Fixed-term contract employees are workers employed for a specific duration or until a defined event occurs. Unlike permanent employees, their employment ends automatically at the conclusion of the contract term. Despite the temporary nature of the arrangement, fixed-term employees are entitled to leave entitlements on a pro-rata basis, calculated according to the expected duration of the contract. In Australia, the Fair Work Act now restricts the use of successive fixed-term contracts.
Key Takeaways
- Fixed-term employees accrue leave entitlements on a pro-rata basis from the first day of employment
- In Australia, the Fair Work Act limits successive fixed-term contracts to a maximum of two years, with exceptions for specific circumstances
- Leave entitlements for fixed-term employees must be paid out on termination if not taken during the contract period
What Fixed-Term Leave Rights Mean for Employers
Fixed-term contracts are common in project-based work, seasonal industries and covering for permanent employees on parental leave. While the contract has a defined end date, the leave entitlements are not reduced. A 12-month fixed-term employee accrues the same proportional annual leave and personal leave as a permanent employee working the same hours.
In Australia, the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduced restrictions on successive fixed-term contracts. An employee cannot be employed on a fixed-term contract for more than two years, including extensions. After two years, the employment automatically converts to permanent unless an exception applies. Exceptions include genuine project-based work, seasonal employment and covering for an absent employee.
In the UK, fixed-term employees are protected under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. They must not be treated less favourably than comparable permanent employees, which includes access to equivalent leave entitlements. Fixed-term employees accrue statutory annual leave of 5.6 weeks throughout the contract.
In the US, there is no specific federal legislation governing fixed-term contracts. Leave entitlements are set by the employment contract, company policy and applicable state laws. The Family and Medical Leave Act (FMLA) applies to eligible employees regardless of contract type, provided they meet the 12-month employment and 1,250-hour threshold.
Fixed-Term Contract Leave Rules by Region
| Country | Rule | Detail |
|---|---|---|
| UK | Fixed-Term Employees Regulations 2002 | Fixed-term employees must receive treatment no less favourable than comparable permanent employees, including leave |
| AU | Fair Work Act 2009 (Cth) | Pro-rata leave accrues from day one; successive fixed-term contracts are limited to two years |
| US | FLSA and state laws | No specific fixed-term leave provisions; entitlements depend on contract, policy and FMLA eligibility |
How Fixed-Term Leave Rights Work in Practice
A Melbourne engineering firm hires a structural engineer on a 12-month fixed-term contract to cover a permanent employee on parental leave. The contract specifies a salary of $120,000 per year. Under the NES, the engineer is entitled to 10 days paid personal/carer’s leave and four weeks annual leave, accrued proportionally over the 12-month contract.
If the engineer resigns after six months, they have accrued 20 days of annual leave and 5 days of personal leave. On termination, the employer must pay out the unused annual leave. If the employee has used more personal leave than they have accrued, the employer can deduct the overpayment from final pay, provided the employment contract permits this.
The firm also ensures the contract does not breach the two-year fixed-term limit. If the firm needs the engineer for longer than 12 months, it must either offer a permanent position or demonstrate that an exception under the Closing Loopholes legislation applies.
Common Mistakes with Fixed-Term Contracts
- Failing to pay out accrued annual leave on termination, which is a breach of the NES and most state laws
- Using successive fixed-term contracts beyond two years in Australia without meeting the exceptions under Closing Loopholes
- Not pro-rating leave entitlements for contracts shorter than 12 months, leading to over- or under-payment
- Assuming fixed-term employees are not entitled to personal leave because the contract is short-term
- Not including the end date and leave entitlements in the fixed-term contract, creating ambiguity about the terms
FAQ
Do fixed-term employees get annual leave?
Yes. Fixed-term employees accrue annual leave on a pro-rata basis from the first day of employment, regardless of the contract duration. In Australia, this is mandated by the NES. In the UK, fixed-term employees receive 5.6 weeks of statutory annual leave.
What happens to unused leave when a fixed-term contract ends?
In Australia, accrued but unused annual leave must be paid out on termination. Personal leave is not paid out. In the UK, similar rules apply under the Employment Rights Act 1996.
Can a fixed-term contract exclude leave entitlements?
No. Any contract term that provides less than the statutory minimum is unenforceable. Fixed-term employees are entitled to the same minimum leave as permanent employees, pro-rated to the contract duration.
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