A Fixed term contract is an employment agreement that lasts for a specified period or until a particular task or project is completed. Unlike permanent contracts, fixed-term contracts have a defined end date, making them ideal for situations where the need for an employee is temporary. These contracts are commonly used in various industries to manage short-term projects, cover maternity leaves, or handle seasonal workloads.
For employers, fixed-term contracts offer significant flexibility and cost-efficiency. They allow businesses to scale their workforce according to demand without the long-term commitment and costs associated with permanent hires. This type of contract can be particularly beneficial in uncertain economic times or in industries with fluctuating workloads. However, it is essential for employers to understand the legal implications and best practices to avoid potential pitfalls and ensure compliance with UK employment laws.
In this article, we will look at the essentials of fixed-term contracts from an employer’s perspective. To help you implement fixed-term contracts effectively, we will outline best practices for drafting, managing, and communicating these agreements.
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Employment Statistics |
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As of recent data, approximately 1.5 million people in the UK were employed on fixed-term contracts. This represents a substantial portion of the workforce, highlighting the importance of this employment type in various sectors. |
Section A: What is a Fixed Term Contract?
Fixed-term contracts are a versatile employment solution designed to address specific, time-limited needs within a business. These contracts are particularly valuable for employers who require additional resources for a defined period without the long-term commitment associated with permanent employment.
1. Definition of Fixed-Term Contracts
A fixed-term contract is an employment agreement that is set to last for a specific duration or until a particular task or project is completed. The contract clearly states the end date or the condition that will mark the termination of employment. This type of contract differs from open-ended contracts, which do not have a predetermined end date and continue indefinitely until either the employer or employee terminates the agreement.
Read our extensive guide to Temporary Contracts for Employers here >>
2. Common Scenarios for Use
Fixed-term contracts are used in various situations, including:
a. Project-Based Work: When a company undertakes a project that requires additional skills or staff for a limited period.
b. Seasonal Employment: During peak seasons, such as holidays or summer months, businesses may need extra staff to handle increased demand.
c. Maternity or Paternity Cover: To replace employees on extended leave, ensuring continuity in operations.
d. Specialist Skills: When specialised skills are needed for a short duration, such as in consultancy or technical roles.
e. Trial Periods: To evaluate an employee’s performance before offering a permanent position.
3. Comparison with Permanent Contracts
The choice between fixed-term and permanent contracts depends on the specific needs and goals of both employers and employees. While both fixed-term and permanent contracts are legally binding agreements between an employer and an employee, they serve different purposes and offer distinct advantages and disadvantages.
a. Duration
Fixed-term contracts have a specified end date or are tied to the completion of a project, providing clarity on the employment term from the outset. In contrast, permanent contracts continue indefinitely until terminated by either party, offering a sense of ongoing commitment and stability.
b. Job Security
Fixed-term contracts provide less job security for employees, as the employment ends once the contract term is completed. This can create uncertainty for employees who may need to seek new employment regularly. Permanent contracts, however, offer more job security, with ongoing employment expected, thus providing employees with a greater sense of stability and predictability.
c. Benefits and Entitlements
Employees on fixed-term contracts are generally entitled to the same benefits as permanent employees, such as holiday pay and sick leave. However, these benefits cease when the contract ends. Permanent employees enjoy continuous benefits and entitlements as long as they remain employed, contributing to a more stable and supportive work environment.
d. Flexibility for Employers
Fixed-term contracts allow employers to adjust their workforce based on short-term needs without long-term commitment. This flexibility can be advantageous for managing project-based work or seasonal fluctuations. In contrast, permanent contracts require a more significant commitment from employers, potentially leading to higher long-term costs due to ongoing salaries and benefits.
e. Employee Retention
Fixed-term contracts may lead to higher turnover as employees seek more secure employment opportunities elsewhere once their contract ends. This can result in increased recruitment and training costs for employers. On the other hand, permanent contracts typically result in lower turnover and more stable employee retention, fostering a more experienced and cohesive workforce.
Section B: Benefits of Hiring Under Fixed-Term Contracts
Hiring employees on fixed-term contracts can offer strategic advantages for employers, particularly in dynamic business environments where flexibility and efficiency are crucial. Fixed-term contracts allow employers to respond quickly to changing market conditions, manage costs effectively, and address specific short-term needs without the long-term commitments of permanent employment.
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Industry Distribution Statistics |
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Fixed-term contracts are commonly used in sectors such as education, healthcare, and technology. For instance, in the higher education sector, around 43% of academic staff were employed on fixed-term contracts for teaching and research purposes (GOV.UK) (CIPD) . |
1. Flexibility in Staffing
One of the most significant advantages of fixed-term contracts is the flexibility they provide in managing workforce levels. Businesses can scale up or down quickly in response to market demands, seasonal fluctuations, or unexpected projects. This flexibility helps employers to quickly adjust staffing levels in response to economic shifts, new business opportunities, or changing customer needs; hire additional staff during busy periods, such as holidays or sales seasons; reduce staff when demand decreases; and bring in specialised skills for a limited time to complete specific projects without the need for long-term hiring.
2. Cost Management
Fixed-term contracts can be a cost-effective solution for managing human resources, helping businesses to control and predict their labour expenses more accurately.
Employers are not committed to the ongoing salary and benefits costs associated with permanent employees, which reduces financial risk. Fixed-term contracts allow businesses to allocate budgets more efficiently by matching labour costs to project timelines and funding availability. For temporary needs, fixed-term contracts can minimise the costs associated with recruiting, onboarding, and training permanent staff.
3. Addressing Short-Term Needs and Projects
Fixed-term contracts are ideal for addressing specific, short-term business requirements, enabling employers to meet immediate goals without compromising long-term strategy. Hiring fixed-term employees with the necessary expertise ensures projects are completed on time and to a high standard without overburdening existing staff. This type of contract also provides temporary cover for permanent employees on leave, such as maternity or sick leave, ensuring continuity in operations.
Employers can also evaluate the need for a new role or the fit of a potential permanent employee through a fixed-term arrangement before making a long-term commitment.
Section C: Legal Requirements and Regulations
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Rights and Regulations |
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The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 ensure that fixed-term employees receive the same treatment and benefits as permanent employees performing similar roles. This includes access to pensions, holiday entitlements, and protection against unfair dismissal after two years of continuous service (GOV.UK) (CIPD) . |
Employers in the UK must comply with a range of legal requirements and regulations when employing staff on fixed-term contracts.
1. Overview of UK Employment Laws Related to Fixed-Term Contracts
In the UK, fixed-term contracts are governed by several key pieces of legislation designed to protect the rights of employees and ensure fair treatment. Important laws and regulations include:
a. The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002: This regulation aims to prevent less favourable treatment of fixed-term employees compared to permanent employees doing similar work. It ensures that fixed-term employees have access to the same terms and conditions, benefits, and protections.
b. The Employment Rights Act 1996: This act provides comprehensive coverage of employee rights, including unfair dismissal, redundancy payments, and statutory notice periods, which also apply to fixed-term employees.
c. The Equality Act 2010: This act prohibits discrimination against employees based on protected characteristics such as age, gender, race, and disability. It ensures that fixed-term employees are treated equally and fairly in comparison to their permanent counterparts.
2. Rights of Fixed Term Employees
Fixed-term employees in the UK have specific rights designed to ensure they receive fair treatment and the same protections as permanent employees. Key rights include:
a. Equal Treatment: Fixed-term employees are entitled to the same pay, conditions, and benefits as permanent employees performing similar roles. This includes access to pension schemes, holiday entitlements, and sick pay.
b. Redundancy and Dismissal Rights: Fixed-term employees have the right to statutory redundancy payments if their contract lasts for two years or more, and they are entitled to protection against unfair dismissal after two years of continuous service.
c. Conversion to Permanent Status: If a fixed-term employee has been continuously employed for four or more years on successive fixed-term contracts, they may automatically become a permanent employee unless the employer can justify why the contract should remain fixed term.
d. Right to Request Written Statement: Fixed-term employees can request a written statement from their employer explaining any differences in their terms and conditions compared to permanent employees.
3. Avoiding Discrimination and Ensuring Fair Treatment
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Contract Duration and Renewal |
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Fixed-term contracts typically last for a specific period or until the completion of a project. Employers must justify the use of successive fixed-term contracts, and after four years of continuous employment, an employee may gain permanent status unless there is a valid reason for maintaining a fixed-term arrangement (GOV.UK) (CIPD) . |
To avoid discrimination and ensure fair treatment of fixed-term employees, employers should adopt best practices and adhere to the following guidelines:
a. Policy Development: Develop clear policies that outline the treatment of fixed-term employees, ensuring these policies are aligned with the principles of equality and non-discrimination.
b. Training and Awareness: Provide training for managers and HR personnel on the legal requirements and the importance of treating fixed-term employees fairly. This helps prevent unconscious bias and ensures consistent application of policies.
c. Regular Review: Conduct regular reviews of the terms and conditions offered to fixed-term employees to ensure they are in line with those offered to permanent staff. Address any discrepancies promptly.
d. Clear Communication: Maintain open and transparent communication with fixed-term employees regarding their rights, contract terms, and any potential changes to their employment status.
e. Monitoring and Reporting: Implement monitoring and reporting mechanisms to track the treatment of fixed-term employees and to identify and address any instances of discrimination or unfair treatment.
Section D: Challenges and Risks
While fixed-term contracts offer numerous advantages, they also come with potential challenges and risks that employers must manage effectively.
1. Potential Legal Pitfalls
Employers using fixed-term contracts face several legal challenges to ensure compliance and avoid costly disputes. Key legal pitfalls include:
a. Unfair Dismissal: Fixed-term employees are protected against unfair dismissal after two years of continuous service. Terminating a fixed-term contract without a fair reason or proper procedure can lead to legal claims.
b. Redundancy Rights: Fixed-term employees are entitled to redundancy payments if they have been employed for two years or more. Failure to provide these payments can result in legal action.
c. Less Favourable Treatment: The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 require that fixed-term employees receive the same treatment as permanent employees. Any disparity can lead to claims of discrimination.
d. Contract Renewal and Permanency: Continuously renewing fixed-term contracts without justification can lead to the employee being deemed permanent after four years. Employers must clearly document the reasons for maintaining a fixed-term status.
2. Employee Morale and Retention Issues
Fixed-term contracts can impact employee morale and retention in several ways. Key issues include:
a. Job Insecurity: The temporary nature of fixed-term contracts can create a sense of job insecurity, leading to decreased motivation and productivity among employees.
b. Lack of Career Development: Fixed-term employees may feel they have fewer opportunities for career progression and professional development compared to their permanent counterparts.
c. Integration Challenges: Fixed-term employees might struggle to integrate with the permanent workforce, leading to feelings of isolation and disengagement.
d. High Turnover: The temporary nature of fixed-term contracts can result in higher turnover rates, as employees may seek more stable employment opportunities.
3. Strategies to Mitigate Risks
Employers can adopt several strategies to mitigate the risks associated with fixed-term contracts, ensuring legal compliance and fostering a positive work environment. Key strategies include:
a. Clear Contract Terms: Draft clear and comprehensive fixed-term contracts that outline the duration, terms of employment, and conditions for renewal or termination. Ensure that these contracts comply with all relevant employment laws.
b. Fair Treatment Policies: Implement policies to ensure fixed-term employees receive the same benefits, training, and opportunities as permanent staff. Regularly review and update these policies to maintain fairness and compliance.
c. Communication and Transparency: Maintain open lines of communication with fixed-term employees. Clearly explain their rights, the terms of their contracts, and any potential for contract renewal or permanent positions.
d. Support and Integration: Foster a supportive work environment that encourages the integration of fixed-term employees with the permanent workforce. This can include team-building activities, mentorship programmes, and inclusive workplace practices.
e. Professional Development Opportunities: Provide fixed-term employees with opportunities for professional development and career growth. This can include access to training programmes, workshops, and performance feedback.
f. Legal Advice and Audits: Regularly seek legal advice to ensure compliance with employment laws and conduct audits of fixed-term contracts to identify and address any potential issues before they escalate.
Section E: Best Practices for Managing Fixed-Term Contracts
Implementing best practices in drafting contracts, communication, and performance management can help employers comply with the complexities of fixed-term employment.
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Regulatory Changes |
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Recent legislative changes have introduced more stringent regulations on the use of fixed-term contracts to encourage permanent employment. These changes aim to provide greater job security for employees and ensure fair treatment across the board (GOV.UK) (CIPD) . |
1. Drafting Clear and Compliant Contracts
Creating clear and compliant fixed-term contracts is the foundation of effective employment management. Key practices include:
a Detailed Job Description: Clearly outline the roles and responsibilities of the position. Specify the skills and qualifications required, as well as the expected outcomes and objectives.
b. Defined Duration and Terms: State the exact start and end dates of the contract. If the contract is tied to the completion of a specific project, clearly describe the project and the conditions for contract termination.
c. Legal Compliance: Ensure the contract complies with relevant UK employment laws, including the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002. Include clauses that address employee rights, such as redundancy payments and protection against unfair dismissal.
d. Benefits and Entitlements: Clearly specify the benefits and entitlements the fixed-term employee will receive, ensuring they are on par with those provided to permanent employees in similar roles.
e. Renewal and Termination Conditions: Outline the conditions under which the contract may be renewed or terminated. Include procedures for giving notice and the rights of the employee in the event of early termination.
2. Communication and Transparency with Employees
Maintaining open communication and transparency with fixed-term employees fosters trust and engagement. Best practices include:
a. Onboarding and Orientation: Provide a comprehensive onboarding process for fixed-term employees. This should include an introduction to the company culture, policies, and team members.
b. Regular Updates: Keep fixed-term employees informed about their contract status, including any potential for renewal or transition to permanent roles. Regularly update them on company news and developments that may affect their position.
c. Open Dialogue: Encourage open communication between fixed-term employees and management. Create opportunities for employees to voice concerns, ask questions, and provide feedback.
d. Clear Expectations: Set clear expectations regarding job performance, goals, and deadlines. Ensure that fixed-term employees understand how their contributions align with overall company objectives.
e. Access to Resources: Provide fixed-term employees with the same access to resources, tools, and support as permanent employees. This includes training programmes, professional development opportunities, and company facilities.
3. Performance Management and Feedback
Effective performance management and feedback systems are essential for maximising the productivity and satisfaction of fixed-term employees. Key practices include:
a. Regular Performance Reviews: Conduct regular performance reviews to assess the progress and achievements of fixed-term employees. Use these reviews to provide constructive feedback and identify areas for improvement.
b. Goal Setting and Monitoring: Set specific, measurable, achievable, relevant, and time-bound (SMART) goals for fixed-term employees. Monitor their progress and provide support to help them achieve these goals.
c. Continuous Feedback: Foster a culture of continuous feedback, where fixed-term employees receive ongoing input from managers and colleagues. This helps address any issues promptly and reinforces positive behaviours.
d. Recognition and Rewards: Recognise and reward the contributions of fixed-term employees. This can include formal recognition programmes, bonuses, or other incentives that acknowledge their hard work and dedication.
e. Development Opportunities: Offer fixed term employees opportunities for professional growth and development. This can include access to training programmes, mentorship, and career advancement resources.
Section F: Case Studies and Examples
Fixed-term contracts are employed across various industries to address specific business needs and projects. The following illustrative case studies demonstrate how different sectors successfully use fixed-term contracts.
1. Technology Sector: Software Development Project
A mid-sized software company secured a contract to develop a custom application for a large client, requiring additional developers with specialised skills.
The company hired five software developers on 12-month fixed-term contracts to complete the project.
The project was completed on time and within budget, thanks to the specialised skills and dedicated effort of the fixed-term employees.
Fixed-term contracts allowed the company to quickly scale its team with the necessary expertise without long-term financial commitments.
2. Healthcare Sector: Maternity Leave Cover
A healthcare facility needed to cover a nurse’s maternity leave for six months. The facility hired a qualified nurse on a fixed-term contract to ensure uninterrupted patient care during the regular nurse’s absence.
The fixed-term nurse seamlessly integrated into the team, providing high-quality care and maintaining patient satisfaction.
Using fixed-term contracts for temporary coverage ensured operational continuity and high standards of care without impacting the permanent staff’s workload.
3. Education Sector: Temporary Teaching Positions
A university required additional lecturers for a new, temporary course module set to run for two academic terms. The university hired three lecturers on fixed-term contracts specifically for the duration of the course.
The lecturers delivered the course successfully, and student feedback was overwhelmingly positive.
Fixed-term contracts enabled the university to offer specialised courses without committing to permanent hires, providing flexibility in curriculum development.
4. Retail Sector: Seasonal Employment
A major retail chain anticipated increased customer traffic during the holiday season. The chain employed 50 additional sales associates on three-month fixed-term contracts to handle the seasonal surge.
The temporary employees helped manage the increased workload, leading to higher sales and improved customer service during the peak period.
Seasonal fixed-term contracts allowed the retailer to effectively manage staffing needs during busy periods without the burden of long-term employment costs.
Section G: Summary
Fixed-term contracts provide employers with a flexible and cost-effective way to manage their workforce. They are particularly useful for addressing temporary staffing needs, such as project-based work, seasonal peaks, and covering for employees on leave.
While strategic use of fixed-term contracts can offer significant benefits to employers, including greater staffing flexibility, improved cost management, and the ability to meet short-term business needs efficiently, it’s essential for employers to balance these advantages with the potential challenges, such as legal risks and the impact on employee morale.
Ensuring compliance with UK employment laws and understanding the rights of fixed-term employees is crucial to avoid legal pitfalls. Effective management practices, such as clear contract drafting, open communication, and robust performance management, can help maintain employee morale and productivity.
For more detailed information and resources, visit the UK Government’s Employment Rights website or contact an employment law specialist.
Section H: FAQs on Fixed Term Contracts
What is a fixed-term contract?
A fixed-term contract is an employment agreement that lasts for a specified period or until the completion of a particular project. It has a defined end date, unlike permanent contracts, which continue indefinitely until terminated by either the employer or employee.
When should I use a fixed-term contract?
Fixed-term contracts are ideal for situations where you need temporary staff, such as for project-based work, covering for employees on leave, managing seasonal peaks, or bringing in specialised skills for a short duration.
Are fixed-term employees entitled to the same benefits as permanent employees?
Yes, fixed-term employees are entitled to the same benefits as permanent employees performing similar work. This includes access to pension schemes, holiday entitlements, and sick pay under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.
Can a fixed-term contract be renewed?
Fixed-term contracts can potentially be renewed where there is agreement between the employer and employee. However, if a fixed-term employee has been continuously employed for four or more years on successive fixed-term contracts, they may automatically become a permanent employee unless the employer can justify why the contract should remain fixed term.
What happens if I need to terminate a fixed-term contract early?
Terminating a fixed-term contract early must be handled carefully to avoid claims of unfair dismissal. Ensure that the contract includes clear termination clauses and provide appropriate notice. Employees may be entitled to redundancy payments and protection against unfair dismissal if they have been employed for two years or more.
How do fixed-term contracts impact employee morale?
Fixed-term contracts can create a sense of job insecurity, potentially affecting employee morale and productivity. To mitigate this, maintain open communication, provide opportunities for professional development, and ensure fixed-term employees feel integrated and valued within the team.
What are the legal risks associated with fixed-term contracts?
Key legal risks include unfair dismissal claims, failure to provide redundancy payments, and potential discrimination if fixed-term employees are treated less favourably than permanent employees. Ensure compliance with employment laws and seek legal advice to avoid these pitfalls.
Can fixed-term employees become permanent?
If a fixed-term employee has been employed continuously for four years on successive fixed-term contracts, they may automatically gain permanent status unless the employer can provide a valid reason for maintaining the fixed-term status.
How can I ensure fair treatment of fixed-term employees?
Implement policies that ensure fixed-term employees receive the same benefits, opportunities, and support as permanent employees. Regularly review and update these policies, maintain transparent communication, and foster an inclusive work environment.
What should be included in a fixed-term contract?
A fixed-term contract should include a detailed job description, the contract duration, terms of employment, benefits and entitlements, conditions for renewal or termination, and clauses that ensure compliance with relevant employment laws.
Section I: Glossary of Terms Related to Fixed-Term Contracts
Fixed Term Contract: A type of employment agreement that lasts for a specific duration or until the completion of a particular project. It has a defined end date, unlike permanent contracts, which continue indefinitely.
Permanent Contract: An employment contract with no predetermined end date, providing continuous employment until either the employer or employee terminates the agreement. Read more about Permanent contracts here >>
The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002: UK legislation that ensures fixed-term employees are not treated less favourably than comparable permanent employees in terms of pay, conditions, and benefits.
Redundancy Payment: A payment made to an employee when they are dismissed because their job no longer exists. Fixed-term employees are entitled to redundancy payments if they have been employed for two years or more.
Unfair Dismissal: A situation where an employee’s contract is terminated by the employer without a fair reason or without following the proper procedure. Fixed-term employees are protected against unfair dismissal after two years of continuous service.
Equal Treatment: The principle that fixed-term employees should receive the same terms and conditions, benefits, and protections as permanent employees doing similar work.
Renewal of Contract: The extension of a fixed-term contract beyond its original end date. If a fixed-term employee has been employed for four years or more on successive contracts, they may automatically become a permanent employee unless the employer justifies maintaining the fixed-term status.
Job Insecurity: A state where employees feel uncertain about the continuity of their employment, often associated with fixed-term contracts due to their temporary nature.
Employee Morale: The overall outlook, attitude, satisfaction, and confidence that employees feel at work. Job security and fair treatment can significantly impact employee morale.
Performance Management: A continuous process of identifying, measuring, and developing the performance of employees in alignment with the organisation’s goals. This includes regular performance reviews and feedback.
Constructive Dismissal: A situation where an employee resigns due to the employer’s behaviour, which has made it impossible for them to continue working. This can be relevant in the context of fixed-term contracts if employees feel unfairly treated.
Professional Development: Opportunities for employees to gain new skills and advance their careers, such as training programmes, workshops, and mentoring. Providing these opportunities to fixed-term employees can improve morale and productivity.
Zero Hour Contract: An employment agreement where the employer is not obligated to provide any minimum number of working hours, and the worker is not required to accept any hours offered. Read more about Zero-hour contracts here >>
Legal Compliance: Adherence to laws and regulations governing employment. Employers must ensure that fixed-term contracts comply with relevant UK employment laws to avoid legal pitfalls.
Statutory Rights: Rights granted to employees by law, such as the right to fair treatment, redundancy pay, and protection against unfair dismissal. Fixed-term employees have statutory rights similar to those of permanent employees.
HR Policies: Guidelines and procedures established by an organisation to manage its employees. Effective HR policies ensure fair treatment and compliance with employment laws for fixed-term employees.
Temporary Contract: An employment agreement for a fixed duration or specific project. Temporary contracts are designed to cover short-term needs, such as seasonal work, project-based tasks, or to replace employees on leave. Read more about Temporary contracts here >>
Section J: Additional Resources
Acas Guidance on Fixed-Term Contracts
https://www.acas.org.uk/fixed-term-contracts
This resource offers detailed advice on managing fixed-term contracts, including legal considerations and employee rights.
GOV.UK Fixed-Term Employment Contracts
https://www.gov.uk/fixed-term-contracts
The UK government’s official website provides an overview of fixed-term contracts, covering key aspects such as employee rights, contract renewal, and termination.
GOV.UK Employment Contracts: An Overview
https://www.gov.uk/employment-contracts-and-conditions
A broader look at different types of employment contracts, including fixed-term contracts, with information on written statements and contract terms.
Citizens Advice Bureau
https://www.citizensadvice.org.uk/work/rights-at-work/fixed-term-contracts/
Citizens Advice provides practical advice on fixed-term contracts, including rights and entitlements, renewal issues, and ending contracts.
CIPD (Chartered Institute of Personnel and Development)
https://www.cipd.co.uk/knowledge/fundamentals/emp-law/contracts/fixed-term-factsheet
CIPD offers resources and guidance on the management of fixed-term workers, including legal aspects and best practices.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.
