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Permanent or fixed term contract - what is best for my growing business?

Recruiting the right person first time and at the lowest cost is a top business priority for growing SMEs who cannot afford to make poor hiring decisions. AS a small business you need a flexible workforce but you recognise that to attract talent into your business you may need to offer job security. How do you decide whether you should fill your resourcing need with a permanent member of staff, a fixed term contractor or a casual worker? 

Fixed term contracts

A fixed term contractor is someone you provide with an employment contract or written statement which will terminate on a future date, or on completion of a specific task e.g. a project. The contract is for a specified period of time only.

When to use one

Examples of a fixed term contractor include taking on a seasonal or casual employee to carry out a role for up to 6 months during a busy period, a specialist employee for a project, covering for maternity leave or covering for someone on sick leave. 

Points to be aware of

The longer the contract, the more entitlements apply. Employers should be wary of employing a person on a succession of fixed term employment contracts. It is a common misconception that fixed term contractors don’t have any rights. Generally speaking, they have the same employment rights as permanent staff working at your organisation and should not be treated less favourably than permanent employees unless you have a good business reason to do so. The legislation that covers this is the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002.

People on fixed term contracts (FTCs) will be treated as PAYE employees. 

You should provide all FTCs with a written statement of terms and conditions or an employment contract. You should also follow a fair procedure when it comes to terminating the FTC.

The pro’s

  • Fills a ‘gap’ in resources for a temporary period
  • The contract ends on the date stated in the contract. You do not need to give any notice.
  • Ideal for bringing in specialist knowledge and skills for a specific period of time/project
  • You can make them a job offer to become a permanent member of staff at the end of the contract

The con’s

  • The label ‘fixed term contract’ may put off people applying for this job because it does not have long term job security
  • Employers need to take great care when writing the clauses in the contract regarding end date and notice period to protect their business if the contractor does not work out
  • They may be entitled to redundancy payments after 2 years’ service if the reason for not renewing their contract is redundancy
  • It is recommended employers seek advice from an HR expert before entering into a 2nd or a subsequent fixed term employment contract
  • If you do not follow a fair procedure when it comes to terminating their contract, they could make a claim for unfair dismissal at an employment tribunal
  • An employee on a fixed term contract for 4 or more years (continuous service) will automatically become a permanent employee, unless you can show a good business reason not to do so. (However, the employer and unions, or a staff association, may make a collective agreement that removes the automatic right to become a permanent employee in these circumstances).

Permanent contract

A permanent employee is someone you have offered a permanent job to and typically you will have given them a contract of employment, or at the minimum, a written statement of employment. They will be directly employed by you and will have a permanent salary along with access to any benefits on offer by the employer. 

When to use one

If you have reviewed your resourcing requirements and believe you need someone to fulfil the role on a permanent basis.

Points to be aware of

Permanent employees are protected by many employment rights.

The pro’s

  • Longer term resource, keeping their skills within your business for longer
  • More commitment and loyalty given they will perceive there is the opportunity to develop and progress their career with you
  • Employee buys into the company’s goals, values and mission
  • Provides the individual with job security
  • Better team spirit and effectiveness

The con’s

  • They have more employment rights meaning terminating their contract can be more problematic if you decide it is not working out
  • You are required to follow more employment legislation, process and policies
  • Recruiting permanent members of staff can be very expensive depending on how you fill your vacancies

Questions our clients often ask us?

I have a fixed term contractor who has worked for us continuously over the past 3 years. I don’t want to renew their contract when it is due to end in 3 months’ time. Is this a redundancy situation?

Given your contractor has over 2 years’ service, you will need to show there is a ‘fair’ reason for not renewing the contract. If the reasons for not renewing the contract are redundancy then yes, they could be entitled to a redundancy payment.

Can I end the contract before the end of the contract termination date?

Firstly, you need to check the terms of the contract. If there is a clause in the contract that allows you to end the contract earlier, and you have given proper notice, then yes, you can end the contract earlier. Fixed term employees have the right to a minimum notice period of:

  • 1 week if they have worked continuously for at least 1 month
  • 1 week for each year they have worked, if they’ve worked continuously for 2 years or more

*these are minimum periods. You can specify longer notice periods in the contract.

What is the different between a casual worker and a fixed term contractor?

The phrase 'casual worker' is often used to describe workers who are not part of the permanent workforce, but who supply services on an irregular or flexible basis, often to meet a fluctuating demand for work.

They are often used in seasonal industries such as agriculture and tourism. They are often used in construction and other industries where the work is sporadic.

The Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 regulation does not apply to casual staff, agency temps or freelancers/contractors.

How we can help

For further information on hiring fixed term contractors and/or permanent members of staff, please contact one of our HR experts on 01865 292260 or send an email to hr@shawgibbs.com

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Contact Us

For further information on hiring fixed term contractors and/or permanent members of staff, please contact one of our HR experts on 01865 292260 or send an email to hr@shawgibbs.com

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