Fixed-Term Contracts In Australia: What Small Employers Should Know

Hiring on a fixed term contract can be a smart way to resource projects, cover parental leave or manage seasonal peaks without committing to an ongoing role.

But the rules have tightened in Australia, and misusing fixed term contracts can expose you to compliance risks, unfair dismissal claims or penalties under the Fair Work Act.

In this guide, we’ll walk you through when fixed term contracts make sense, the new limits you need to know, how to draft a compliant agreement, and the key pitfalls to avoid so you can hire confidently and stay compliant.

What Is A Fixed Term Contract?

A fixed term contract is an employment agreement that ends on a specified date or when a particular project or event finishes. The employee is engaged as an employee (not a contractor) and generally receives the same minimum entitlements as other employees covered by the relevant award or enterprise agreement.

It’s different from a “maximum term” arrangement. With a maximum term, the agreement allows either party to terminate earlier on notice (so it can end before the end date). If you’re weighing up fixed term versus maximum term contracts, consider the level of flexibility you need and how that interacts with your award and role requirements.

Importantly, a fixed term arrangement is still an employment relationship. You’ll need a clear, written Employment Contract setting out duties, pay, entitlements and how the engagement ends.

What Changed Under The Fair Work Act?

From December 2023, the Fair Work Act introduced limits on using fixed term contracts for the same employee in the same role (with substantial continuity).

In most cases, you can’t:

• Engage someone on a fixed term contract longer than two years (including any extensions or renewals), or
• Renew or extend a fixed term contract more than once, or
• Use back-to-back fixed term contracts for the same (or substantially similar) role beyond the allowed period.

There are limited exceptions (for example, roles funded by identifiable time-limited government funding, training arrangements, high-income employees above the threshold, or where the work is a discrete task that’s genuinely time-bound). Whether an exception applies will turn on the details.

These rules are technical. If you’re unsure how they apply to your situation, it’s wise to get tailored advice from an Employment Lawyer before issuing the contract or planning a renewal.

When Should Your Business Use A Fixed Term Contract?

Fixed term contracts can be a great fit when the role is truly time-limited. Common, compliant use cases include:

• Parental leave or long-term leave cover (e.g. a 9-12 month backfill)
• Project-based roles with a defined end date (e.g. a grant-funded implementation)
• Seasonal or peak demand periods (e.g. end-of-year rush for retail or hospitality)
• Short-term specialist expertise (e.g. migrating systems over a 6-month project)

Where roles look ongoing or you expect the need to continue beyond two years, consider recruiting in an ongoing capacity instead. If a fixed term engagement evolves into a permanent need, plan the move to ongoing employment with a new conversion from fixed term to permanent in a clean, compliant way.

How To Draft A Compliant Fixed Term Employment Contract

A clear, tailored contract helps set expectations and reduces risk. Here’s a practical checklist of what to cover.

1) Identify The Role, Term And End Date

• Set a specific start date and end date (or specify the event that will end the contract, such as “on completion of Project X”).
• Confirm the role is genuinely time-limited. If you expect multiple renewals, reconsider whether an ongoing role is a better fit.

2) State The Basis Of Employment And Coverage

• Confirm the employee is engaged on a fixed term basis (not as an independent contractor).
• Identify any applicable modern award or enterprise agreement. Make sure the classification, pay and loadings align.

3) Set Remuneration And Entitlements

• Specify salary or hourly rates, superannuation and allowances.
• Outline leave entitlements (e.g. annual leave, personal leave). Fixed term employees typically accrue leave pro rata based on ordinary hours.
• Include overtime, penalties and allowances where the award requires it.

4) Include Hours, Location And Flexibility

• Set ordinary hours, spread of hours and any rostering arrangements.
• Nominate the primary location and any requirements for on-site versus remote work.

5) Address Policies, Confidentiality And IP

• Require compliance with your workplace policies (attach or reference them). If you don’t have them yet, consider implementing a Staff Handbook and a core Workplace Policy.
• Include confidentiality and intellectual property clauses to protect your business information and deliverables.
• Use a separate Non-Disclosure Agreement when sharing sensitive information before the contract is signed.

6) Explain How The Contract Ends

• Clarify that employment ends automatically at the fixed end date (no notice required to end at expiry, unless an award requires it to be stated in a certain way).
• If you add an early termination right, you’re moving towards a maximum term model. If that’s your intention, draft it carefully and ensure your approach aligns with the award and Fair Work rules.
• If termination for serious misconduct is needed, state it and reference your policies and the Fair Work Act.

7) Include Any Lawful, Role-Specific Terms

• Probation periods can be included in fixed term arrangements where appropriate and consistent with the term length and award.
• Post-employment restraints (non-solicit, non-compete) should be reasonable and tailored to protect legitimate business interests.

8) Use The Right Form And Process

• Issue the Employment Contract (Full-Time/Part-Time) for fixed term employees and ensure it clearly states the fixed term basis.
• Provide any required award or Fair Work information statements with the contract.
• Retain signed copies and keep your onboarding records in order.

Can You Renew, Extend Or End A Fixed Term Contract Early?

This is where many small businesses make mistakes. The new rules limit how often and how long you can keep someone on fixed term arrangements for the same role with continuity. A few key points:

Renewals And Extensions

• Check whether an exception applies before contemplating any renewal.
• If there’s no exception, you generally cannot go beyond two years in total or have more than one extension for the same role and employee.
• Keep a simple tracker of start dates, end dates and reasons for the fixed term to manage compliance.

Ending Early

• Pure fixed term agreements usually end on the end date without notice. If you include a right to terminate earlier on notice, you’re shifting to a maximum term approach and must comply with the relevant notice provisions, awards and the NES.
• Where notice is payable and you’d prefer to end immediately, lawful payment in lieu of notice can be an option if drafted and managed correctly.
• Allegations of serious misconduct must be handled in line with your policies and natural justice principles. Process matters.

If circumstances change and the role is no longer needed, consider whether it’s better to allow the contract to run to its end date or to follow the correct process for terminating a fixed term contract early where your agreement allows it. Always cross-check award obligations and consultation requirements where applicable.

How Do Awards, Leave And Other Entitlements Apply?

Fixed term employees are generally entitled to the same minimum conditions as comparable ongoing employees, pro rata for their hours. That includes the National Employment Standards (NES) and any applicable award provisions.

• Annual Leave and Personal Leave: Usually accrue based on ordinary hours for the length of the term.
• Public Holidays: Paid if the employee would ordinarily work on the day (subject to the award/arrangements).
• Overtime and Penalties: Apply under the award in the same way they would for an ongoing employee in the same classification.
• Notice at Expiry: Not typically required to end a true fixed term on its stated end date, but some instruments have communication requirements-plan ahead and communicate early regardless.

If your staffing needs change mid-way and the role becomes ongoing, plan a clean transition with a fresh offer and updated terms rather than rolling the dice on back-to-back fixed terms. Our guide to converting fixed term to permanent outlines what to consider.

Common Risks And Mistakes To Avoid

Fixed term hiring is straightforward when you get the basics right. Here are the traps we see most often:

• Using fixed term contracts for roles that are effectively ongoing, then renewing repeatedly until you hit compliance issues.
• Relying on templates that don’t match your award, industry or the new fixed term limits.
• Confusing maximum term and fixed term-adding a “terminate on notice” clause changes the nature of the agreement and triggers different considerations.
• Missing mandatory inclusions or misclassifying the role under the award, leading to underpayments or disputes.
• Ending a fixed term early without a contractual right to do so, creating breach of contract risk.
• Not documenting the genuine, time-limited reason for the fixed term (handy if you need to show an exception applies).

A short pre-issue review by an Employment Lawyer can save significant time and costs later, especially if you’re setting up a hiring pattern you’ll reuse across the business.

What Other Documents Should You Have In Place?

Alongside a tailored fixed term Employment Contract, most employers benefit from a small set of supporting documents and policies that keep your processes consistent and compliant.

• Employment Contract (Fixed Term): The core agreement that sets the term, duties, pay and how the relationship ends. Ensure the term and renewal settings align with the Fair Work limits.
• Workplace Policies: A core Workplace Policy suite (code of conduct, leave, WHS, performance and discipline) provides clarity and supports lawful decision-making.
• Staff Handbook: A practical bundle of policies and procedures for day-to-day expectations-see our Staff Handbook Package.
• Non-Disclosure Agreement (NDA): Useful when you need to share sensitive information before the employment starts or with third parties during the project-our NDA helps protect your confidential information.
• Termination Documents: Where early termination is possible, consistent scripts and letters help you manage risk. If you need support, our Employee Termination Documents Suite can help systemise your process.

Getting these foundations right means every future fixed term hire is easier, faster and less risky.

Step-By-Step: Bringing On A Fixed Term Employee

1. Define the business need: Confirm the role is genuinely time-limited and identify the fixed end date or project deliverable.
2. Check award coverage and budget: Classify the role correctly and confirm the total cost (including super, overtime and penalties).
3. Choose the right model: Decide between fixed term and maximum term based on your need for early termination flexibility, then draft accordingly (don’t blend concepts unintentionally).
4. Prepare documents: Tailor the Employment Contract, attach policies and prepare onboarding forms and the Fair Work Information Statement.
5. Issue and execute: Provide the contract and supporting documents, answer questions, then sign and retain copies.
6. Manage the lifecycle: Track the end date, communicate early about outcomes, and avoid multiple renewals unless an exception clearly applies.
7. Plan the wrap-up: If the contract will expire, organise final pay and any equipment return. If ending early, confirm you have a right to do so and consider payment in lieu where appropriate.

Key Takeaways

• Fixed term contracts work best for genuinely time-limited roles like parental leave cover, discrete projects or seasonal peaks.
• New Fair Work limits restrict long or repeated fixed term arrangements for the same role-track terms, renewals and reasons carefully.
• Decide early whether you need a fixed term or a maximum term model; draft accordingly and align with any applicable award.
• Use a tailored Employment Contract and support it with core policies, confidentiality protections and consistent termination processes.
• If a role becomes ongoing, transition cleanly with a fresh offer rather than relying on back-to-back fixed terms.
• When in doubt-especially around renewals or early termination-get advice from an employment lawyer to avoid costly missteps.

If you’d like a consultation on fixed term contracts for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.