Annualised hours

Would annualised hours work for your organisation?

Employees who work this way are contracted to work a certain number of hours which are spread out over a whole year rather than over a week or month.

Annualised hours are most often used for shiftworkers, but they can be applied to any employee. They are ideal for coping with big variations in demand throughout the year, and can help reduce costs by reducing overall working hours and overtime.

In manufacturing, they are sometimes used to achieve continuous production throughout the year. And organisations that need to run 24 hours a day all year, such as hospitals and the emergency services, also find annualised hours useful.

Adopting an annualised hours system needs careful planning and communication, but if handled correctly, this system can provide benefits to employers and employees.

Pros of using annualised hours

  • More control over working patterns and therefore greater capacity to maximise productivity, efficiency and profits
  • More control over staff costs, eg lower overtime costs and costs involved in employing temporary or agency staff
  • Greater operational flexibility - helps businesses cope with peaks and troughs throughout the year and seasonal variations in demand
  • Less stressed employees who benefit from longer breaks from work
  • Improves employees’ basic pay and provides them with guaranteed and consistent earnings
  • Can lead to greater employee commitment and better working environment
  • Can be used to harmonise terms and conditions of employment
  • Improved customer service levels
  • Compliance with the Working Time Directive which can pose a problem in highly seasonal workplaces

Cons of using annualised hours

  • Overtime is removed and consolidated into basic pay under most annualised hours systems – this may be viewed negatively by employees who enjoy high rates of overtime pay
  • Most annualised hours contract require employees to work extra hours at short notice which may be viewed negatively by some employees
  • Long hours during times of peak demand can result in stress for employees and difficulties for those with caring responsibilities

Some things to consider

If employees are likely to resent the introduction of annualised hours because of the loss of overtime payments, you could consider offering a lump sum payment to compensate for the loss of overtime.

One way to ensure buy-in from employees is to use a consultation process and to give plenty of time to prepare for the introduction of annualised hours.

Account must be taken of what happens when an employee leaves part way through a year. Averaged pay will affect the calculation of maternity and other benefits.