Converting a fixed-term employee to permanent, a step-by-step guide

When a role that started as a twelve-month project, a parental-leave cover or a funding-limited position becomes the job your business cannot run without, the old default of rolling the contract over has stopped being a safe option. Since 6 December 2023, the Fair Work Act 2009 (Cth) limits most fixed-term arrangements to two years with at most one renewal, and a contract that breaches those limits can have its end-date term treated as having no effect. For genuinely ongoing work, converting the employee to permanent is now the cleaner path.

Converting is a mutual agreement process between employer and employee, not an automatic one. There is no form to lodge and no regulator to notify. What you end up with is a signed permanent contract, payroll and leave records that reflect the new status, and an employee whose continuous service carries across the change. What does not happen: the fixed-term contract does not quietly become permanent if you miss a deadline, and a prohibited rollover does not hand you a permanent employee on the old terms. The end-date term simply stops working, and the rest of the contract keeps operating.

What you need before you start

Before you sit down with the employee, gather the following so the process runs in one pass rather than in stops and starts:

• The current contract: The signed fixed-term agreement, including its end date, any renewal or extension options, and how early termination is handled.
• A confirmed ongoing need: A genuine decision that the work is continuing, not time-limited, project-specific or tied to funding that will lapse.
• Award or enterprise agreement coverage: Which modern award (if any) covers the role, and the classification, minimum rate, hours and overtime rules that go with it.
• Agreed new terms in principle: Whether the role becomes full-time or part-time, the ordinary hours, the pay rate and the date the permanent arrangement starts.
• A permanent contract ready to sign: The document that replaces the fixed-term terms, prepared before the old end date arrives.

Award coverage is the prerequisite that trips employers up most often. Misclassifying the role, or setting a rate below the award minimum, turns a well-intentioned conversion into an underpayment exposure, so confirm the classification before you quote a rate.

The conversion steps

Step 1: Review the current contract and confirm coverage

Read the fixed-term contract from start to finish before anything else. Note the end date, whether the contract carries an option to renew or extend, and how either party can terminate early. Then confirm which modern award or enterprise agreement covers the employee. The award sets the classification, minimum rate, hours and penalty structure that the permanent contract must sit on top of, and getting this wrong is the most common source of underpayment disputes after a conversion.

Step 2: Confirm the role is ongoing and check the fixed-term limits

The reason conversion matters now is that the rollover path has narrowed. Under s 333E of the Fair Work Act 2009 (Cth), an employer contravenes the Act if a fixed-term contract runs for more than two years, allows more than one renewal or extension option, or follows an earlier contract for substantially similar work where the combined period exceeds two years. These limits were introduced by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) and have applied since 6 December 2023.

There are exceptions. Section 333F lets a fixed-term contract run longer where the employee is engaged for a distinct task requiring specialised skills, under a training arrangement, for essential peak-demand work, to cover an emergency or another employee's temporary absence, where earnings under the contract are above the high income threshold ($183,100 for 2025-26), or for certain government-funded and governance roles. If an exception applies the contract can lawfully continue, but the employer carries the evidential burden of showing it, and none of the exceptions help where the work is genuinely ongoing.

A breach matters for three reasons. The term that fixes the end date is taken to have no effect under s 333G, so the employee is treated as not having an enforceable end date. The rest of the contract remains valid. And the contravention is a civil remedy provision, so penalties can apply. Employers must also give a fixed-term employee the Fixed Term Contract Information Statement before or as soon as practicable after the contract is entered into under s 333K. For a role that is plainly continuing, working through this analysis usually ends in the same place: conversion.

Step 3: Agree the new terms with the employee

Conversion is a mutual agreement process. An employer cannot unilaterally convert a fixed-term employee, and in most cases the employee has no automatic right to conversion. The casual conversion regime under Division 4A of the Act, which lets a casual employee who believes they no longer meet the casual definition give a written notification after six months (twelve for a small business employer), is a separate scheme that does not apply to fixed-term employees. Some enterprise agreements or policies may provide their own pathway, but ordinarily the change happens by agreement.

So the starting point is a clear conversation: full-time or part-time, hours, classification, rate, and the start date of the permanent arrangement. Give the employee time to consider and to ask questions, and record what was agreed before you draft the paperwork.

Step 4: Draft the permanent employment contract

The permanent contract is where the conversion is won or lost. A permanent contract has no end date; it continues until lawfully terminated, and that one difference changes everything downstream. The termination clause must provide for notice or payment in lieu consistent with s 117 of the Act: one week for up to a year of service, two weeks for one to three years, three weeks for three to five years, four weeks beyond that, plus an extra week for employees over 45 with at least two years of service. Redundancy is treated differently too. A genuine redundancy can trigger redundancy pay under s 119 unless an exclusion in s 121 applies, for example where the employer is a small business employer (fewer than 15 employees) or the employee has less than 12 months of continuous service.

Leave entitlements, award classification and hours, superannuation, confidentiality, intellectual property and any post-employment restraints should all be set out for the permanent role. Do not cut and paste the fixed-term clauses. A fixed-term contract's termination provisions assume the employment ends by the passing of time; a permanent contract's provisions assume either party may end it on notice. Blending the two produces an inconsistent document that is hard to enforce.

If you want a probation period, it can be included, but it does not reset the employee's service. For unfair dismissal purposes the minimum employment period is six months, or twelve months for a small business employer, under s 383, and the employee's continuous service runs from the original start date. A probation clause in the new contract does not change that.

Step 5: Sign before the old end date and issue the statements

Aim to have the contract signed before the fixed-term end date. Record the effective date of the permanent arrangement in the contract or a short letter of appointment. Provide the Fair Work Information Statement before or as soon as practicable after the employee starts in the permanent role, as required by s 125; the Fixed Term Contract Information Statement will already have been given at the start of the fixed-term engagement. Keep the signed copies on file.

Step 6: Update payroll, super and leave records

Update the HR and payroll systems on the effective date. Leave accruals for a permanent employee continue on the same basis as before if the role stays full-time, or accrue pro-rata if it moves to part-time. Award loadings, penalty rates, overtime and superannuation settings all need to reflect the new contract, and payslips must be accurate from the first pay cycle. Keep the signed contract, the agreed hours and any variation letters as records.

Step 7: Refresh policies and tell the team

Tell the employee's manager and anyone who schedules rosters or approves leave that the status has changed, and make sure workplace policies on leave, conduct, work health and safety and performance are current and have been acknowledged. A conversion that is documented everywhere is a conversion that survives an audit or a dispute.

Where the process trips people up

The process usually fails in one of a handful of predictable ways:

• Copy-pasting fixed-term clauses: Termination, redundancy and notice clauses differ between fixed-term and permanent contracts, and a pasted end-date clause creates an unenforceable mess. Draft the permanent contract fresh.
• Assuming another rollover is fine: The two-year, one-renewal and consecutive-contract limits in s 333E apply to most fixed-term contracts, and breaching them can make the end-date term ineffective and attract civil penalties.
• Treating probation as a reset: A probation period does not restart the clock for unfair dismissal, notice or service-based entitlements. Continuous service runs from the original start date.
• Relying on a verbal handshake: If the conversion is never documented, the employee's terms, hours and pay are disputed later, and the business carries the compliance risk.

Where a lawyer is worth engaging

A conversion is usually straightforward for a well-covered, single role, but a few situations justify paying for advice before the paperwork goes out:

• Award coverage or classification doubts: A lawyer can confirm which award applies, the correct classification and the minimum rate, so the new contract does not create an underpayment.
• Fixed-term limits and exceptions: If the role has already run for close to two years or has been renewed, or you want to rely on an exception in s 333F, a lawyer can assess whether the current arrangement is lawful before you choose between conversion and a further fixed-term contract.
• Drafting the permanent contract: Termination, notice, redundancy, probation, restraint and intellectual property clauses need to be drafted for ongoing employment, not adapted from the fixed-term document.
• Service-based entitlements: Continuous service affects notice, redundancy and unfair dismissal under the federal Act, and long service leave under state or territory law. A lawyer can map what the employee has accrued so the conversion does not accidentally lose it.
• The later termination: If the permanent role eventually ends, a lawyer can help manage notice under s 117, genuine redundancy under s 119 and the consultation and process obligations that go with it.

The old end date is the deadline that matters

The single factor that most often decides whether a conversion succeeds is timing: the new contract must be signed before the old contract's end date. That date drives everything else. If the contract is allowed to expire, the employment ends on that date, and any later conversion is really a fresh hire with service continuity and eligibility questions to match. If the business instead rolls the contract over past the limits, the end-date term can be treated as having no effect and the business faces penalties. A conversion that is agreed, documented and signed in advance avoids both traps and keeps the employee's continuous service intact.

In short: check the fixed-term limits and the exceptions before you assume a rollover is available, confirm award coverage and classification, agree the new terms with the employee, draft a genuine permanent contract, sign it before the old end date, and update payroll, leave, superannuation and policy records on the effective date. Most conversions are simple. The ones that go wrong are the ones that were done late, done verbally, or done with the wrong clauses.