HR Consulting FAQ: Permanent vs Fixed-Term Contracts – Which is Best?
Are you overwhelmed with employment status options? Here’s a quick rundown on pros and cons to consider...
Deciding on employment statuses for a growing business can be a daunting prospect. Full-time, part-time, casual workers, freelancers, permanent, fixed-term; all of these employment types have a different purpose, with respective advantages and disadvantages. Pondering all the available options can ultimately leave an employer confused and torn. Fortunately, as an experienced HR outsourcing service, we at PlusHR can guide you through this tricky conundrum.
There is no objective ‘right answer’ to the question of whether to opt for fixed-term or permanent contracts. It all depends on your organisation and your particular business needs. As a growing SME, you may want to stay lean and flexible in staff numbers to allow reinvestment in business growth. The downside of this freedom is that you might be left short-staffed and over-worked during a busy spell. This is not something to take lightly. Understaffing can have a huge impact on an organisation, especially when your business is forced to work in this manner for a prolonged period.
In this blog, we will focus on two popular employment contract choices: permanent and fixed-term contracts.
Understanding Fixed-Term Contracts (FTC)
Fixed-term employees are individuals who have an employment contract with a company that ends on a particular date, or on the completion of a specific task. Employees don’t count as fixed-term if they are contracted through an agency, are on work experience or are an apprentice.
An employer might choose to take on a fixed-term employee during a seasonal period. A fixed-term employee might be preferred if a company requires a specialist for a given project, or a fixed-term contract might be offered to cover maternity or sick leave. If a fixed-term employee reaches four years with the business, they may automatically become a permanent employee.
What are the benefits of fixed-term contracts?
- With the use of a fixed-term employee, your company will be able to complete a specific, short-term task that exceeds your current capabilities
- Your company benefits from specialist, expert knowledge for a particular project
- Accurate budgeting and resource planning
- Fixed-term contracts can be a great way to trial an employee before offering them a permanent contract
- Fixed-term employees come in very useful when it comes to covering maternity leave and secondments
What are the drawbacks of fixed-term contracts?
- Branding a role as fixed-term can discourage potential talent from applying to a given position, due to limited job security
- A general loss of productivity, due to time spent training new hires for each project
- Additional administration burden of extending and/or terminating fixed-term contracts
- Fixed-term employees are still are entitled to the same rights as permanent employees in the organisation
Understanding permanent contracts
A permanent employee is one who has been hired specifically for a given position within an organisation. They don’t have a set expiry date on their employment.
What are the benefits of permanent contracts?
- With a permanent contract, employees enjoy enhanced job security and stability. As a company, you benefit from greater commitment and loyalty
- Permanent employees generally advance, adopt more responsibilities and help grow the business as they get more efficient at their jobs through familiarity with the processes
- They get involved in long-term projects and you reduce the risk of losing talent prematurely
- More permanent employees tend to result in a more engaged, cohesive team
What are the drawbacks of permanent contracts?
- There is limited flexibility with your workforce. You aren’t able to regularly chop and change your talent
- A permanent contract does not automatically expire and, as such, if you want to dismiss staff, your company may need to undertake a redundancy consultation process, disciplinary process and performance management discussions
- As there is no expiration date on their contracts, employees might take their jobs for granted and become apathetic. If this is the case, you might notice performance issues cropping up. In such circumstances, it is important to know as much as possible about managing underperformance
- Recruiting efforts are expensive and time-consuming. The process of finding and training a permanent employee is generally more expensive than hiring a fixed-term employee who already possesses the skills required for the project
Conclusion: don’t give in to the myths
It is a common misconception that fixed-term employees have less employment protection than permanent employees, and the belief remains that fixed-term contracts provide greater freedom over employment terms and termination. This fundamental misunderstanding can result in significant legal liabilities, including less favourable treatment of fixed-term employees, redundancy claims and unfair dismissal.
We may see a growth in legislation concerning fixed-term contracts as employers continue to engage employees on what is perceived as a more flexible platform. Given the potential legal risks for employers, when making this choice, ask yourself: is there any real advantage to using fixed-term contracts over permanent?