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Fixed Term vs Maximum Term Contracts

Hiring someone for a limited time? You have probably heard about fixed-term contracts and maximum-term contracts. The two sound very similar, but it's important to understand the differences. Both set an end date, but they work differently.


In short, with a fixed-term, the end is locked in; with a maximum-term, there’s flexibility to finish sooner if needed.


Let’s have a look at the differences in more detail.


Woman writing at a desk, surrounded by posters labeled "Fixed Term" and "Maximum Term" with a question mark. Simple, blue-toned setting.

What’s the Difference?

Fixed Term Contracts:

  • End on a specified date (for example, after 6 months or on 31 Dec). Normally, neither you nor the employee can end it early (unless there’s a serious breach) without facing consequences.

  • If you break a fixed-term contract early (without a valid reason), you may owe the worker what they would have earned for the rest of the term. In other words, ending it early can be expensive.


Maximum Term Contracts 

  • Also include an end date but either the employer or employee can terminate the agreement early, usually by giving notice in line with the contract or legislation. This means maximum-term hires can leave if they find another job, and you can let them go if plans change.

  • An early exit follows normal notice rules (and any standard entitlements), so you generally just pay them for the notice period rather than the full remainder.



When to Use a Fixed Term vs Maximum Term Contract

Both contract types have their place:

  • Fixed-Term: Best for definite projects or cover. Use this when you know exactly how long the work lasts, for example, covering an employee on maternity leave, completing a short project, or filling a seasonal spike (like retail at Christmas) where the work genuinely stops. With fixed-term, you signal clearly that the role ends on the agreed date.

  • Maximum-Term: Choose this if you still want an end date but need wiggle room. For example, if a project might finish early, or you want to guard against changing budgets. Maximum-term is also handy if the employee might have to leave early (for instance, if they get a training opportunity or personal emergency). It keeps the commitment short-term but allows notice to exit.

  • Avoid overuse: Never use these types of contracts just to avoid giving permanent status or benefits for truly ongoing roles. If the job is likely ongoing, a permanent contract is safer. Constantly renewing short contracts can trigger new employee status or penalties.


Tip # 1: Clearly document why a hire is fixed-term (this is actually compulsory under some awards), for example “for a specific project”. Keep written records to show the contract was truly limited.


Tip # 2: You must give new fixed-term employees a Fixed Term Contract Information Statement (FTCIS). This guide explains the rules around fixed-term hiring, and forgetting this is a breach of the Fair Work Act.



What Are The Rules?

New legislation (the Fair Work Legislation Amendment -Secure Jobs, Better Pay- Act 2022) tightened the rules on fixed-term contracts, effective 6 December 2023. Key changes include:

  • 2-year cap: Fixed-term contracts cannot last more than 2 years in total, including any renewals. This stops businesses from stringing together endless short contracts.

  • One extension only: You may offer one optional extension on a fixed-term, but that’s it. No second renewal beyond the 2-year cap.

  • No automatic back-to-back contracts: Generally, you can’t keep re-hiring someone on new fixed-terms past 2 years (unless there’s an exception).

  • Exceptions exist: Some fixed-term uses are still allowed beyond 2 years. For example, if the job needs special skills or qualifications, is a formal training program, covers a peak workload, or replaces someone on leave. High-income and certain governance roles can also be exempt, as do award-covered arrangements in many industries.



Employment Contracts as Risk Management

Think of your employment contract as a risk-management tool, not just a formality. Many small business owners treat contracts like tick-box documents - Download a free template, put a date on it, done.


A contract is more than that. It defines expectations, sets limits, and protects you when things don’t go to plan. And if you don’t fully understand what you’re signing or issuing you might be exposing your business to far more risk than you think.


Every business and role is different. If you’re unsure whether a fixed term vs maximum term contract is right for a situation, or how to comply with the new rules, get expert help. I can review your contracts and advise on best practices, and make sure your contracts protect your business.


I work with small and medium businesses to make HR easier, safer, and less stressful. 


Book a free discovery call today. Let’s make managing staff the least of your worries. 



Need help? Contact us today - sandra@hrconsultingtas.com.au or 0408 408 225  



DISCLAIMER:

The content provided on this website serves as a general information resource on the subjects discussed, and should not be considered tailored to specific individual circumstances or a replacement for legal counsel. While we exert significant effort to ensure the accuracy of our information, HR Consulting TAS cannot ensure that all content on this website is consistently accurate, exhaustive, or current. Recommendations by HR Consulting TAS and any information acquired from this website should not be regarded as legal advice.

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