Limited-term employment: What to consider as you expand internationally

Introduction

As companies grow globally, hiring top talent from all over the world becomes increasingly appealing. Because of how advanced remote and hybrid working options have evolved, acquiring high-level talent has become more of a possibility for employers.

Partnering with a global employment and payroll platform to compliantly and conveniently hire employees from around the world has allowed employers to expand their talent pool. However, there are still many factors to consider when hiring new employees, such as the duration of your employment agreement.

Limited-term employment also referred to as fixed-term employment, is an employment contract between an employer and an employee set to end at a specific time. While this is an attractive option for many employers, there's much to consider when entering into limited-term employment contracts with international employees.

Continue reading to learn more about limited-term employment, when to use limited-term employees, the benefits associated with using limited-term contracts while expanding globally, and the potential risks associated with using these types of contracts.

What is limited-term employment?

Limited-term employment (LTE), or fixed-term employment, is an employment agreement in which an employer and employee agree to a fixed end date within the employment contract. Under a limited-term employment contract, employees are entitled to all of the same benefits and securities that indefinite-term employees enjoy, including:

• Health insurance
• Paid time off
• Sick leave
• Unlawful termination protection
• Any additional supplementary benefits that are offered to full-time employees at your company

For an employment contract to be considered an LTE employment contract, it has to encompass one of the following time frames.

A one-time event

Employers can hire employees for specific digital or in-person events and specify in the employment contract the employee's position with the company will officially conclude once the event is over.

While this style of limited employment is less common in international hiring, it's often utilized by companies who put on weeks-long events, festivals, and other limited employment opportunities.

A specified starting and ending date

The most common type of limited-term employment contract specifies a starting and ending date before the employee's working partnership with a company. This model is commonly used for businesses that experience busy seasonal periods, but it can also serve many functions for remote hiring opportunities.

For example, suppose your company is launching a new product and is expecting a significant influx of customer support and IT queries. In that case, you can plan to bolster your team for several months in anticipation of this busy window and then reduce your team once the workload is more manageable.

Hiring limited-term employees is also a common way to compensate for long-term disability or parental leave absences.

A specified project

Rather than specify that an employment contract will start and end on specific dates, some limited-term contracts are defined by the completion of a particular project.

This employment model offers employees limited-term positions for extended periods and is especially beneficial when a subject matter expert or specialist is needed. While companies often hire these individuals in a consulting role, it's common to want a more hands-on approach, particularly if the project is projected to take longer than a few months.

Employers should be cautious when entering these types of contracts. Some countries have specific regulations regarding how long and under what circumstances fixed-term employment contracts are legally compliant.

When should you use limited-term employees?

Limited-term employment favors employees looking for short-term work and employers looking to fill positions for a short window or a specified purpose.

Consider using limited-term employees to provide additional or compensatory coverage for the following reasons:

Parental leave

While the United States does not require employers to offer employees paid parental leave, many employers opt to provide employees who can give birth for at least three months with each child. Other American employers offer this leave, regardless of whether you're the parent who gave birth or in case of adoption, while others still offer up to a year of parental leave.

While this is a supplementary benefit in the US, many countries mandate that employees be given a minimum of three months of parental leave, if not more.

Depending on the employee's position, business operations can continue relatively uninterrupted during this time. But the absence of higher-level employees and those with specialized skills can pose real difficulties for companies.

Consider opting for a limited-term employee when you know employees will be taking parental leave.

Busy seasons

While not all companies experience pronounced busy seasons, many companies in the tourism, restaurant and retail industries have certain times of the year in which the workload exponentially grows.

Hiring limited-term employees during peak seasons is an excellent way for companies to keep up with demand without committing to indefinite-term employment contracts they don't need.

Candidates with special skills

Companies often face windows of time where they need candidates with specific areas of expertise to assist them in completing a large project or getting them out of tough times.

Whether you're seeking a candidate with engineering proficiency, legal expertise, or any other specialized skill, offering a limited-term contract for the time you require their services can benefit you and the potential candidate.

Probationary periods

Although limited-term employment significantly differs from probationary employment periods, using limited-term contracts is an excellent way to determine whether a potential candidate is a good fit within your company.

If you're looking to fill a role long-term but have very specific requirements for the type of person you're looking for, partnering with multiple prospective employees for short periods is an excellent method. This method determines whether you're interested in offering them a permanent position with your company.

Using limited-term employees for global expansion

The primary benefit to utilizing limited-term employment contracts as you expand globally is that you can partner with regional experts who can offer your company key insights into the economy you're expanding to.

Hiring one or more international employees offers your company a competitive edge in the global marketplace. Now that international remote work is more accessible than ever, more companies are opting to work with employees and independent contractors in foreign countries.

In addition to the insights gained from international employees, hiring limited-term employees can be beneficial when working on a temporary international project. Having a local point of contact can ensure that your company can be accurately represented in a culturally relevant manner. It also reduces friction associated with international business dealings, such as language or time zone barriers.

Depending on the country in which your limited-term employee resides, you can extend or renew a limited-term contract with your employee for a second term. However, it's essential to familiarize yourself with local labor laws before doing so.

Risk management and limited-duration contracts

Companies that hire international employees indefinitely or on a limited-term basis must abide by that country's local tax and labor regulations. There is significant risk associated with non-compliance with international laws, and companies can be held accountable for millions of dollars of back taxes, pay, and other severe penalties.

Unfortunately, hiring limited-term employees leaves companies subject to additional risk due to the world's varying laws surrounding these contracts.

To illustrate this point, consider the following restrictions placed on the duration of limited-term contracts in three different countries:

• Peru does not permit limited-term employment contracts to last more than five years.
• In Germany, limited-term contracts must last for up to two years.
• Unless specified, a limited-duration contract in France can only be renewed twice and cannot last for more than 18 months.

Other countries have additional restrictions placed on limited-duration contracts, such as:

• In Tanzania, only specific roles are eligible for limited-term employment, and the contract must last for at least one year.
• Only 20 percent of a company's workforce in Lithuania can be limited-term employees.
• Some countries require limited-term contracts to be written and signed, while others have no such restrictions.

Because there is no one size fits all solution to hiring limited-term employees in foreign countries, the best thing your company can do to remain compliant is to partner with a global staffing solution like Skuad, who can provide you with local expertise and assume liability for limited-term employees on your behalf.

Use Skuad to hire limited-term employees compliantly

Remaining compliant with all local and international employment and tax laws when hiring international employees is essential to protecting your business. Companies that plan to hire international employees must establish legal entities in each country they choose to operate within if they don't partner with an EOR. They are also liable for all financial and legal risks associated with regulation misconduct.

Using limited-term employment contracts can be risky in countries where you're unfamiliar with local regulations.

Skuad can help your company grow its team internationally, aiding you in drafting compliant employment contracts in more than 160 countries. Furthermore, our EOR services eliminate the need to establish a subsidiary, meaning you can effortlessly and compliantly grow your team in seconds!

Get started building your international team with Skuad today.