Limited term employment is a practice where a person is contracted to work for a set amount of time. This employment option allows companies to find team members that are looking to fill short-term assignments or onboard expatriates that consistently move from country to country. As with any employment scenario, limited term employment comes with its own set of advantages and disadvantages. As more businesses entering the global marketplace consider this hiring strategy, it is important to ensure it is aligned with their global growth goals.
Limited Term Employment: The Pros
Limited term employment contracts help global employers minimize the risk of damages by limiting the distribution of entitlements or benefits upon termination. By hiring employees on a limited term basis, employers can manage their liabilities and have the freedom to terminate contracts as needed.
These types of arrangements are most appropriate in situations when an organization has a clear, defined end to the employment relationship. For example, most international assignments start with a probationary or trial period. This period helps a team ensure that the potential employee can demonstrate the value they bring to the company. Organizations can use a limited term employment contract during this period and, if satisfied, hire the employees through a more permanent agreement. These contracts can also be used for temporary workers hired to cover the responsibilities of employees on maternity, paternity, or sick leave.
With limited term employment, there is no requirement for companies to renew a contract following its end date. This helps companies reduce the risk of unfair dismissal claims and enables them to avoid paying severance to employees. However, in order for this hiring strategy to be compliant, it is important for companies to ensure these specifications are clearly stated in the employment contract.
Limited Term Employment: The Cons
Despite the benefits, there are a few challenges companies need to be aware of before moving forward with this strategy for hiring employees. For starters, a short-term contract cannot be dismissed or cut short before its expiration date. If this occurs, the company is responsible for paying the employee’s compensation for the timeframe specified in their contract. To avoid this obstacle, it is advised to include an early termination clause in the original contract.
If an employee becomes problematic, doesn’t fit in with the organization, or isn’t performing at the required level, there is little action a company can take. In most cases, the employee will need to stay onboard through the remainder of their contract or receive a buyout from the company in order to compliantly terminate the employment relationship. Unless the company can prove that the employee committed misconduct, the employer is bound by employment law to keep them onboard or pay the employee for the remainder of their contract.
If a conflict with a limited term employee occurs, the company will most likely have to defend itself in labor courts, which can only be done if the company has an established presence in the country. This can be accomplished by going through the arduous process of setting up a foreign subsidiary, or through an International PEO (Professional Employer Organization). This agile employment method allows companies to easily and compliantly enter and exit a market, enabling them to take part in short-term employment practices.
Limited term employment gives companies an opportunity to explore global markets without having to jump into a long-term commitment. When considering this practice for onboarding global employees, it is important for companies to ensure compliance with employment practices in each market they expand into.
If your company is considering take a short-term approach to global markets, get in touch with us today. We will help you understand the benefits and risks of each employment option so you can determine the best global hiring strategy for your business. Reach out to our team of experts today to see how our International PEO solution can help you reach your global growth goals in over 185 countries.