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A fixed-term employment contract is where a worker joins your business for a certain period of time. Fixed-term employees are like permanent employees in every way except that their employment will end at a particular point. For instance, when a project is complete or another employee comes back from parental leave. There is a range of benefits that a fixed-term employment arrangement can offer businesses at different stages of their growth. This article will set out: 

  • what a fixed-term employment contract is; 
  • what some of the benefits are; and
  • some of the disadvantages to bear in mind.

What Is a Fixed-Term Employment Contract?

A fixed-term employment contract is also known as a temporary employment contract or fixed-term agreement. It provides for a fixed duration of employment for a new worker and the reasons for this arrangement. In New Zealand, the default employment arrangement is permanent. Therefore, to validly use a fixed-term employment contract, you must be able to show that there is a genuine reason based on reasonable grounds for the fixed-term. 

Businesses should treat an employee on a fixed-term contract in almost every way like a permanent employee. They have all the employment rights and obligations associated with being a permanent employee. As implied by the name, the key difference is that a fixed-term employee’s employment will end on a particular date when the fixed-term is over. Fixed-term employees cannot make a claim for unjustified dismissal if they leave your business when their designated fixed-term has ended. 

By virtue of their flexibility and utility in a number of different settings, fixed-term contracts can offer significant benefits.

Benefits of a Fixed-Term Employment Contract

One benefit of a fixed-term employment contract is the ability to cover a particular time period when you know that your business will be short or otherwise needing the additional capacity, but where that need will end shortly afterwards. There is a range of examples of this in practice. 

For instance, your business may work in an area that is particularly seasonal (like a ski field) or where there are predictable surges in demand (a decoration store before Christmas). In these circumstances, a fixed-term employment contract would be beneficial to get extra workers in to help meet that demand. Then, you would not necessarily need to keep that person on your payroll when you only need a smaller team.

There are also other advantages to fixed-term employees. They may be able to bring new skills and experiences that your current team or workforce do not have the skills for. If there is a particular project that would be good to complete for your business’ growth, a fixed-term employee might be perfect to come in and work until that project’s completion. This is particularly useful if you do not have existing staff who have the skills to do that project (for instance, if it is technical or requiring experience with that work in the past). 

Disadvantages of a Fixed-Term Employment Contract

However, there are also some disadvantages to fixed-term employees. Because their contract is time-limited, they are not permanent staff members. Therefore, it can be harder to build a cohesive team with significant turnover from fixed-term staff. You also need to make sure that you have a genuine reason for having an employee on a fixed-term contract. It would not be valid, for instance, to use a fixed-term contract as a kind of trial for a prospective employee to see how they perform in the role.

Key Takeaways

There is a range of benefits in using fixed-term employment contracts in your business. Fixed-term employees can bring skills and experience that your existing staff may not have. A fixed-term arrangement also offers flexibility when your business may need it, such as to cover parental leave or a predictable surge in seasonal demand. In this way, fixed-term employment contracts can be a helpful addition to workforce planning. However, it is sometimes better to hire great workers as permanent employees instead so that they can continue growing and contributing to your business. To find out more about fixed-term employment contracts, contact LegalVision’s employment lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a fixed-term employment contract?

It is where a worker joins your business for a certain period of time. It provides for a fixed duration of employment for a new worker and the reasons for this arrangement. 

Can fixed-term employees claim personal grievances?

Yes, they can. Fixed-term employees have the same rights and responsibilities as a permanent employee. However, a fixed-term employee cannot raise a personal grievance just because their employment ends at the end of their fixed-term (as this was the basis of their employment arrangement).

What are the benefits of a fixed-term employment contract?

A fixed-term employment contract can offer your business flexibility when it needs it. There are additional workforce planning possibilities when you have access to employees for a certain period of time – such as to cover a particular project or vacancy.  

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