Ever wondered how to better manage your team's working hours? Or you may be intrigued by the concept of 'annualised hours' and what it could do for your business. Well, you're in the right place.
In this article, we look at the ins and outs of annualised hours, a unique approach to managing work hours. We explore the advantages, potential drawbacks, and how to effectively implement it.
If you're looking for a fresh approach to the traditional 9-5, read on.
What are annualised hours?
annualised hours
Annualised hours is a flexible working arrangement where an employee's hours are spread out over a year, rather than a set number of hours per week.
This allows for changes in workload and seasonal demands to give the employer and employee flexibility over work schedules.
The total number of hours worked in a year remains the same, but how those hours are distributed can vary every week or every month.
Annualised hours work well in industries that deal with seasonal changes or have varying workloads.
For example, an event planning company needs additional resources during the holidays and the new year as their events pick up, with hours decreasing in February after the peak season is over. For them to manage the changing workflow, implementing annualised hours would help to do that.
What is an annualised hours contract?
An annualised hours contract works out the total amount of work hours an employee would work in a year, which gives more flexibility across the business operations.
This type of contract means working hours can be distributed across the year. We go into the details of how to calculate the hours below.
How do annualised hours compare to other work schedules?
Unlike traditional or fixed-hours employment contracts, annualised hours offer more flexibility.
A typical 9-to-5 or shift work schedule has set hours that remain constant each week, whereas annualised hours fluctuate the core hours to work demands. It allows companies to adapt and change as their schedules do.
A flexitime schedule does offer some room for adjustment, as employees can vary their start and end times each day.
But unlike flexitime, annualised hours bring a broader range of flexibility, as it allows adjustments to be made to the total hours worked per week or month.
How do annualised hours work?
As we've mentioned, annualised hours work by allocating a specific number of hours for an employee to complete over the year. It requires careful planning and coordination but can be great if done correctly.
Typically, a percentage of these hours is set aside for 'reserve' or 'banked' hours, which are assigned as and when required.
The remaining hours are scheduled ahead of time, providing both the employer and employee with some structure and predictability.
What are the key components of annualised hours?
There are three main components of an annualised hours contract. These are:
- The set contract includes the total number of hours agreed to be worked over a year.
- The 'reserve' or 'banked' hours are calculated to provide flexibility to accommodate to unpredictability within the business demands.
- Regular reviews or monitoring of hours worked against the agreed total ensures fairness and helps avoid excessive working hours.
How do you calculate annualised hours?
To work out annualised hours, follow this calculation:
For example, Employee A works 8 hours a day for 5 days a week, over 52 weeks in a year.
They have 28 days of annual leave entitlement and 8 days of public holidays in the UK, which totals 36 days or 288 hours.
You'd then subtract the 288 hours from total number of hours they'd complete in a year to calculate the annualised hours.
So the calculation would be:
When this number has been generated, it makes it easier to allocate more or less hours to each period to keep up with the business's peak periods and downtimes.
Overtime
Overtime is also factored into the equation when working out annualised hours. Reserve hours should be built into the contract to cater for any unforeseen changes in demand or overtime requirements.
For example, if the maximum allowed work hours are 2000 a year, but an agreed timetable only covers 1800 hours, 200 hours are set aside as reserve or overtime. This gives businesses the flexibility to meet those unexpected needs without overworking employees.
What is an annualised salary?
An annualised hours salary is a method of calculating an employee's salary based on a fixed number of hours worked each year, rather than a fixed number of hours each week or month.
This gives more flexibility when scheduling hours of work, as employees may work more or fewer hours in a given week or month as long as they meet the total annual requirement.
An annualised hours salary is calculated by dividing an employee's annual salary by their annualised hours, which gives you their hourly rate.
This hourly rate is then used to calculate the employee's pay for each hour worked, regardless of the actual number of hours worked in a specific period.
For example, if Employee B has an annual salary of £30,000 and their total annualised hours are 1,792, the calculation would be:
30,000 ÷ 1,792 = £16.74 an hour.
Annualised hours salaries mean that employers don't have to overpay when the workload increases and employees still enjoy a regular monthly income.
What are the pros and cons of annualised hours?
As with anything, there are benefits and drawbacks of this working style. Both of these need to be considered before starting to implement it in your organisation.
Benefits of annualised hours
1. Flexibility for employees
This is one of the biggest benefits for employees. Annualised hours give employees the freedom to arrange their working hours in line with their personal lives, commitments and preferences.
For instance, this system allows parents to tweak their work schedules to align with their child's school timetable.
2. Cost savings for employers
Employers can see cost reductions by having a workforce that is working optimally. By predicting changes in the workflow, employers can ensure the team is covering the extra hours when needed.
This means they're not paying for overtime on top of an employee's typical hours which is one of the largest benefits for employers.
3. Enhanced work-life balance
With the option to manage their schedules, employees can balance their professional and personal lives with more freedom.
So if the weather is sunny one day and their workload is reduced, they can enjoy spending time outdoors.
During longer periods of a reduced workload, employees can work in more moments of joy into their days as they spend them how they like.
4. Improved employee retention
By having more flexibility over their workloads, employers are investing in their team's overall happiness and job satisfaction.
We all know what team happiness typically results in...higher retention and lower employee attrition rates.
Challenges of annualised hours
1. Management and administrative challenges
From a managerial perspective, tracking and overseeing the hours logged by employees in an annualised hours system can be pretty time-consuming.
This increases if the company operates in different locations, across different time zones or has lots of employees on an annualised contract.
2. Unpopular shifts
With freedom comes the potential for fall-outs. Some shifts might be less appealing, especially on weekends or holidays, and may be harder to fill. To ensure this doesn't happen, employees must all share the shifts equally.
It should be written in everyone's contracts that they all must complete a weekend once a month and a holiday shift once a year, for example, as part of their contractual hours.
3. Incorrect calculations of hours needed
Determining the exact number of work hours needed can be difficult, and miscalculations can lead to under-staffing or over-staffing.
These inaccuracies can lead to unnecessary costs for the company or insufficient work for the staff. This is where the need for additional checks is required.
4. Potential for burnout
The risk of burnout is increased when following an annualised hours policy. As the workload increases, employees can sometimes be working over 8 hours a day.
When this is done consistently, burnout is usually right around the corner. Safeguards should be put in place to protect employee well-being.
How to implement annualised hours
If you think annualised hours are right for you, read our tips for how to implement it.
Steps for transitioning to an annualised hours system
- Establish annual work hours: Use our calculations above to work out how many hours your team should be working during the calendar year. Consider your business requirements and set the annualised hours for your workforce accordingly.
- Create an effective rota system: Design a rota that fits into the employees' lifestyles whilst also managing the business's changing workflow. The rota must monitor the hours worked against the annual hours agreed.
- Draft a comprehensive policy: Create a policy that outlines every aspect of annualised hours – from calculation to implementation and compliance. This increases transparency and minimises conflict. This is where you should include the expectations for working weekends and holidays.
- Include reserve hours: Include a certain number of reserve (unallocated) hours for dealing with short-term or unanticipated tasks. These are also sometimes called 'overtime' hours.
- Communicate with employees: Proper communication means a smoother transition. Discuss changes, negotiate schedules, and address any concerns before implementing the new system.
- Monitor and evaluate: Keep a close watch on total hours worked and ensure no employee goes over their annualised hours. Regular evaluations and feedback can help to detect and correct any issues with the system.
Conclusion
If your company has seasonal variations to the workload every year, annualised hours could work for you. Not only do they reduce costs but they also give employees more flexibility over their schedules which can lead to improvements in morale and work-life balance.
That doesn't mean it doesn't come with drawbacks, such as time-consuming management and the potential for burnout. As with every working style, you should consider the advantages and disadvantages as well as our implementation tips to ensure maximum success.
With careful planning and execution, annualised hours can be a successful tool in your business strategy, providing a harmonious work environment that complies with UK employment law.
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