Fixed-Term Contracts: 2025 Rules for Charities & Not-for-Profits

Introduction

For charities and not-for-profits, the use of fixed-term contracts has long been a practical approach to managing roles tied to specific projects or government funding. However, new rules introduced under the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) have placed significant limitations on fixed term contracts, impacting how these organisations must now manage their workforce.

While a temporary exception has provided some flexibility for the sector, this provision is set to expire in 2025, making it crucial for every charity employer to understand the standard rules. This guide provides essential information on navigating fixed-term contract expiry, managing employer obligations, and ensuring compliance with the new legal landscape.

A Refresher on the Limitations for Fixed Term Contracts

The Two-Year Cap on Fixed Term Employment

Under the new rules for fixed term contracts, which took effect on 6 December 2023, a primary limitation for any charity or not-for-profit employer is the two-year cap. A fixed-term contract cannot be for a period longer than two years.

This two-year maximum encompasses both the initial term of the contract and any subsequent extensions or renewals. For example, a fixed term contract for one year that includes an option to renew for another year would reach the two-year limit and could not be extended further.

Restrictions on Renewals & Consecutive Contracts

The new rules also place significant restrictions on an employer’s ability to renew contracts or issue new ones for the same role. A fixed-term contract cannot be renewed more than once, which prevents the creation of long-term temporary employment arrangements through repeated extensions.

Furthermore, there are strict limitations on the use of consecutive contracts for the same or substantially similar work. An employer is prohibited from engaging an employee on a new fixed-term contract if:

• The new contract and a previous one would result in a total employment period of more than two years
• The employee has already been engaged on two or more previous fixed-term contracts for the same role
• Either the new contract or a previous one contains a right of renewal or extension

Understanding the Specific Exceptions for Charities & Not-for-Profits

The Temporary Exception for Government Funded Roles

For charities and not-for-profits, a temporary exception to the limitations on fixed term contracts exists for roles tied to specific funding. This allows an employer to align a fixed-term contract with the duration of a funded project, providing greater flexibility.

However, to use this exception, several strict conditions must be met. The exception applies if the fixed term contract meets the following criteria:

Criterion	Requirement
Employer Status	The employer must be a registered charity with the Australian Charities and Not-for-profits Commission (ACNC).
Funding Source	The position must be funded by government, another registered charity, or a testamentary gift. NDIS payments made directly to individuals are excluded.
Project Connection	The work performed must be for the specific program or project to which the funding relates.
Project Duration	The funded program or project must run for a period of five years or less.
Contract Length	The contract’s term must be for substantially the same period as the length of the funded project.
Total Employment Cap	If the employee has been previously employed, the new contract cannot result in a total employment period of more than seven years.

When the Current Charity Exception Expires in 2025

The special exception that allows charities and not-for-profits to use fixed term contracts for funded roles is temporary. This arrangement is only available for contracts entered into on or after 1 November 2024 and before 1 November 2025.

After this date, the general limitations on fixed term contracts will apply in full to the charity sector unless the exception is extended. Any fixed-term contract your charity has already entered into that complies with this exception will not be affected by its expiry.

However, for any new contracts from 1 November 2025, your organisation will need to adhere to the standard rules, including the two-year cap.

Your Employer Obligations When a Fixed-Term Contract Ends

Managing the End Date & Avoiding Accidental Ongoing Employment

As an employer, it is crucial to plan for the end date of a fixed-term contract well in advance. This proactive approach helps prevent potential legal complications for your charity.

If work continues beyond the contract’s expiration without a new, compliant agreement in place, several significant consequences may occur:

• The employment relationship may legally convert to an ongoing or permanent one
• New employer obligations may be unintentionally created
• Requirements for notice of termination may apply
• Exposure to unfair dismissal claims may increase
• Potential liability for redundancy pay may arise if the role is later discontinued

Understanding Your Obligations for Notice & Redundancy Pay

When a genuine fixed-term contract concludes on its specified end date, the employer is generally not required to provide notice of termination. However, it is important to check two key documents for possible exceptions:

• The relevant modern award
• The employment contract itself

Both documents may contain clauses that mandate a notice period despite the fixed-term nature of the employment.

Similarly, redundancy pay is not typically required when a fixed-term contract expires naturally, as the end of the contract is not considered a redundancy. An obligation to pay redundancy might only arise in specific circumstances:

• If the contract is terminated early due to operational reasons
• If the contract itself does not comply with the limitations on fixed-term contracts

Compliance Essentials for Your Charity Employer

Providing the Fixed Term Contract Information Statement

Since 6 December 2023, a key compliance duty for any charity employer is the provision of the Fixed Term Contract Information Statement. This mandatory document must be given to every employee engaged on a new fixed-term contract either before or as soon as possible after they start.

The statement outlines:

• The rules and limitations surrounding the use of fixed term contracts
• An explanation of an employee’s rights

Failing to provide this document can expose your organisation to civil penalties, a key compliance issue to track in your ACNC risk register, making it a critical step in the hiring process. This requirement applies even if the contract falls under one of the exceptions to the limitations.

Complying with Anti-Avoidance Provisions

The Fair Work Act 2009 (Cth) includes anti-avoidance provisions to prevent an employer from trying to circumvent the new rules that limit the use of fixed term contracts. These measures ensure that the spirit of the law is followed, contributing to a culture of integrity, and that employees are not kept in insecure work arrangements through loopholes.

Your charity must not engage in practices designed to sidestep the limitations. Prohibited actions include:

• Terminating an employee’s contract only to re-engage them after a short break to perform the same or substantially similar work
• Changing the nature of the work or altering the employment relationship to avoid the two-year cap
• Engaging another person to perform the same duties that the previous fixed-term employee was doing

Conclusion

The new rules for fixed-term contracts have introduced significant limitations for charities and not-for-profits, including a two-year cap and restrictions on renewals. With the temporary exception for government-funded roles expiring in 2025, it is crucial for every charity employer to understand their obligations and proactively manage contract endings to ensure compliance.

To navigate these complex changes with confidence, contact the specialist not-for-profit and charity lawyers at LawBridge for trusted expertise. Our team provides tailored guidance to help your organisation manage its use of fixed term contracts effectively and safeguard against legal risks.

Frequently Asked Questions