn in the same way as for permanent employees.
Fixed term contracts outside of the U.K.
It is important that firms that engage employees outside of their national jurisdiction understand national laws that apply to employment on fixed term contracts. Many countries in fact have more restrictions on fixed term contracts than others. This is particularly noticeable when comparing U.S. employers with those in Europe. In Lithuania, for example, there is a strict 20% limit on the number of fixed term contracts that can be held by employers. The E.U. in fact has several directives (2) which prohibit employing workers on successive fixed term contracts. Greece for example, has a 24 month fixed term contract limit and a maximum of 4 successive such contracts.
References to laws and articles
1. https://www.gov.uk/employment-status/...choose
Quote from UK employment legislation:
A person is generally classed as a ‘worker’ if they have a contract or other arrangement to do work or services personally for a reward (your contract doesn’t have to be written).