What are short-term contracts in employment

While the length varies, short-term contracts are employment agreements used when there is a need to fill in for permanent employees on leave, manage seasonal workload demand or add expertise to a short-term project.

Short-term contracts are also called "temporary employment contracts."

While the length varies, short-term contracts are employment agreements used when there is a need to fill in for permanent employees on leave, manage seasonal workload demand or add expertise to a short-term project.

Short-term contracts are also called "temporary employment contracts." 

Types of short-term contracts

Short-term contracts can be thought of as an umbrella term for several types of agreements, including:

Temporary freelance contract

Freelancers are often hired through a temporary contract that outlines their status as a “temp,” and that they will be working either on a project-by-project basis or for a fixed duration. 

Freelancers are considered independent contractors, and benefit by being able to legally work with multiple clients and/or across various locations.

Employers appreciate the ability to choose from a vast pool of talent without initiating long-term commitments. 

A common example here would be travel nurse contracts, which allow nurses to apply their skills for a set amount of time in different cities around the country, often for pay that is far more lucrative than what the local staff might be making. 

However, as an independent contractor, the traveling nurse wouldn’t be eligible for any employee benefits with this type of short-term contract (we’ll keep coming back to this important point).

Contract-to-hire agreements

Contract-to-hire agreements are short-term contracts allowing both the potential long-term employee and the employers to try out the role before making a full-time commitment.

There is a similar aspect here to a temporary freelancing contract — if things go well for all sides, the freelancer may be asked to renew or even stay on permanently — with a contract-for-hire, that is the intention.

Basically, it’s “let’s try this out, make sure it’s a good fit,” with the expectation of permanent employment status being the result if all goes well.

That said, there is one notable difference:

With a contract-to-hire, if you’re an employer, the person you hire will be your employee for the stipulated amount of time, entitled to certain benefits that come with that label. 

Contract-to-hire agreements are used everywhere in the tech industry — countless jobs exist in software development that fall under this type of short-term contract.

While these workers could just be “hired guns” (freelancers) to build out an app or work on a project, in many cases it’s a much better fit to use a hiring model that has the clear intention of offering a full-time role once the contract ends and all sides are satisfied.

Temporary seasonal work contract

A contract for seasonal work means a temporary form of employment where a company hires general help or specialists to meet growing labor needs during intervals of peak business demand.

Like the name says, this type of contract is affected by season: popular in winter, for example, when ski resorts hire extra help — from restaurant staff to professional instructors — to assist with the influx of skiers and those on vacation during the holidays. 

Working under a seasonal agreement is beneficial to both parties: employers meet the short-term, elevated demands on their business, and temp workers can usually make proportionally more money in a short period of time. 

Short-term contracts vs long-term contracts: Key differences

Pros and cons of short-term contracts

Employers

In contrast to full-time contracts where employers must honor the long-term employee benefits that come with full-time roles (retirement plans are one example here), short-term contracts are perfect for businesses facing uncertain economic conditions or work in changing industry landscapes. 

Short-term contracts offer quick staffing and reduced costs when compared to long-term employment, and one of the “pros” for employers can be the timeframe: if it clearly isn’t working out, you’re under no obligation to continue once the contract ends.

The key drawbacks of short-term contracts for employers are:

• Potential early contract termination by a temp;

• Less dedication to the company mission from a temporary specialist.

Employees

In a long-term contract, employees are tied to one company for an extended period by design.

Conversely, short-term contracts benefit independent contractors and employees by enabling them to try their hand in different projects without long-term commitments to one company.

We can use our examples above to help illustrate the appeal of a short-term contract.

A nurse that wants to spend time in an energetic city for six months, or a software engineer brought in at the ground floor to help launch a startup’s new app — these scenarios can be exciting as well as financially rewarding. 

The key drawbacks of short-term contracts for independent contractors/temp employees are:

• Lack of job security;

• Inconsistency;

• Limited employee benefits.

Legal considerations of temporary contracts to be aware of

1. Independent contractor vs. employee classification

Properly classifying the type of employment is essential for employers, since these types involve different tax obligations and legal protections for workers. 

It’s equally important for freelancers/short-term contractors to know where they stand as far as the IRS is concerned — it’s usually an independent contractor’s responsibility to make sure the government gets paid the right amount (not their employer’s).

The bullets below outline key differences between two types of employment:

Employees: 

• Operate within specific hours and from a location defined by a company;

• Use employer’s tools and receive training;

• Their performance is measured by a company’s evaluation system;

• Have either hourly or salary wage set by the company and do not invoice an employer.

Contractors:

• Can work in different companies simultaneously or in the same year;

• Can choose between office and remote working;

• Usually invoice employers;

• Often charge hourly or project-based;

• Employers do not withhold taxes when paying contractor’s bills.

2. Non-compete clauses

Non-compete clauses in all agreements, including short-term contracts, legally limit the ability of a current or former employee or contractor to engage in competitive activities for an allotted amount of time after employment has ended. 

Even with a short-term contract, under this agreement, the temp is prohibited from working for a competitor, starting a competing business, or exploiting the employer’s confidential business information. 

Always be 100% clear where you stand when it comes to non-competes before signing any contract.

If necessary, seek legal assistance to help you go through every word of an offer for short-term work — as well as steps to take on how to get out of a non-compete, should that need arise.

You’ll be glad you did!

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