Hiring staff on Fixed Term Contracts? Here’s What You Need to Know

It’s boom time for contractor hiring. Across the architecture, design and creative industries, more businesses and individuals are seeking temporary or fixed contracts, with both camps finding plenty of advantages under these arrangements. 

For internationally mobile young professionals, contracting is the most practical way to earn income in a new city. For firms and studios, contractors provide vital support to permanent teams during times of demand flux or staff absences. 

So, whilst there are distinct advantages in hiring people on fixed-term or temporary contracts, it’s especially important to be informed about regulatory changes in this area. Staying up-to-date can help you make hiring decisions with certainty and make the most out of the growing pool of professionals who are opting for non-permanent roles. 

We’ll delve into recent changes and how to avoid falling foul of the rules. 

Changes to Fixed Term Contracts in Australia

Restrictions on fixed-term contracts in Australia came into effect on 6 December 2023, and are aimed at curtailing the practice of engaging workers continuously on fixed-term employment contracts for the same role.

Under the new laws, you can’t employ someone on a fixed-term contract that spans more than two years or extend their contract more than once. That means firms can’t extend or renew an FTC to the point where the total period of employment lasts longer than 2 years. Additionally, organisations can’t employ people under back-to-back FTCs. 

Additionally, as an employer you’re now required to provide employees with two documents when you engage them on an FTC. These are the Fair Work Information Statement (FWIS) and the Fixed Term Contract Information Statement (FTCIS).

These new limitations don’t apply to fixed-term contracts that were entered into before 6 December 2023, but the rule on consecutive contracts may apply to any new FTC entered into after that date. 

Lawmakers have anticipated that organisations might try to get around the new rules, so there are prohibitions to be aware of. Businesses can’t terminate fixed-term contracts before their end date, or delay re-hiring employees who were previously on FTCs. Employers also aren’t permitted to change the nature of an employee’s role simply to avoid their obligations.

Exceptions to the new rules

There are a few exceptions to these caps on FTCs, referred to as ‘exceptions to the limitations’. These include employees who are earning above the high-income threshold, or where the contract requires the employee to perform a distinct and identifiable task involving specialised skills, and employees covering temporary staff absences, emergencies, and peak busy periods. Ultimately, it’s best to get qualified legal advice if you have any questions about these rules before you hire an employee.

A matter of distinction

It’s important to note that in Australia, individuals on a fixed-term employment contract are not the same as independent contractors, who are sometimes referred to as ‘ABN contractors’ or ‘sub-contractors’. Independent contractors usually set their own rate, can delegate work to others (including other sub-contractors) and can work for multiple clients on the go.  

What firms need to do now

These new fixed-term contract rules might impose restrictions on your existing employment arrangements, so it’s critical to review your current contracts as soon as possible. 

Effectively, this means some employees on FTCs may have to be transitioned to permanent employment and provided with a new, permanent contract of employment. Now is the time to determine whether existing contracts may need to be transitioned by a specific date. 

Hiring Contractors in the UK 

We’re seeing a jump in Australian and New Zealand professionals moving to the UK post-pandemic, bringing with them valuable design and tech skills. As many of these professionals are on two-year Youth Mobility Visas, contract work is their best option because the UK imposes restrictions on permanent work and self-employment for visa holders. 

This is an excellent talent pool to tap into, but it does require working knowledge of the UK’s IR35 contracting rules. IR35 was introduced in 2021 to distinguish between genuine self-employed contractors, and those who are ‘disguised employees’ and should therefore be paid under PAYE. 

If you’re bringing on self-employed (independent) contractors who are working through their own intermediary (usually a limited company, often known as a PSC), you’ll need to determine whether a contractor is in fact an employee. 

The main factors you’ll need to consider are:

1. Control: Do you expect the contractor to complete the work under your direction?

2. Substitution: Is the contractor able to provide someone else to complete the work and would you be happy if they did?

3. Mutual Obligation: Does the contractor expect you to provide them with work for the entire assignment, and would you expect them to complete all the work you’ve given them?

If you answer yes to any of the above, it’s likely the contractor falls within IR35, meaning that they should be paid via the PAYE system. Otherwise, there is the risk they are working as a disguised employee, which can result in HRMC fines for both the hirer and the contractor’s PSC.

To avoid this risk, Bespoke Careers only provides contractors and temporary employees through PAYE. If you want to double-check the tax status of any contractors you are currently working with, you can use the HMRC tool - Check Employment Status for Tax (CEST).

A final thing to note is that contractors will usually expect to be paid more often than salaried employees, (usually weekly), and their hours may vary from week to week—so it’s important to have systems in place to facilitate this way of working. Hiring through an agency can help take away this hassle and ensure your company is complying with its tax obligations.

Hiring Contractors in the United States

Contracting rules in the United States have also undergone changes, with new U.S. Department of Labor regulations introduced in January 2024 to determine whether a worker might be considered an independent contractor.

The new contracting rules in the United States are set to take effect from March 11, with the DOL planning to release more guidance to employers. 

Similar to IR35, the new DOL rule provides criteria for determining the nature of a working relationship between an employee and an organisation. The framework includes:

• The nature and degree of control the worker has over the performance of their work.

• The worker’s opportunity for making a profit or loss.

• The investments the worker and the employer make in materials or equipment.

• The degree of permanence of the work relationship.

• The extent to which the work carried out is integral to the employer’s business.

• The level of skill and initiative the worker must apply to their work. 

Summary

Hiring contractors for your architecture or design team can be an excellent business decision, but it pays to understand where you need to be compliant. Engaging your contractors correctly is a top priority, as getting this wrong can leave you stung by hefty tax bills and other penalties.

To take the headache out of hiring contractors, speak to a recruitment specialist you can trust. With offices in the UK, US and Australia, Bespoke Careers can give you essential guidance and access to a pre-qualified network of professionals. Contact us today to find out more.