Using limited-term employment arrangements when expanding internationally comes with many advantages.
Under the right circumstances, this type of employment contract provides a best-fit worker from anywhere in the world to deliver vital services within a clear, set timeline.
Understanding how limited-term employment works grows more important by the year, as technology unlocks wider competition vying for top global talent. Armed with this knowledge, your organization can assess if this type of employment is your best route for hiring contractors internationally, plus how to stay compliant and profitable doing so.
Limited-term employment refers to temporary roles or appointments whose contracts generally don’t exceed one to three years total.
Also known as a fixed-term contract or a temporary appointment, candidates enter into these contracts understanding its finite nature. Limited-term contracts can sometimes be extended or renewed, depending on a country’s labor laws. Consecutively doing so may result in businesses forced to reclassify the contract and, subsequently, the employees themselves.
The term limited-term employment (LT) is recognized globally. However, every country maintains its own set of labor laws governing:
Given the country-by-country differences related to limited-term employment, many organizations hiring abroad work with a global professional employer organization (PEO) with employer record services to navigate this unique type of worker relationship safely and lawfully.
Both private companies and public institutions use limited-term employment. Organizations are most likely to go with a fixed short-term employee under the following circumstances:
An LT employee’s total contract length depends on their country of residence, and in the U.S., state-specific laws.
A country’s labor laws foremost dictate how a limited term-employment contract is drafted and dismissed, plus what must be included in its terms. Organizations expanding internationally or hiring contractors for a specific project or function must abide by the fixed-contract laws of their contractor’s country of residence or the country they’re looking to hire in.
In general, companies looking to hire short-term employees in a specific country must consult that country’s:
Consider these countries as reference points for common limits on fixed-term employment periods:
Organizations can renew time-limited position contracts in Germany up to three times with a total period of two years. The standard benefits you can expect in Germany are:
Short-term employment contracts in Peru can have a total period of five years and must be in writing in the local language. The standard benefits for employees in Peru are:
LT employment periods in France are a maximum of 24 months, with only one renewal permitted. Employees in France can receive the following benefits:
Fixed-term contracts in India must typically assure a minimum of three consecutive months of work. However, India only established its limited-term contract laws in 2018 and has yet to put a limit on contract renewals. Some standard benefits to expect in India include:
Any individual entering their fourth year of a fixed-term contract becomes automatically reclassified as a part- or full-time employee. All employees receive the following benefits:
Contractors entering their third year or third consecutive renewal of fixed-term work are eligible to submit a claim with the Employment Relations Authority and the country’s court system to qualify as a regular employee. Standard benefits for employees in New Zealand include:
LT contractors working with an organization for more than five years must recategorize as indefinite-term employees. Standard benefits for employees in Japan include:
In the vast majority of countries, full-time limited-term employees are typically eligible for the following benefits.
Limited-term employees may also be eligible for overtime. Overtime and other labor laws vary widely by country. In the United States, for example, the Fair Labor Standards Act (FLSA) regulates overtime wages, working hours, and other aspects of variable compensation. Depending on if the LT employee is classified as a nonexempt or exempt employee, they may be eligible for overtime payments under FLSA regulations. Limited-term employees will be exempt or nonexempt depending on the nature of their work, their total compensation, and whether they meet specific duty criteria set by the FLSA disqualifying them from overtime pay.
Benefits end based on the labor laws where your contractor resides and individual employer policies. Again, it’s in everyone’s best interests to draft a country-specific limited-term contract clearly outlining benefits eligibility, start dates, end dates, regular compensation, and overtime qualifications at the onset of onboarding a new fixed-term employee. Doing so provides substantial risk mitigation and ensures your organization operates lawfully.
All U.S.-based limited-term employees are considered at-will employees. Under U.S. labor laws, the at-will employee laws allow employers to terminate or dismiss an employee at any point, for any reason, so long as that rationale is not discriminatory.
However, at-will employment is a labor law clause unique to the United States. The majority of countries maintain stricter termination standards and proceedings, including how to end a fixed-term contractor lawfully.
Employment at-will pros and cons can make this type of contract arrangement confusing for organizations hiring outside their home country — and particularly U.S. companies hiring internationally. Limited-term employees outside the U.S. can only be classified as at-will under one exception — when they’re working under a written probationary period.
There are distinct benefits brought on by hiring employees under limited terms.
As their name suggests, fixed- and limited-term contracts come with the clear expectation of an endpoint. This endpoint is definitive and understood from the onset of the relationship.
Given this nature, LT employment is attractive for organizations requiring specialists for a specific project or position with a finite scope. Employers make this arrangement clear by offering contracts with limit entitlement clauses and a precise start and end date, with additional parameters in writing to prevent misclassification or miscompliance.
Both employers and employees engaging in limited-term contracts gain wider exposure to talents and skillsets unavailable in standard employment.
On the employer side, organizations maintain the ability to source top talent needed for specific needs and functions. Meanwhile, employees can use limited-term appointments to develop their own niche expertise, making them more competitive for future appointments. Younger professionals, in particular, can use fixed-term contracts to try out various careers before settling within an industry, as well as deepen their resumes and capabilities.
Employees with a limited-term contract have the autonomy to work at various organizations without making a long-term, weighty commitment. Individuals are free to play the job market, working only with organizations or roles fitting their work-life vision.
Likewise, businesses hiring limited-term contractors benefit from similar flexibility. Organizations can use limited-term contracts as a probationary or trial period to understand if an individual is a best-fit, as well as test the value contractors provide as needs evolve. Those who exceed expectations can easily be brought on as an indefinite employee.
Furthermore, limited-term contracts are a sensible solution to cover for regular employees who are on maternity or paternity leave, sick leave, or any other long-term arrangement requiring a temporary substitute.
Limited-term employees often significantly advance the operational capabilities of their employer by handling specific projects, processes, systems, or technologies. Parent organizations can reallocate staff and resources accordingly, with the temporary contractor mitigating gaps or pain points. When well-supported, fixed-term contractors often leave organizations better than they found them, enhancing internal operations as well as external deliverables.
Limited-term contracts provide a sound risk-management strategy for companies hiring global employees. It does so in several ways.
First, LT contracts limit entitlements and set precise end dates with benefits terminations. They allow employers to source the global talent they need when they need it, yet shift or end relationships as those needs evolve.
Second, companies minimize certain contracting liabilities since there’s no legal obligation dictating contracts must be reviewed, renewed, or renegotiated at their end date.
Third, their temporary nature lessons the chance of organizations being charged with an unfair dismissal claim or having to pay severance to dismissed employees so long as the contracts contain an early termination clause. However, limited-term contractors terminated before their contract’s written end date are entitled to the remainder of their contract’s earnings.
These liabilities are limited when contracts contain clear information from the onset of the relationship, including the term’s end date, limit entitlement clauses, and an early termination clause.
Under a few circumstances, limited-term contracts can carry drawbacks.
For employees, early dismissal before their contract’s written end date still entitles them to receive full compensation regardless of job results, project status, or overall role success. This means their employers must pay out potentially large sums to people no longer working for them if they did not include an early termination clause.
For this reason, some companies — particularly those maintaining a network of international fixed-term contractors — find themselves in the position of keeping a contractor who isn’t a best-fit for fear of unfair dismissal claims or large, negative pay-outs. In most cases, the only way to avoid contract compensation is if a contractor has committed misconduct regarding either internal policies, compliance standards, or a country’s laws.
Employee misclassification is a serious liability with severe penalties in many countries. Misclassifying an employee exposes organizations to legal claims with back-pay, benefits, and other entitlements awarded to the misclassified individual.
Some countries carry a larger risk for fixed-term contractor misclassification. For example, India, China, South Korea, South Africa, and New Zealand do not state specific limits on how many times you can offer a consecutive contract renewal. Instead, these countries include clauses in labor laws protecting the “due” or “reasonable expectations” of limited-term workers wishing to become indefinite employees after successive contract renewals. Yet those LT employees must typically file a claim with relevant regulatory or legal bodies to be reclassified.
As a risk-mitigation best practice, organizations should avoid offering more than one contract renewal for any limited-term employee, current or prospective.
International LT contractors who feel they’ve been unjustly dismissed will lodge a labor rights case with their country’s appropriate legal or regulatory body.
If this occurs, employer organizations must defend themselves or negotiate in that country’s labor court. However, companies are only permitted to do so if they have a pre-established entity in that country, such as a registered subsidiary.
Setting up foreign subsidiaries is an unparalleled time, money, and labor-intensive process requiring months, if not years, of bureaucratic navigation. What’s more, it demands specialized legal and HR counsel to assure you take the proper steps to set up country-compliant payroll, tax registration, benefits packages, and much more — expertise most businesses don’t support in-house.
Globalization Partners’ Global Growth Platform™ provides access to hiring employees in more than 187 countries in a matter of days, not months. Plus, you don’t have to set up a subsidiary to do so or manage an ever-changing landscape of local labor laws and country-specific compliance.
If you are interested in knowing more, take a look at G-P Contractor. We help you hire contractors around the world, within our Global Growth Platform™.
