An office manager at a firm of 25 people hears in October that her finance assistant starts maternity leave in January and will be away for nine months. She can hire a replacement on a fixed term contract or ask an agency for a temp. Until now the choice between a fixed term contract or agency temp came down mostly to cost and speed. From 1 January 2027 it also comes down to dismissal risk, because the qualifying period for ordinary unfair dismissal falls from two years to six months.
This guide is for a manager in an office, IT or facilities team in Great Britain who needs someone for somewhere between three months and a year.
What changes on 1 January 2027
The Employment Rights Act 2025 cuts the qualifying period for ordinary unfair dismissal to six months for dismissals that take effect on or after 1 January 2027. The cap on the compensatory award, currently the lower of a year’s pay or £123,543, is due to be removed at the same time. Farrer and Co set both points out in their guidance on fixed term contracts this year. We covered the wider change in our guide to the unfair dismissal qualifying period.
Why the end of a fixed term contract counts as a dismissal
Plenty of small employers assume a fixed term contract simply stops on its end date. In law, section 95 of the Employment Rights Act 1996 treats the expiry of a limited term contract without renewal as a dismissal. Until now that rarely mattered for short contracts, because the employee had no right to claim. From January, a nine month maternity cover contract will pass the six month mark well before it ends.
That does not make the dismissal unfair. It means you need a fair reason and a fair process. Where the contract has a genuine, time limited purpose, such as covering parental leave or a project with a fixed finish, the usual reason is some other substantial reason. Section 106 of the 1996 Act adds specific protection where you told the replacement in writing when you hired them that the job ends when the absent employee comes back. So write the purpose and the expected end into the contract on day one, confirm the end date in writing in good time, and look at whether any other role is open before the last day. Statutory redundancy pay still needs two years’ service.
Where a fixed term contract is used for work that carries on year after year, the purpose is harder to show and the risk is higher. Successive fixed term contracts adding up to four years make the employee permanent unless the employer can objectively justify keeping them fixed term, under regulation 8 of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.
Equal treatment for fixed term staff
The same 2002 regulations say a fixed term employee must not be treated less favourably than a comparable permanent employee on terms such as pay, holiday and pension, unless the difference can be objectively justified. They must also be told about permanent vacancies. In practice the finance assistant’s replacement gets the same salary band and benefits as the person she is covering. Holiday is 5.6 weeks a year pro rata, and statutory sick pay has been payable from the first day of sickness since 6 April 2026.
How an agency temp differs
A temp supplied through an agency is engaged and paid by the agency, which runs PAYE and pays their holiday and sick pay. If you end the assignment, the temp has no unfair dismissal claim against you as the hirer, and the January change leaves that position where it is.
You still carry some duties. From the first day an agency worker is entitled to use shared facilities such as your staff room and car park, and to be told about your vacancies, under regulations 12 and 13 of the Agency Workers Regulations 2010. After 12 weeks in the same role they are entitled to the same basic pay and working conditions as someone you hired directly, which we explain in our guide to the 12 week rule. Discrimination law and health and safety law apply to you as the hirer whatever the contract says.
The cost side
An agency charge rate covers the temp’s pay plus the employer costs the agency carries, including holiday pay, employer National Insurance and pension, with the agency’s margin on top. Hour for hour, a temp usually costs more than a fixed term employee on the same salary. Against that, you pay only for hours worked, you spend nothing on advertising, and if the person is not right you ask the agency for someone else. Our breakdown of agency charge rates goes through each part.
If you want to keep the temp at the end, the Conduct of Employment Agencies and Employment Businesses Regulations 2003 allow the agency to charge a transfer fee. Regulation 10 gives you the option of an extended period of hire instead of paying it, and the agency has to tell you its terms before the assignment starts. Ask for them in writing before you sign anything.
Which suits which job
For maternity or long sickness cover where you know the end date and want the person to learn your systems properly, a fixed term contract still works well, as long as the contract states its purpose and you handle the end as a dismissal with a reason. For short cover, cover where the end date is uncertain, or a role you may not keep after the spring, an agency temp leaves the employment risk with the agency. Some employers start with a temp while they recruit and move to a fixed term contract once the need is clear. If you plan to do that, read the transfer terms first.
Flamingo Workforce supplies temporary staff for offices, IT support and facilities teams across England and Wales. If you are planning cover for the new year, tell us about the role through our enquiry form.