Hiring on a fixed-term contract - any payroll differences versus permanent staff

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Hiring on a fixed-term contract - any payroll differences versus permanent staff

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I am about to hire someone on a 9-month fixed-term contract to cover maternity leave, and I want to make sure I handle the payroll side correctly. I have only ever employed people on permanent contracts before, so this is new territory for me.

My main question is whether there are any differences in how I run payroll for a fixed-term employee compared to my permanent staff. Specifically:

Do I run them through PAYE and RTI in exactly the same way - same tax code process, same FPS submissions, same starter and leaver procedures at the end of the contract?
What about auto-enrolment? I assume the same pension duties apply from day one, but is there anything different for someone on a shorter contract, for example around postponement?
Are there any differences in statutory entitlements I should be aware of, such as holiday accrual or sick pay, that would affect payroll?
When the contract ends after 9 months, is the P45 and final pay process the same as for any other leaver?

I want to get this right from the start rather than discover I have missed something at the end of the contract. My payroll is done through my accountant, but I like to understand what should be happening. Grateful for any advice from others who hire on fixed-term contracts.

Tagshmrc payroll fixed-term contract

Answer 1

DDasiy Smith

Short answer: very little changes. A fixed-term employee is an employee like any other; the contract length does not create a special payroll category.

RTI and FPS

She goes on payroll exactly like your permanent staff: same PAYE, same National Insurance, same Full Payment Submission on or before each payday, and the same starter checklist. The start date is the day she starts work, and the end date is entered when she leaves — including on the final FPS and her P45. There is no “fixed-term” flag in payroll, so your payroll software treats her identically.

Auto-enrolment

Your duties are the same. Assess her from her first day of employment, and if she is eligible (age and earnings), enrol her — nine months is well beyond any waiting period, though postponement is available for any new starter. Qualifying earnings are not pro-rated by contract length: the thresholds apply as normal each pay period.

Holiday

Holiday accrues pro-rata from day one. The statutory minimum is 5.6 weeks per year (which may include bank holidays unless your contract gives them in addition), so a 9-month contract accrues roughly 4.2 weeks. If she does not take it all, unused statutory holiday is paid out on termination — you cannot just let it lapse.

Equal treatment

The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 require that fixed-term staff are not treated less favourably than comparable permanent employees on pay, benefits, pension, training and notice. So her salary, holiday, sick pay and any bonuses should match what a permanent employee in the same role would get, pro-rated where appropriate. Differences need objective justification.

When she leaves

Process it like any leaver: final pay, holiday pay owed, P45 issued promptly, and the leave date on the final FPS.

One practical tip: diary the contract end date now. If she stays on past the end of the fixed term without a new contract, she can become a permanent employee by implication, which changes your redundancy and notice obligations.

Hiring on a fixed-term contract - any payroll differences versus permanent staff

1 Answer

RTI and FPS

Auto-enrolment

Holiday

Equal treatment

When she leaves

Your answer

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