A fixed term contract is an employment contract that ends on a set date, when a specific task is finished, or when a specified event happens. Typical examples are maternity cover, a project role or seasonal work. Fixed-term employees must not be treated less favourably than comparable permanent staff unless the difference is objectively justified. Letting the contract expire without renewing it counts as a dismissal in law. After 4 years on successive fixed-term contracts, an employee becomes permanent unless continued fixed-term use is justified. Unfair dismissal protection currently needs 2 years' service. That falls to 6 months where the effective date of termination is on or after 1 January 2027.
What counts as a fixed term contract
An employee is on a fixed term contract if they have an employment contract directly with the organisation, and that contract ends on a particular date or when a task or project is completed. The rules are in the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002. They do not cover:
- Agency workers. Their contract is with the agency, and they have separate rights under the agency worker rules;
- Work experience. Students and trainees on work-experience placements;
- Apprentices. Those working under a contract of apprenticeship;
- Armed forces. Members of the armed forces.
Seasonal or casual staff taken on for a peak period, specialists hired for a project and maternity cover can all be fixed-term employees.
Equal treatment and objective justification
Regulation 3 gives a fixed-term employee the right not to be treated less favourably than a comparable permanent employee, either in contract terms or by any other detriment. This covers in particular service qualifications for benefits, access to training, and the chance to apply for permanent roles. The employer must tell fixed-term staff about available vacancies in the establishment. Pay and benefits are compared pro rata unless that is inappropriate.
Different treatment is lawful only if it is objectively justified. Regulation 4 adds a package test: a term is treated as justified if the fixed-term employee's contract, taken as a whole, is at least as favourable as the permanent comparator's. Government guidance gives the example of a 3-month employee who is not given a company car because the cost would be disproportionate for so short a period. An employee who suspects less favourable treatment can ask in writing for the reasons, and the employer must reply within 21 days. A tribunal may draw adverse inferences from an evasive answer or a deliberate failure to reply.
Successive contracts and the 4-year rule
Under regulation 8, an employee on a renewed fixed term contract, or one that followed an earlier fixed-term contract, becomes a permanent employee if both of these apply:
- 4 years' service. They have been continuously employed for 4 years or more on that contract taken together with earlier fixed-term contracts;
- No justification. Using a fixed-term contract was not objectively justified at the last renewal (or, if never renewed, when the contract was made).
The term limiting the contract's length then has no effect. This takes effect from the later of the date of the last renewal and the date the employee reached 4 years' continuous service. A collective or workforce agreement can change these rules. The employee can ask for a written statement confirming they are permanent, or giving the reasons why not, and the employer must provide it within 21 days.
Example. A research assistant starts on a one-year contract on 1 September 2022, which is renewed each September. She reaches 4 years' service on 1 September 2026, the day the latest renewal begins. Unless the grant-funded nature of the role objectively justified another fixed term at that renewal, she has been permanent since 1 September 2026, whatever the contract says.
Ending or not renewing the contract
Under section 95(1)(b) of the Employment Rights Act 1996, an employee is dismissed when a limited-term contract ends without being renewed. In practice:
- Unfair dismissal. At present an employee with 2 years' continuous service can claim if there was no fair reason, such as redundancy or the work coming to an end. Section 25 of the Employment Rights Act 2025 cuts the qualifying period to 6 months, and the commencement regulations (SI 2026/559) apply it where the effective date of termination is on or after 1 January 2027. That will bring many one-year contracts within scope;
- Written reasons. An employee with at least 2 years' service can ask for written reasons for non-renewal, to be given within 14 days. Section 92(3) sets the two-year figure, and gov.uk's fixed-term page still says one year. The same commencement regulations cut it to 6 months where the effective date of termination is on or after 1 January 2027;
- Redundancy pay. If the reason for non-renewal is redundancy, statutory redundancy pay is due after 2 years' continuous employment;
- Early termination. Ending the contract before its end date is a breach unless the contract allows it. Where it does, the statutory minimum notice is one week after one month's service, then one week per complete year from 2 years, up to 12 weeks;
- Working past the end date. If the employee carries on working after the end date, the contract continues and proper notice is needed to end it.
The time limit for most employment tribunal claims, including unfair dismissal, increased from 3 to 6 months from 1 October 2026, where the dismissal or other act complained of happened on or after that date. For breach of contract claims in Scotland the change applies from 9 November 2026.
Payroll and tax at the end of the contract
The final payroll for a fixed-term leaver needs the same care as any other. Any statutory holiday accrued but not taken in the leave year must be paid in lieu. The leaving date is reported to HMRC on the FPS, and the employee is given P45 parts 1A, 2 and 3. If the employer pays compensation for early termination, the tax treatment depends on whether the payment is contractual. Genuinely non-contractual compensation falls under the termination payment rules, which exempt the first £30,000. Payments that are already taxable as earnings, such as contractual pay, fall outside those rules and are taxed in full.
Sources: regulation 3 and regulation 8 of the Fixed-term Employees Regulations 2002, sections 86, 92 and 95 of the Employment Rights Act 1996, gov.uk: fixed-term employment contracts and the Employment Rights Act timeline update. See also our guides to termination payments, the P45 and zero hour contracts.
Acumon processes leavers, final holiday pay and termination payments through outsourced payroll. Our employment tax team can advise on how settlement payments should be structured.