"We just need this person for another six months."
It's a phrase heard in organisations everywhere. A contractor brought in for a genuine project becomes essential to delivery. The project extends. The engagement extends. Six months becomes twelve. Twelve becomes twenty-four. Before long, you have workers who've been "temporary" for years.
This extension culture creates compounding risks that many organisations don't fully appreciate. Worker classification status can evolve over time. Employment rights thresholds get triggered. Dependency grows while flexibility disappears. And the cost premium you're paying for "temporary" workers delivers less and less value.
This article examines the hidden risks of long-tenure contractors and how organisations can build effective policies to manage them.
The Extension Pattern
The pattern is remarkably consistent across industries and organisations:
Phase 1: Genuine need. A project requires specialist skills. A peak workload needs temporary capacity. A permanent hire is in progress. Engaging a contractor makes genuine business sense.
Phase 2: The first extension. The project takes longer than expected. The workload hasn't reduced. The permanent hire fell through. "Just another three months" seems reasonable.
Phase 3: Normalisation. The contractor becomes embedded. They attend team meetings. They're included in planning. They know the systems, the processes, the people. Replacing them would be disruptive.
Phase 4: Permanent dependency. The "temporary" worker is now essential to business-as-usual operations. But they're still classified as contingent. Still costing a premium. Still creating compliance exposure.
One director of internal audit described it starkly: "We have hundreds of contractors who have been with us for 24-plus months. It's crazy."
The Legal Thresholds That Matter
Several legal thresholds create risk as contractor tenure extends. Understanding these is essential for effective governance.
12 Weeks: Agency Workers Regulations
After 12 weeks in the same role, agency workers gain entitlement to the same basic working conditions as permanent employees—including pay, working time, and annual leave provisions. This creates cost implications and parity requirements that some organisations don't anticipate.
2 Years: Unfair Dismissal Protection
After two years of continuous service, workers gain protection against unfair dismissal and become entitled to statutory redundancy pay. While the legal tests for employment status are complex, long-tenure engagements increase the risk that a tribunal would find an employment relationship exists—regardless of what the contract says.
4 Years: Fixed-Term Automatic Conversion
Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations, a worker on successive fixed-term contracts for four years or more automatically becomes a permanent employee—unless the employer can objectively justify continued fixed-term status.
Classification Evolution
Perhaps most significantly, worker classification status isn't static. The factors that determine whether someone is genuinely in business on their own account versus effectively an employee include:
- The degree of control the client exercises
- Whether the worker is integrated into the organisation
- The economic reality of the relationship
These factors can evolve over time. A contractor brought in for a defined project, working autonomously with their own methods, may look very different after two years of extensions—now attending all-hands meetings, following internal processes, and dependent on this single client for their income.
An arrangement that was genuinely outside the scope of employment rules at the start may shift inside as the relationship evolves. If you're not reassessing at each extension, you're not managing that risk.
The Cost Reality
Beyond compliance risk, extension culture often represents poor value for money.
Consider a scenario we encountered: a long-tenure contractor costing £190,000 annually, performing work that could be done by an employee at £60,000. The organisation was paying more than three times the employment cost—but without the benefits of genuine flexibility.
The contractor wasn't providing specialist skills unavailable internally. They weren't covering peak demand. They weren't a bridge to a permanent hire. They were doing a permanent job at a temporary price.
When you have genuine flexibility needs, the contractor premium makes sense. When you have permanent work being done by "temporary" workers, you're simply overpaying.
Multiple that across dozens or hundreds of long-tenure contractors, and the financial impact becomes substantial. One analysis suggested organisations could fund five permanent employees for every ten long-tenure contractors they convert—with better retention, knowledge capture, and reduced compliance exposure.
Building Effective Tenure Policies
The solution isn't to eliminate contractors or prevent all extensions. Contingent workforce flexibility is genuinely valuable. The solution is governance that ensures extensions are conscious decisions, not default drift.
Define Key Thresholds
Identify the tenure points that matter for your organisation. Common thresholds include:
- 12 weeks: Agency Workers Regulations trigger
- 6 months: Initial review point
- 12 months: Escalation to senior approval
- 18 months: Mandatory conversion assessment
- 24 months: Executive-level justification required
Require Active Approval
Extensions shouldn't happen by default when a contract expires. Each extension should require positive approval, with the approver understanding and accepting the implications.
Trigger Reassessment
Worker classification assessment isn't a one-time exercise. Status should be reassessed at each extension point, examining whether the working relationship has evolved since the original determination.
Document Business Justification
"We need them" isn't sufficient justification for extension. Require documented reasoning: Why is this role still temporary? What's the exit plan? Why isn't conversion to permanent appropriate?
Create Visibility
Senior leadership should have regular visibility of contractor tenure distribution. How many workers have been engaged for 12+ months? 24+ months? 36+ months? Without this visibility, extension culture grows invisibly.
Empower Challenge
Give HR, finance, and compliance functions the authority to challenge extensions that lack clear justification. When everyone owns extension decisions, no one owns extension discipline.
The Conversion Question
Not every long-tenure contractor should be converted to employment. Some genuinely provide specialist expertise on an ongoing basis. Some prefer contractor status. Some roles genuinely remain temporary despite extended timelines.
But the conversion question should be actively asked, not avoided. For each long-tenure contractor, consider:
- Is this role genuinely temporary, or has it become permanent?
- Would an employee provide better value at lower cost?
- Is the worker's classification status still accurate?
- What's the genuine exit strategy?
If you can't articulate why someone needs to remain a contractor after 24 months, that's a signal worth examining.
Key Takeaways
- Extension culture creates compounding risks: classification evolution, employment rights triggers, and cost premium without flexibility value
- Key legal thresholds at 12 weeks, 2 years, and 4 years create specific compliance obligations
- Worker classification isn't static—arrangements can shift from outside to inside employment rules as relationships evolve
- Effective tenure policies require defined thresholds, active approval, reassessment triggers, and documented justification
- The conversion question should be actively asked for every long-tenure engagement
What This Means for Your Organisation
Long-tenure contractors often represent both your highest-risk and highest-cost engagements. They've accumulated over time through individual decisions that made sense in isolation but create collective exposure at scale.
Building visibility of your tenure distribution is the first step. From there, you can implement governance that ensures extensions are conscious choices rather than unconscious drift.
If you'd like to understand your contractor tenure profile and assess where extension risk has accumulated, CoComply can help surface these patterns and support classification reassessment where needed.
