Fixed-Term Contracts Under The Fair Work Act: What Employers Need To Know

Fixed-term contracts have long been a handy way to bring someone on for a set period - for example, to deliver a project, cover a parental leave absence or meet seasonal demand.

But recent changes to Australia’s workplace laws have tightened when and how you can use fixed-term employment, and what happens at the end of the term.

In this guide, we’ll break down how fixed-term contracts work under the Fair Work Act, what’s changed, the key exceptions, and practical steps to manage risk. We’ll also flag what to do at the end of a contract so you stay compliant and protect your business.

What Is A Fixed-Term Contract?

A fixed-term contract is an employment agreement that has a clear end date. It usually ends when the term expires, without the need for a dismissal process.

This is different from:

• Ongoing employment: No set end date. If you end the employment, usual termination rules apply (including notice and, in some cases, redundancy).
• Casual employment: No guaranteed hours and a different set of entitlements and termination rules.
• Maximum-term contracts: These also include an end date but allow either party to end the contract earlier on notice. They’re treated differently in some situations - we unpack this further below and you can read more about maximum-term contracts.

Fixed-term arrangements can still be useful - but they need to be used for the right reasons, within the legal limits.

What Changed Under The Fair Work Act?

As part of the Secure Jobs, Better Pay reforms, new rules limiting fixed-term employment took effect for most employers from December 2023. These rules aim to stop rolling fixed-term contracts that keep workers “temporary” for long periods.

The Two-Year Cap (Including Extensions)

In most cases, you cannot offer a fixed-term contract for longer than two years. This two-year limit includes any extension or renewal periods. For example, a one-year contract with a one-year extension hits the two-year cap.

Limits On Consecutive Contracts

You also generally can’t keep re-engaging the same employee on back-to-back fixed-term contracts for the same or substantially similar role where there’s continuity of employment. If you do, the arrangement may breach the Act unless an exception applies.

Anti-Avoidance Rules

You can’t restructure the role, change job titles, or engage the worker through an associated entity to try to sidestep the fixed-term limits. The Act contains anti-avoidance provisions to address exactly this.

New Information Statement Requirement

When you use a fixed-term contract, you must give the employee the Fixed Term Contract Information Statement (on top of the Fair Work Information Statement). This document explains their rights. Not providing it can lead to penalties.

What Happens If You Breach The Limits?

If a term of a contract purports to fix the employment for longer than the legal limit (or in a way that breaches the limits on consecutive contracts), that term may be of no effect. The rest of the contract can remain on foot, but the employee may effectively be treated as ongoing. Civil penalties can also apply for contraventions.

This is why it’s important to get your paperwork and process right from the start - and to review your template contracts to ensure they reflect the current law.

Can You Still Use Fixed-Term Contracts? The Rules And Exceptions

Yes - fixed-term contracts are still allowed, but only in specific circumstances and within the new limits.

When A Fixed-Term Contract Is Typically Appropriate

• Covering a genuine absence: For example, backfilling parental leave or long service leave.
• A distinct, time-limited project: Where the role exists only to deliver a specific project or event.
• Peak periods or seasonal demand: Short-term operational spikes that you can’t meet with existing staff.
• Roles funded for a limited time: Where an identifiable funding source (e.g. grant) has a known end date.
• Visa or permit limits: Where an employee’s right to work ends on a specific date.

Common Exceptions To The Two-Year And Consecutive Contract Limits

The Fair Work Act includes a number of exceptions that allow fixed-term contracts beyond the general limits. Examples include arrangements where:

• The employee is engaged to perform a distinct and identifiable task involving a specific project with an end date.
• The employee is replacing someone on a temporary absence (such as parental leave).
• The role is subject to a training arrangement (for example, certain apprenticeships or traineeships).
• The role is funded by government or another external source and the funding is time-limited and beyond the employer’s control.
• The employee earns above the high-income threshold (as adjusted from time to time) and certain conditions are met.
• The contract is for a governance position (such as a board appointment) for a stated term.
• The employee’s visa or right to work has a known end date that aligns with the contract end date.

Each exception has criteria. If you intend to rely on one, make sure the reason is genuine, the paperwork clearly reflects it, and your evidence (e.g. funding letters) is retained.

Fixed-Term vs Maximum-Term: Why It Matters

Maximum-term contracts include an end date but also allow for earlier termination on notice. Whether you use a pure fixed-term or a maximum-term model affects your obligations at the end of the period and the risk profile if things change mid-stream.

If you’re weighing up a maximum-term approach for flexibility, ensure the arrangement still fits the new limits and exceptions, and consider the guidance in our overview of maximum-term contracts.

Drafting And Managing Fixed-Term Contracts (Practical Tips)

Getting your documents and processes right makes fixed-term engagement far smoother - and reduces the risk of ending up with ongoing employment when you didn’t intend to.

Choose The Right Employment Type

Before defaulting to a fixed term, ask: do you genuinely know when the role will end? If not, it may be better to engage someone on an ongoing basis using a well-drafted Employment Contract or, if the pattern of work is irregular, a Casual Employment Contract.

Be Specific About The Reason

Spell out why the contract is fixed term and, if relevant, which exception applies (e.g. backfilling parental leave or time-limited funding). Align the end date to that reason (e.g. the expected return date, or the funding end date).

Align The Length To The Limits

Keep the total duration, including any extension options, within two years unless you clearly fall within an exception. If you do rely on an exception, reference it in the contract and keep supporting records (like the grant agreement).

Avoid Open-Ended Extension Clauses

If you include an extension option, make it clear, limited, and within the cap (unless an exception applies). Avoid rolling or automatic renewals that could create consecutive contract issues.

Include Clear End-Of-Term Wording

State that the employment will end on the end date without further action. Clarify what happens with accrued entitlements and final pay. Consider whether you will give courtesy notice of the end date even if not legally required - it’s good practice and helps manage expectations.

Provide The Required Statements

Give the Fixed Term Contract Information Statement and the Fair Work Information Statement when the contract is issued, and record that you’ve done so.

Plan Ahead For The End Date

Set reminders well in advance of the end date. Decide whether the role will end, convert to ongoing, or require a new (compliant) fixed-term arrangement. If you leave it too late and the employee keeps working beyond the end date, you may inadvertently create ongoing employment.

Keep An Eye On Notice, Leave And Award Obligations

Some fixed-term employees are covered by modern awards or enterprise agreements that may include specific provisions around notice or termination at the end of a term. Also consider your obligations around leave accruals, public holidays and any notice periods if you end the contract early in permitted circumstances.

Train Your Managers

Make sure anyone who supervises fixed-term staff knows the end dates, the limits on consecutive contracts, and the process for considering conversion to ongoing employment. Miscommunication late in the piece is a common cause of disputes.

Ending A Fixed-Term Contract: Notice, Redundancy And Risks

When an employee is genuinely engaged on a compliant fixed-term contract, the agreement typically ends on the end date without the need to provide notice or redundancy pay. However, there are important exceptions and practical risks to manage.

Do You Need To Give Notice?

Many fixed-term contracts end automatically without notice. That said, some awards require notice or consultation even at the end of a fixed term. Your own contract may also include a courtesy notice clause. If you choose to end a maximum-term contract earlier (in accordance with the contract), you’ll usually need to give the agreed notice or consider payment in lieu of notice.

Is Redundancy Pay Payable?

Generally, redundancy pay is not payable where a fixed-term contract simply reaches its end date and the role was always intended to be time-limited. However, if the arrangement doesn’t meet the fixed-term rules, or if the contract is terminated before the end date due to a downturn, redundancy obligations may arise. It’s sensible to review the circumstances carefully or seek redundancy advice before acting.

What If The Employee Keeps Working Past The End Date?

If the employee continues working after the end date without a new, compliant agreement, they may become an ongoing employee. This can bring unfair dismissal risk, ordinary notice obligations, and potential redundancy entitlements if you later end the role.

Ending Early: Performance Or Conduct Issues

Ending a fixed-term contract early for performance or conduct is risky. If your contract allows early termination, you still need to follow a fair process to reduce legal risk (for example, giving the employee an opportunity to respond, and documenting concerns with appropriate steps like show cause letters where warranted). Unfair dismissal laws may apply depending on the circumstances.

Avoiding “Back-To-Back” Issues

If your business still needs the role, consider converting the employee to ongoing employment rather than issuing another fixed term. If you do issue a further fixed-term contract, ensure you clearly meet an exception and document the reason. Otherwise, you risk breaching the consecutive contract limits and creating ongoing employment by operation of law.

Don’t Forget Final Pay

When the contract ends, pay all outstanding wages, accrued annual leave and any other entitlements required by the Fair Work Act, awards and the contract. If you are ending earlier (under a maximum-term clause), check whether payment in lieu applies and whether any other amounts are due under the agreement.

Frequently Asked Questions About Fixed-Term Contracts

Can I Renew A Fixed-Term Contract?

Renewals are heavily restricted. In general, total time (initial term plus any extension/renewal) can’t exceed two years unless an exception applies. Re-issuing “back-to-back” contracts for the same role is generally not allowed unless you clearly fall within an exception.

What If The Project Runs Longer Than Expected?

Plan for this scenario early. If there’s a chance of overrun, consider whether the role should be ongoing from the start. If you relied on an exception (e.g. genuine project role), confirm it still applies before extending the term. If not, you may need to switch to an ongoing arrangement with an updated Employment Contract.

Are Maximum-Term Contracts A Safer Option?

They can offer flexibility because they include an end date and an ability to terminate earlier on notice. But they’re still subject to the new limits and anti-avoidance rules. Review your approach carefully and consider the guidance in our overview of maximum-term contracts.

Do I Need To Consult Or Give Notice At The End Of A Fixed Term?

It depends. The Fair Work Act doesn’t generally require notice just to let a fixed term lapse, but some modern awards and contracts include consultation or notice clauses. Check your award coverage, your agreement terms, and make sure any decision to end employment is communicated clearly and respectfully.

What If I Need To End The Contract Early?

Only do so if your contract clearly allows it and you’ve checked award obligations. Follow a fair process and consider whether notice or payment in lieu is required. If the reason is role redundancy, consider whether redundancy pay applies and get legal advice before taking steps.

How To Set Up Your Contracts And Processes The Right Way

To stay compliant and make fixed-term hiring work smoothly, we recommend a simple playbook:

1. Decide if fixed term is genuinely appropriate: Confirm the reason, the expected end date, and whether any exception applies.
2. Use tailored, up-to-date contracts: Ensure your template reflects the new limits, states the specific reason for the term, and includes clear end-of-term clauses. If you’re hiring ongoing staff instead, use a current Employment Contract.
3. Check award coverage: Identify any requirements around consultation, notice or early termination that may affect how the term ends.
4. Issue the required statements: Provide the Fixed Term Contract Information Statement (and the Fair Work Information Statement) when engaging the employee.
5. Set reminders: Diary the end date and a checkpoint 6-8 weeks beforehand to decide whether the role will end, convert, or (if an exception applies) extend.
6. Close out cleanly: Communicate clearly, pay final entitlements on time, and avoid allowing work to continue past the end date without a compliant arrangement in place.

If you’re unsure whether your situation fits an exception, or if you’re navigating a tricky end-of-term scenario, it’s best to speak with an employment lawyer early so you can plan a low-risk path forward.

Key Takeaways

• Fixed-term contracts are still permitted in Australia, but new limits generally cap them at two years (including extensions) and restrict back-to-back renewals.
• There are important exceptions - such as covering parental leave, distinct project roles, time-limited funding, high-income arrangements and visa-constrained roles - but each has criteria you must clearly meet and document.
• Consider whether a fixed term is really appropriate; if not, use a well-drafted ongoing Employment Contract or, where suitable, a Casual Employment Contract.
• Plan ahead for the end date: set reminders, decide early whether to end, extend under an exception, or convert to ongoing, and avoid accidental continuation beyond the end date.
• At the end of a compliant fixed term, notice and redundancy generally aren’t required, but award obligations and contract terms can change the position - and early termination requires careful process and may involve payment in lieu.
• The risks (including civil penalties and creating ongoing employment unintentionally) make it important to use current templates, provide the correct information statements, and get advice where needed.

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