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Pros and Cons of Fixed-term Contracts for Businesses
Updated on April 14th 2026
For businesses like yours, it’s important to have flexibility in the workplace. However, when assessing fixed-term contract pros and cons, you may not always be aware of underlying UK employment laws. These provide your employees with more rights than they may first realise.
In this guide, our experienced HR consultancy specialists explore the key factors surrounding the advantages and disadvantages of fixed-terms contracts for employers to help you make informed decisions about your employment arrangements.
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The benefits of fixed-term contracts for employers
One of the main advantages of fixed-term contracts for employers is they can be very useful to cover a period of maternity leave or long term sick leave. It may also cover a job where funding has been provided to undertake a specific task. They may also cover some seasonal work.
Some employers use short them as a probationary period of sorts to see how the employee works, what they bring to the table, and how they fit into the organisation.
Another possibility is if you’re working around a tight budget. Using this recruitment trend for your business, you can predict labour costs more easily.
The disadvantages of fixed-term contract to the employer
You may find it more difficult to recruit staff with this approach. Job applicants may not find the prospect of a short period of work as attractive as a long-term one.
Additionally, if the new start doesn’t work out, you may wish to terminate the employment contract early. However, if it’s been drafted to disallow early termination you may need to pay them for the time left on their contract. Depending on the circumstances, this can be costly. And the only way this doesn’t apply is if they’ve committed an act of gross misconduct.
Important fixed-term contract rights to keep in mind
It’s vital your business understands that employees are entitled to a number of rights. On this type of contract, terms can include:
- Not not to be treated less favourably than comparable permanent employees. Less favourable treatment would include not receiving employee benefits available to permanent employees, for example, being excluded from a bonus or free gym membership because of their fixed-term status.
- The exception is if the employer has a good business reason to justify not giving the employee a benefit or showing the value of the fixed-term employee’s total package of terms and conditions is at least equal to the value of that of the comparable permanent employee.
- An employee employed for four or more years on successive fixed-term contracts may automatically become a permanent employee. This is unless the employer can demonstrate a good business reason to not do so or there is a collective agreement which eradicates this right.
- Entitlement to a redundancy payment if they’ve worked continually for two years or more. This would be the case if the reason for the non-renewal is redundancy.
- The right to be informed by you of available vacancies in the establishment they work in.
Understanding unfair dismissal and fixed-term contracts
The non-renewal of a fixed-term contract constitutes a dismissal in law, which means a member of staff may be able to claim unfair dismissal if they have over two years’ service. This means it’s vital to dismiss them for a fair reason and follow a fair procedure.
To prevent claims arising in the future, make it clear from the start the position is temporary. Draft the terms so the employment relationship terminates on a:
- Specific date
- Specific act occurring
An example would be the return of the employee from maternity leave and other family-friendly rights at work.
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