Are Fixed Term Contracts a Pain or Necessity?

Are Fixed Term Contracts a Pain or Necessity?

For many SMEs, survival only comes from adaptability, from being able to think on your feet, to react nimbly, and to have the sort of flexible structures in place that will make room for manoeuvrability. In uncertain economic times this survival instinct can become that much keener, and in employment terms, it is expressed through a rise in temporary work arrangements, whereby workers are employed on fixed term contracts.

There are winners and losers here, but the distinction is not always clear-cut.


Uncertainty At Work

Businesses are more likely to offer employees short term contracts rather than permanent jobs during times of economic uncertainty or slower growth. Research conducted by The London School of Economics (LSE) shows that firms with financial difficulties, or without external finance, place a higher value on the flexibility of fixed term workers.

At the start of an economic downturn, these businesses feel forced to cut their wage bills and having a higher number of fixed term contracts reduces the cost of dismissals.

In times of economic uncertainty, permanent contracts are implicitly more expensive. For the workforce, however, this volatility hampers its attempts to gain any long-term stability.


Lean and Flexible or a Barrier?

Fixed term contracts are not always the result of hardship or constraint. Sometimes they prove ideal for companies working on a specific project with a need for specialist knowledge. They can also contribute to more accurate budgeting and better resource planning. They are also useful in filling in specific staffing gaps, such as those arising from maternity leave or secondments.

Short term employment arrangements may feed into a business’s view of itself as lean and flexible, but they can also give rise to negative connotations and perceptions.

Describing a role as fixed term can discourage potential talent from applying for it. It might also help build a negative reputation for a firm, if it is seen as only working with short term staff. Prospects like stability.

There are other drawbacks to fixed term contracts, and not just for prospective employees. Businesses can suffer a loss of productivity due the time being spent training new short term staff for new projects. There can also be an additional administrative burden. It is also worth considering that after four years with a business, a fixed term employee may automatically become permanent. And they are entitled to the same rights as permanent employees regardless.

Fixed term contracts should not be regarded as an easy option. They have benefits but also disadvantages. In an ideal world, SMEs would always be able to access kind of financial stability and assurance to enable them to shore up their own staffing issues.