Converting Fixed-Term Contracts to Permanent Employment: Employer’s Legal Guide

When your business grows, roles that began as short-term solutions often turn into ongoing needs. If a fixed-term employee has become essential to your operations, converting them to permanent employment can boost retention, improve engagement, and reduce compliance risk.

That said, making the switch in Australia isn’t just a handshake. It’s a legal and HR process that needs to align with the Fair Work Act, any applicable modern award or enterprise agreement, and payroll settings. With the recent reforms around the use of fixed-term contracts, it’s more important than ever to get this right.

This guide explains the difference between fixed-term and permanent employment, outlines when and how to convert, and highlights the legal obligations and documents you’ll need for a compliant transition.

Fixed-Term vs Permanent Employment: What’s The Difference?

Fixed-Term Employment

A fixed-term contract is an employment agreement with a clearly specified end date (for example, a 12‑month contract). It’s commonly used for project-based work, funding-limited roles, or to cover parental leave or peak demand periods. When the end date arrives, the employment ends (unless it’s renewed or extended).

• Has a defined start and end date.
• Generally includes employee entitlements (like paid leave) if the person is not casual, subject to the award/EA and the contract.
• Ends on the specified date, unless there’s an agreed renewal or an enforceable early termination clause.

For more on how these contracts work (and the risks of relying on them for ongoing roles), see 12‑Month Fixed Term Contracts.

Permanent Employment

Permanent roles (full-time or part-time) are ongoing with no end date, and can be ended by either party with the required notice. Permanent employees access the full suite of National Employment Standards (NES) entitlements, protections from unfair dismissal once eligible, and in many cases redundancy pay if the role is genuinely made redundant.

• No set end date – the role continues until lawfully terminated.
• Access to paid annual leave and personal/carer’s leave, public holidays, notice, and other NES entitlements.
• Redundancy pay may apply unless an exception applies (for example, small business employers with fewer than 15 employees are generally exempt from NES redundancy pay).

Why Convert A Fixed-Term Employee To Permanent?

• The work is ongoing, not one-off or funding-limited.
• You want to secure a high-performing or business-critical team member.
• Permanent status supports stability, culture and succession planning.
• Recent reforms limit the repeated use of fixed-term contracts for ongoing roles.

If the role is genuinely continuing, moving to a permanent arrangement is often the cleaner, lower-risk approach – for both compliance and workforce planning.

Can You Keep Extending A Fixed-Term Contract?

There are now national limits on the use of successive fixed-term contracts introduced primarily by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, which commenced for most fixed-term rules on 6 December 2023. In broad terms, many fixed-term contracts are now limited to two years (including extensions) or one extension, whichever comes first.

Important caveats:

• There are specific exceptions, such as genuinely time-limited funding arrangements, peak demand work, training arrangements, or certain government/governance roles, among others.
• Breaching the prohibition doesn’t automatically “deem” the employee permanent, but unlawful terms may be of no effect and civil penalties can apply.
• Employers must give fixed-term employees the Fair Work Fixed Term Contract Information Statement at the start of their employment.

This means “rolling over” a fixed-term contract to cover ongoing work is now tightly regulated. If the role is continuing, consider conversion to an ongoing contract rather than relying on repeat renewals.

Step-by-Step: How To Convert A Fixed-Term Contract To Permanent

1) Review The Role, Contract And Coverage

• Check the current agreement for end date, early termination, and renewal provisions.
• Identify any modern award or enterprise agreement coverage. Confirm minimum rates, classification, hours and overtime rules. If in doubt, get advice on modern awards and coverage.
• Confirm whether the role is now an ongoing business need (not time-limited or funding-limited).
• Note service continuity: the employee’s prior service will usually carry across to the permanent role for entitlements and eligibility thresholds (such as unfair dismissal qualifying periods).

2) Discuss The Change And Seek Agreement

• Have a clear conversation about the proposed permanent status (full-time or part-time), start date, hours, classification, and pay.
• Outline what will change (for example, notice requirements, redundancy rights, any new roster or overtime expectations under the award).
• Give the employee time to consider and ask questions.

3) Issue A Compliant Permanent Employment Contract

• Provide a tailored Employment Contract that sets out duties, pay, hours, classification, leave, notice, confidentiality and IP, and any post‑employment restraints where appropriate.
• Avoid cutting and pasting clauses from a fixed-term agreement. The termination, redundancy, notice and leave clauses differ for ongoing employment.
• If duties or hours are changing, ensure the contract reflects that. Where you’re varying an existing arrangement, it’s sensible to align your process with best practice for changing employment contracts.

4) Sign And Confirm The Start Of Permanent Employment

• Have the employee sign before the fixed-term end date where possible, and record the effective date of permanent status.
• Provide the Fair Work Information Statement (FWIS) for permanent employees, and any other onboarding documents required by your award or policy.

5) Update Payroll, Leave And HR Systems

• Update your HRIS and payroll to reflect permanent status (including leave accruals, award-based loadings or penalties, and superannuation settings).
• If moving to part-time, confirm the agreed ordinary hours and patterns in writing. Entitlements will accrue on a pro‑rata basis, consistent with part‑time annual leave rules.

6) Refresh Policies And Communicate Internally

• Make sure your workplace policies reflect the employee’s status and are provided to them (for example, leave, conduct, WHS, overtime, flexible work processes).
• Notify managers and payroll of the change, and welcome the employee to your permanent team.

Legal Obligations And Common Pitfalls

National Employment Standards (NES) And Awards

Permanent employees must receive at least NES minimums and any more generous award/enterprise agreement entitlements. Check classification and minimum rates, hours, overtime and penalties, allowances, consultation requirements, and notice of termination rules. If hours or duties are changing, confirm the correct classification and pay rate before you issue the new contract.

Notice, Termination And Probation

• Permanent employees are entitled to statutory notice (or payment in lieu of notice) when the employment ends, unless serious misconduct applies.
• Probation can be included for a new permanent role, but you can’t “reset” the employee’s service for unfair dismissal eligibility simply by converting them. Total continuous service counts.
• If you need to end the relationship during probation, follow a fair process consistent with your award/EA and see our guidance on terminating during probation.

Redundancy And Unfair Dismissal

• Permanent employees may become entitled to redundancy pay if the role is genuinely abolished. Small business employers (fewer than 15 employees) are generally exempt from NES redundancy pay, though other obligations (like consultation) still apply.
• Unfair dismissal protections apply once the employee passes the minimum employment period (six months, or 12 months for small business employers) and other eligibility criteria.
• If a restructure is on the horizon, manage leave, consultation obligations and timing carefully. Useful context is covered in redundancy and sick leave considerations.

Leave And Service Continuity

• Service is generally continuous when moving from fixed-term to permanent with no break. This continuity affects long service leave, notice, unfair dismissal eligibility, and other service-based entitlements.
• If converting to part-time, entitlements accrue on a pro‑rata basis. See how this works for annual leave for part‑timers.

Payroll, Super And Records

• Update payroll categories, superannuation and leave accrual settings. Ensure payslips reflect any award-based overtime/penalty arrangements that now apply.
• Keep detailed records of the conversion process, the signed permanent contract, and any changes to hours or duties.

Don’t Assume A Right To Convert Applies

“Casual conversion” rights are a separate regime and don’t automatically apply to fixed-term employees. Some instruments or policies may provide pathways to permanency, but in most cases the change is a mutual agreement process between you and the employee.

Avoid These Common Mistakes

• No new contract: relying on verbal agreements causes disputes and compliance gaps.
• Copy-paste errors: using “fixed-term” termination clauses in a permanent contract can create inconsistency with the NES and award.
• Ignoring award coverage: misclassification or incorrect pay will create underpayment risk.
• Assuming “rollovers” are fine: successive fixed-term use is now restricted in most cases and may attract penalties.
• Not managing notice: remember notice obligations or agreed payment in lieu when employment eventually ends.

What Documents Will You Need?

To make the transition smooth and compliant, line up the right paperwork before you convert the employee.

• Employment Contract (Permanent): A tailored Employment Contract that sets the ongoing nature of employment, award classification, hours, pay, termination and redundancy rules, confidentiality, IP and restraints (where appropriate).
• Letter Of Appointment/Variation (Optional): If you’re moving from an existing agreement, a brief letter can confirm the effective date of the change and enclose the new contract.
• Position Description: Attach or cross‑reference duties, reporting lines and KPIs so expectations are clear.
• Workplace Policies: Provide or update your workplace policies (leave, code of conduct, WHS, performance, overtime/TOIL) and ensure the employee has acknowledged them.
• Award/EA Reference: The contract should reference any applicable award/EA and confirm that base rates meet or exceed minimums. If needed, get advice on award coverage and classifications.
• Fair Work Information Statement (FWIS): Provide the FWIS for permanent employees (and the Fixed Term Contract Information Statement for fixed-term roles when applicable).
• Privacy & Data: If you collect personal information as part of onboarding, ensure your internal practices align with your Privacy Policy.

If you are adjusting existing terms (hours, remuneration or duties), align your process with best practice for varying employment contracts so changes are lawfully implemented and well documented.

Key Takeaways

• Use fixed-term contracts for genuinely time‑limited needs; if the work is ongoing, converting to permanent is often the lower‑risk path.
• Successive fixed-term limits were primarily introduced by Secure Jobs, Better Pay; many roles are capped at two years or one extension (with defined exceptions), and civil penalties can apply for breaches.
• Conversion is a mutual agreement process: review award coverage, confirm duties, hours and pay, then issue a compliant permanent Employment Contract.
• Service continuity usually carries over, which affects leave accruals, notice and unfair dismissal eligibility – probation doesn’t “reset” service.
• Update payroll, super and leave settings; ensure policies and records are in order; manage termination later with notice or payment in lieu as required.
• Get the details right on awards, classification and rates to avoid underpayment risk, and use clear documentation to prevent disputes.

If you’d like help converting a fixed-term contract to permanent employment, reviewing award coverage or drafting the right documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.