Building the Best Workforce
The overriding consideration in all personnel decisions is building a high performing workforce for the long-term success of your Company. This means optimizing Employee attraction, retention, and motivation in how you structure every role, no matter how minor or tentative. Fixed term agreements tend to work counter to these objectives because they are considerably less attractive that indefinite term (permanent) contracts.
Employment Law
A secondary consideration is to remain in compliance with employment law. We are seeing a rapid closing of formerly exploited loopholes for using fixed term contracts to avoid indefinite agreements.
Wage Inflation
A third consideration is wage inflation. Fixed term agreements often require a premium to fill because of the less attractive term. When these roles evolve into indefinite term (permanent) arrangements, it is universally challenging to adjust the wage. This has the effect of driving up wages across organizations.
Ease of Administration
With these factors in mind, here are some rules of thumb.
Use Fixed Term Agreements:
- Only for genuinely fixed term scenarios. For example, covering the leave of a current Employee or adding capacity for a one-time project.
- Only in scenarios with a firm end-date that is unlikely to be extended more than once and for more than a few weeks.
Do not use Fixed Term Agreements:
- For roles that have an uncertainty due to normal business risk. For example, you are expanding into a new line of business.
- For Employees about whom you have questions regarding their ability to succeed in the role. These risks can be well managed with proper Employment Agreements, probationary period reviews, and performance management.