Key 2026 Changes That Affect Fixed Term Employees
The Employment Rights Act 2025 introduced significant changes to statutory employment rights from 6 April 2026. Several of these changes directly affect employees on fixed term contracts and create new obligations for employers from day one of employment.
Statutory Sick Pay: Day One Entitlement
From 6 April 2026, Statutory Sick Pay is payable from the first day of sickness absence. The previous three-day waiting period has been abolished. At the same time, the Lower Earnings Limit that previously excluded lower-paid workers from SSP eligibility has been removed, meaning all employees qualify regardless of their earnings level.
The weekly SSP rate for 2026 to 2027 is £123.25, or 80% of the employee’s average weekly earnings if that is lower. This is particularly relevant for fixed term employees on shorter or lower-paid contracts who would previously have fallen outside the SSP threshold entirely.
For full details on how SSP is now calculated, see: GOV.UK: Work out your employee’s Statutory Sick Pay
Paternity Leave and Unpaid Parental Leave: Day One Rights
From 6 April 2026, the qualifying service requirements for both Statutory Paternity Leave and Unpaid Parental Leave have been removed. Both are now day one rights, applying regardless of how long the employee has been in post. This applies equally to employees on fixed term contracts.
Previously, employees needed 26 weeks of service to qualify for paternity leave and one year of service for unpaid parental leave. Those thresholds no longer apply to the right to take leave. However, it is important to note that Statutory Paternity Pay continues to require 26 weeks of continuous service, so the right to leave and the right to pay remain separate.
Employers should update employment contracts, offer letters, and HR policies to remove any language referencing the old qualifying periods.
See the government guidance: GOV.UK: Paternity pay and leave and GOV.UK: Unpaid Parental Leave
The Fair Work Agency
From 7 April 2026, a new enforcement body, the Fair Work Agency, took over responsibility for enforcing statutory employment rights including the National Minimum Wage, holiday pay record-keeping, and Statutory Sick Pay. Unlike the previous fragmented enforcement landscape, the Fair Work Agency can investigate employers proactively rather than waiting for a worker complaint. Employers who have historically relied on low enforcement activity as a buffer should not assume that continues.
How Duration Works: The Four-Year Rule
UK employment law includes an important protection that limits how long an employer can keep an employee on successive fixed term contracts. Under Regulation 8 of the Fixed-term Employees Regulations, any employee who has been continuously employed on a series of fixed term contracts with the same employer for four years or more will automatically become a permanent employee.
This conversion happens by operation of law. The employer does not need to issue a new contract for it to take effect. If the employer wishes to continue using a fixed term arrangement beyond the four-year threshold, they must be able to demonstrate objective justification, such as a genuine ongoing business need that is genuinely temporary in nature.
Key points to understand about the four-year rule:
- It applies to successive contracts with the same employer
- Brief gaps of no more than one week between contracts do not break continuity of service
- The rule cannot be avoided by engineering short gaps between contracts
- A collective agreement between an employer and a recognised trade union can, in some circumstances, modify how the rule operates
Employment tribunals view attempts to manipulate service calculations, such as structuring artificial gaps between contracts, as poor practice and may disregard them entirely when assessing an employee’s rights.
See the full GOV.UK guidance: GOV.UK: Renewing or ending a fixed-term contract
Terminating a Fixed Term Contract
End of Contract
A fixed term contract normally ends automatically on the agreed date, on completion of the task, or when the specified event occurs. In this scenario, the employer does not need to give notice for the contract to expire. However, the end of a fixed term contract is legally treated as a dismissal. This has significant consequences that many employers overlook.
Where an employee has two or more years of continuous service, the employer must be able to demonstrate a fair reason for not renewing the contract. If the reason for non-renewal is that the work is no longer required, this will typically constitute redundancy. The employee may then be entitled to a statutory redundancy payment.
If an employee has at least one year of service, they are entitled to a written statement of reasons explaining why the contract has not been renewed.
Looking ahead: From January 2027, under the Employment Rights Act 2025, the qualifying period for unfair dismissal rights is expected to reduce from two years to six months. Employers should begin reviewing their practices now to ensure that fair treatment and documented processes are in place from the outset of employment, not just once the two-year threshold is reached.
Early Termination
Ending a fixed term contract before its agreed end date introduces additional risk. If the contract contains no early termination clause, ending it early may constitute a breach of contract, regardless of the reason.
Where an early termination clause exists and proper notice is given, the contract can be ended lawfully. Notice periods for fixed term employees follow the statutory minimum:
- One week’s notice after at least one month of continuous employment
- One week’s notice for each year of service, where continuous employment is two years or more
These are minimums. The contract may specify a longer notice period, which takes precedence. Failing to give proper notice when ending a fixed term contract early can expose the employer to a breach of contract claim.
Implied Continuation
If an employee continues working after the contract’s end date without a formal renewal being issued, an implied agreement arises that the employment relationship is ongoing. The employer cannot then dismiss the employee without following a proper process and giving the required notice period.
Payroll, Tax, and National Insurance Obligations
From a payroll perspective, fixed term employees are treated identically to permanent employees. As the employer, you are responsible for operating PAYE on their earnings, deducting income tax and employee National Insurance contributions, and paying over employer National Insurance contributions to His Majesty’s Revenue and Customs (HMRC).
There is no modified tax treatment for fixed term staff. The same rules, thresholds, and reporting obligations apply. This includes:
- Registering the employee with your payroll software and PAYE scheme
- Submitting a Full Payment Submission (FPS) to HMRC each time a payment is made
- Deducting income tax using the employee’s tax code
- Deducting and paying employee and employer National Insurance contributions
- Paying Statutory Sick Pay from the first day of sickness absence, at £123.25 per week or 80% of average weekly earnings, whichever is lower
- Issuing a P45 when the contract ends
- Enrolling eligible employees in a workplace pension under auto-enrolment rules
For full detail on your payroll obligations as an employer, see: HMRC: Employer guide to PAYE and National Insurance contributions 2026 to 2027
Fixed term contracts should not be confused with self-employed contracting arrangements. A self-employed individual invoices for their services, is responsible for their own tax, and operates under a contract for services. A fixed term employee works under a contract of service, has employment status, and falls firmly within the PAYE system. Misclassifying a fixed term employee as self-employed is a serious error that can result in HMRC investigation, tax arrears, interest, and penalties.
Practical Tips for Employers
Managing fixed term contracts well requires good process, not just good intentions. The following steps will help you stay compliant and reduce the risk of disputes:
- Put the contract in writing. Always issue a written fixed term contract before the employee starts. It should clearly state the start date, the end date or triggering event, and include an early termination clause if appropriate.
- Update your contract templates. Following the April 2026 changes, remove any language referencing qualifying periods for paternity leave or unpaid parental leave. Both are now day one rights.
- Update your SSP process. Ensure your payroll system is configured to pay SSP from the first day of sickness absence, with no waiting days, and that it correctly applies the 80% earnings calculation for lower-paid staff.
- Track service carefully. Maintain accurate records of each employee’s start date and any successive contracts. Monitor when the four-year threshold is approaching and take a considered decision well in advance.
- Treat expiry as a dismissal. Do not treat the end of a fixed term contract as an administrative event. If the employee has sufficient service, you must have a fair reason for not renewing and follow a proper process.
- Communicate about vacancies. You are legally required to inform fixed term employees about permanent vacancies they could reasonably be considered for.
- Review benefit parity. Regularly check that fixed term employees are receiving equivalent pay and conditions. Any differences must be objectively justifiable.
- Issue a P45 promptly. When a fixed term contract ends, issue the employee’s P45 without delay so they can provide it to any new employer.
- Enrol eligible employees in a pension. Auto-enrolment obligations apply to fixed term employees in the same way as permanent staff. Check eligibility and enrol accordingly.
- Prepare for January 2027. The qualifying period for unfair dismissal is expected to fall from two years to six months. Embed fair and documented processes from the start of every employment relationship now.
Redundancy and Fixed Term Contracts
Where a fixed term contract is not renewed because the role is no longer required, this is likely to be treated as a redundancy situation. Provided the employee has at least two years of continuous service, they will be entitled to a statutory redundancy payment calculated in the usual way, based on age, weekly pay, and length of service.
Redundancy at the end of a fixed term contract follows the same procedural requirements as redundancy in a permanent role. Employers should carry out a fair consultation, consider whether any suitable alternative employment exists, and document the process thoroughly.
Use the government’s statutory redundancy pay calculator: GOV.UK: Calculate your statutory redundancy pay
Note that from 6 April 2026, the maximum protective award for failure to comply with collective redundancy consultation obligations increased from 90 days’ pay to 180 days’ pay per affected employee. While this applies to collective redundancy situations, it signals the direction of travel on enforcement and underlines the importance of following proper process.
Final Thoughts on Fixed Term Contracts
Fixed term contracts offer genuine flexibility for UK businesses, but they must be managed with the same care and rigour as any permanent employment arrangement. The legal framework is clear: fixed term employees have the same fundamental rights as permanent staff, the end of a contract is a dismissal in law, and four years of successive contracts will trigger automatic permanent status unless you can justify otherwise.
The Employment Rights Act 2025 has added further obligations from April 2026. SSP is now payable from day one of sickness, paternity leave and unpaid parental leave are day one rights, and the new Fair Work Agency has the power to investigate and penalise employers proactively. Looking ahead to January 2027, the unfair dismissal qualifying period is expected to fall to six months, making fair processes from the very start of employment more important than ever.
If you need support managing payroll for fixed term staff, understanding your employer obligations, or structuring temporary employment arrangements correctly, speak to the team at Accounting Wise. We work with UK businesses and employers to keep their finances, payroll, and compliance on track.
