Whether you’re expanding offshore or simply growing your local operations, hiring new employees represents a key moment for your business. Not only does it enable you to connect with fresh talent, but it also provides a platform to build an engaged workforce; one that gives your business a competitive advantage in new markets. When hiring employees, it’s important that you first assess the pros and cons of fixed-term employment contracts against indefinite-term employment contracts. Depending on your industry, the size of your business, and the person you’re hiring, it’s likely that one form of contract will ultimately be best for you and your employee. In this article, we highlight what a fixed-term contract is, why you need to know the difference between fixed-term contracts and indefinite-term contracts, and which contract type may be most appropriate for your business. Note: This article provides general information on employment contracts as they operate internationally. To assess your specific situation, it is recommended you seek professional legal advice in your location.
Key Takeaways 1. Fixed-term contracts, also known as limited-term contracts, establish a start and end date for an employment agreement. 1. Usually, neither an employer nor an employee can terminate a fixed-term employment contract without proper cause. 3. Fixed-term employment contracts give employers the ability to cover a certain period when a company may be short of staff or busier than normal. 4. Because fixed-term employment offers employees less long-term job security, these roles can be more challenging to fill. 5. Employees still working for the employer after the term period has lapsed are usually classified as permanent employees, under law.
A fixed-term employment contract is defined as a contract where an enterprise or company hires an employee for a specific time period . Fixed-term contracts, also known as limited-term contracts, establish a start and end date for an employment agreement.
Fixed-term employees are often hired as a cover for an absent employee, to fill a human resources gap, or to staff a large project. In a majority of instances, a fixed-term employment contract is drafted for the period of several months to one year. Generally speaking, an employer or employee cannot terminate a fixed-term agreement early. Once a contract has expired, a company can either renew, extend, or terminate the contract. However, in the case of contract renewals, companies need to be mindful of in-country workplace regulations. This is because many countries stipulate limitations on the frequency an employment contract can be renewed — which is seen as a means of protecting its citizens from unfair dismissals, potential abuses, and stemming the cycle of short-term work.
The main feature of a fixed-term labor contract is that employment ends on a particular date, or at the completion of a specific task. Employees are not defined as “fixed-term” if they are contracted through an agency, are on work experience, or are an apprentice. Likewise, they are not defined as a fixed-term employee if they are employed through an independent contractor agreement. Neither an employer, Employer of Record, nor an employee can terminate the contract without proper cause. Furthermore, there must be an agreement between both parties to maintain the employment arrangement for the duration of the contract term. This may only be changed if the reasons for termination enable the parties to end the contract early. Under the applicable industrial regulations, fixed-term employees typically have the same rights as permanent employees (such as comparative benefits and bonuses). The one exception is if an employer has a valid reason to justify not giving a fixed-term employee a particular benefit (such as travel allowance when the employee works from home).
An indefinite employment contract is different from an offer of employment. An employment offer comes before the employment contract, can be conditional or unconditional, and lays out the basic employment details. An employee should know from the employment offer if the employment contract will be fixed-term or indefinite.
The most common employment contract is an indefinite (or permanent) contract. Indefinite employment contracts specify an employee’s agreed hours and have no predetermined end date. That is, they have a continuous, ‘indefinite’ period. While indefinite-contract employees have better long-term job security than fixed-term employees, they can still have their employment terminated through lawful termination. The other ways that indefinite employment can end is if an employee resigns or retires, or if a business shuts down. For an employee, the benefits of an indefinite contract are more certainty and stability regarding their role. Most notably, there is greater protection in the form of international labor laws (such as severance pay). For employers, they are likely to see more loyalty from their indefinite-contract employees. For companies that are scaling their operations by expanding a particular team, establishing an entity in a new location, or filling a gap due to a shortage of staff, indefinite-employment contracts provide greater flexibility than fixed-term contracts.
