What is an indefinite contract?

Understanding employment contract options.

Person drafting a contract at a desk

When a company hires a new employee, there are several employment contract options to outline the legal relationship between the two parties. 

Employment contracts are essential tools for creating the official terms and conditions for the employer and the employee to abide by. If there’s ever a conflict between these parties, the employment contract will be the go-to resource for resolving the issue. 

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Types of employment contracts

Based on your needs as the employer, one of the following employment contract types may be applicable:

  • Temporary contracts: These are contracts that have a set end, usually based on a time period or milestone. They’re popular for hiring seasonal workers or in situations where a worker is only needed to complete a specific project. The work in a temporary contract can be full-time or part-time.   
  • Casual employment contracts: Employers often use casual employment contracts when they don’t know how many hours of work the employee will need to complete each week. Casual employment contracts typically specify the minimum number of hours the employee will work each week, but this does not indicate a contractual right to that much work. 
  • Independent contractor and freelance contracts: When a business chooses to hire an independent contractor or freelancer instead of an employee, they will need an independent contractor/freelance contract to specify the roles of both the business and the worker.  
  • Indefinite contracts: Indefinite contracts are the most popular employment contracts across the world. They have no specific end date, meaning employment continues indefinitely until the employer or employee ends the arrangement. Employees with indefinite contracts typically receive benefits and greater legal protection. 

Since indefinite contracts are the most common employment contracts, it’s important for employers and employees alike to understand what they entail. 

Employment contract of indefinite duration

An employment contract of indefinite duration, also known as an indefinite or permanent contract, is a type of employment contract without an official end date. It can cover part-time or full-time employees. This type of employment contract will only end when either the employer or the employee terminates the contract through one of the following methods:

  • Employee resignation
  • Employee retirement
  • Lawful termination by the employer
  • Permanent business closure
  • Employee redundancy

The appeal of employment contracts of indefinite duration is that they help employers retain skilled workers. Job seekers tend to prefer indefinite contracts over other employment contracts because they offer job security and entitle them to full employment rights. 

That doesn’t mean that indefinite employment contracts are always the right option, however. An employment contract of indefinite duration is best for when you’re looking for a long-term employee to fill an ongoing role. If you want to attract top talent to work at your organization, train them, and integrate them into operations, an indefinite contract is likely the best employment contract option. 

Why contract an employee for an indefinite duration?

Advantages of indefinite contracts

There are several reasons why you might choose indefinite contracts for your employees over other employment contracts like temporary or casual contracts. On the whole, the advantages of indefinite contracts often outweigh the disadvantages:

  • Minimizes turnover and recruitment costs: Indefinite contracts help businesses retain quality employees over years, meaning there’s less risk of turnover and the high recruitment costs that come with it. 
  • Boosts employee morale: Employees with indefinite contracts are usually entitled to additional benefits such as bonuses, professional development opportunities, and even equity compensation. These benefits can incentivize the employees and lead to much higher employee morale.  
  • Clarifies organizational structure: Unlike other employment contracts, indefinite contracts help create a straightforward organizational structure where everyone understands their roles in the broader company operations. 
  • Increases productivity levels: Employees who expect to stick around at a company are more empowered to grow into their roles and reach higher productivity levels. 

Disadvantages of indefinite contracts

Depending on the stage of your business’s development and the role you’re looking to fill, a long-term hire might not be the right fit. Trying to implement an indefinite contract for a fast-moving startup with shifting responsibilities or project-based position that may not be permanent can have significant drawbacks:

  • More liability: Employers tend to have more responsibilities to their employees with indefinite contracts which leads to greater liability. The employees are better protected in terms of pay, termination, and benefits when they sign an employment contract of indefinite duration. Employers must be aware of these protections to avoid being liable to pay damages to their employees, especially in the event of a dismissal.
  • Additional administrative tasks: Compared to using an independent contractor, hiring an employee with an indefinite contract creates extra administrative work. The employer may be responsible for managing things like retirement plans, health insurance plans, and paid time off which can create significant additional work for the Human Resources department. That’s on top of the HR contract management work they already do. 

One way to avoid some of the additional administrative work created by having employees on indefinite contracts is to use comprehensive management tools. These tools can help streamline paperwork, onboarding, and payments.

If you want to work with global contractors instead of hiring with indefinite contracts, you can still utilize these game-changing tools. Oyster’s global employment platform makes bringing global contractors aboard simple. Try Oyster now to give your business a boost.  

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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