By On Your Terms co-founder Natalie Fennell
April 2025

 

Thinking about bringing someone on board for a short-term project or a busy period in your business? Not sure ‘how’ you should hire them? You’re not alone, but we’re here to help. There are two common options: hire a fixed-term employee, or engage them as an independent contractor. But getting this wrong can have legal (and financial) consequences. Here’s how to understand the difference, avoid common mistakes, and choose the right contract for your needs.

See our customisable Independent Contractor Agreement, Individual Employment Agreement, and workplace policies to get your new business set up with the legal documents it needs.

Check out some of our other employment related blogs: Employee vs Contractor: What’s the difference?, Selling Up Shop: What happens to employees when a business is sold? and 90 day trial periods are now an option with any new employee.

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What is a fixed-term employee?

A fixed-term employee is someone you hire on a regular employment agreement, but with an end date. This could be for:

  • Covering parental leave,
  • Working on a defined project, or
  • Meeting a seasonal or time-limited workload.

They have most of the same rights as permanent employees, such as sick leave and public holidays, and their role must genuinely be time-limited. You must include a valid reason and an end date in the employment agreement.

When is a fixed-term employment contract a good idea?

A fixed-term agreement can be a great solution for your business, but only when the role truly has a clear endpoint. Here are some examples of when a fixed-term contract makes good legal (and business) sense:

🗖️ Covering for an employee on leave

If one of your team is going on parental leave, long-term sick leave, or a sabbatical, a fixed-term hire can step in for a set period. The return date of the original employee gives you a clear reason and clear end date for the temporary role.

💪 Project-based work

You might have landed a short-term contract with a client, or need extra hands for a branding campaign, website build, or one-off event. If you know the project has a defined scope and timeframe, you can bring on someone just for the duration of the project.

☂️ Seasonal or peak period help

If you run a retail store during the Christmas rush, or a tourism business in the summer, a fixed-term employee can help during those busy months. Again, the key is that it’s predictable and time-bound.

🧹 Temporary funding or grants

If a role exists due to a one-year grant or special funding, a fixed-term agreement may be appropriate, but funding alone isn't always a valid reason. You’ll need to show that the nature of the role is genuinely temporary and not just based on budget uncertainty. Courts have held that general funding uncertainty does not automatically justify fixed-term employment.

🗖️ Business transition or change

If you're going through a restructure or waiting on a permanent hire, you might need temporary cover during the transition. As long as the reason is real and the end date is clear, a fixed-term employee can fill that gap.

What is an independent contractor?

An independent contractor runs their own business and provides services to you under a contract for services. They're responsible for their own tax, ACC, insurance, and equipment. You don’t pay them holiday pay or deduct PAYE.

This model works well when:

  • The person works with multiple clients,
  • They provide specialist or one-off services,
  • They control how and when they work.

Common traps to avoid

Hiring the wrong way - whether fixed-term or contractor - can lead to disputes, backpay claims (for unpaid wages, holiday pay and other employee entitlements), and fines. Here are some common pitfalls to avoid:

❌Using a fixed-term agreement just to “try someone out”

Trialling someone? You can use a 90-day trial period in a permanent or fixed-term agreement, provided you meet the legal requirements. The trial period must be agreed to in writing and signed before the employee starts work. While legally permitted in fixed-term roles, it’s generally best suited for longer-term roles - if your fixed term is very short, a trial period may not be appropriate or practical. As of December 2023, all New Zealand employers—regardless of size—can use 90-day trial periods. But fixed-term agreements should not be used simply to test someone’s suitability.

❌ Hiring a contractor for work that looks like employment

If the person works regular hours under your direction, using your tools, they’re probably an employee even if you call them a contractor and even if they sign an independent contractor agreement.

❌ Using a fixed-term agreement for ongoing or uncertain workload

You must have a genuine reason for the fixed term. Saying “we’re busy right now” or “we’re not sure if the current work load will continue” isn’t enough. If the role turns out to be ongoing, the employee may be considered permanent.

❌ Renewing fixed-term contracts without a new reason

You can’t just keep extending a fixed-term agreement. If the same person is still doing the same job and you still need them, that’s a permanent role.

Need the right agreement?

Getting the contract right from the start makes life so much easier later. We’ve got you covered:

💼 Individual Employment Agreement – includes options to customise for fixed-term, permanent, and trial periods

🤝 Independent Contractor Agreement – perfect for short-term or project-based contractor roles

Need help? We're here to help you get legally sorted, on your terms.

 

Natalie Fennell

Co-Founder / On Your Terms

Natalie Fennell is a Co-founder of On Your Terms and has been a business lawyer in New Zealand for over 20 years.