Annualised Hours: Employers' Guide

Traditional methods of working are changing. This is due to a new generation of employees entering the workforce, as well as the effects of various technological advances to the way we do business.

This is why there’s an increasing number of staff looking to take advantage of the legislation around flexible working hours.

An annualised hours contract allows you to calculate an employee’s shift work (and pay) on an annual basis.

This article explores this type of working hours, how to calculate it and its advantages and disadvantages. It’ll also highlight elements you should include when creating an annualised hours contract.

What are annualised hours?

They’re Working hours that reflect seasonal or other peaks and troughs in production. These hours are predetermined by you and your employee.

It allows businesses to match their resources with the trends in demand for their product or service. The aim is to have personnel present and ready to work when needed and not at work during periods of low activity.

As the name suggests, you calculate these hours annually. It must match the basic annual minimum of hours stipulated in the annualised hours contract of employment.

It’s important to highlight the annualised hours policy in place, especially where it relates to pay, holiday entitlements, sickness days and other benefits. For example, is salary paid on a pro rata basis?

Your policy should include information on the frequency of payment instalments, terms of how they can take holidays and what to do when they’re off sick.

Annualised hours calculation

There are different ways to calculate an employee’s contracted annual hours.

The most common and straightforward method is to work out the hours for the whole year (as stipulated in their contract) and then deduct leave entitlements, including statutory bank holidays.

For example, we’ll calculate the total annual hours for an employee working the basic 7.5 hours a day for five days, with 20 days’ annual leave and 8 statutory holidays in a 52-week year.

• First, we multiply the basic weekly average of 37.5 hours by 52 weeks for a total of 1950 hours per year
• Next, we calculate the total leave allowance including statutory holidays (in hours). To do this, add the employee’s leave entitlement to the statutory holiday (20+8) and multiply by the length of the basic working day (7.5) for a total of 210 hours per year
• Finally, we subtract the annual working hours with the annual holiday entitlement for a total of 1740 working hours per year

After that, you may also wonder how to work out annualised hours for holiday entitlement. This is similar to the entitlements for employees on standard working patterns. The only difference is that you reflect holiday rights in hours and not days.

If the figures become complicated, you can also use the annualised hours holiday calculator provided by gov.uk.

Annualised hours advantages and disadvantages

There are many benefits to your business and your employees. As well as flexibility, it also provides your employees with stability in the way of regular income.

For the organisation, it allows you to manage resources without incurring additional costs such as overtime pay or training temporary workers. It also limits the need for redundancy and lay-offs during periods of low activity.

Other business benefits include:

• Reduced absences
• Promotes better use of resources
• Improved efficiency, flexibility and productivity

With regards to disadvantages, a reoccurring one is in the effort and time it takes to develop a system that works for the organisation. Although there’s various specialist software that can make this process easier.

Other potential areas of concern include:

• Paying employees for working hours they may or may not have worked
• Shifts may be difficult to cover (weekends and public holidays, for example)
• Staff concern over changes in earnings due to the removal of overtime payments
• Maintaining contact with employees while they’re away from work for long periods
• Accurately estimating workloads and working times to avoid running out of flexible hours

What is in an annualised hours contract?

Like any other contract, it should include the terms and conditions of the role and working hours.

 It should also contain clauses about the:

• Notice
• Property
• Retirement
• Place of work
• Hours of work
• Governing law
• Pension scheme
• Collective agreements
• Holiday and pay entitlement
• Job title and expected duties
• Maternity and paternity leave
• Absence and sick pay entitlement
• Disciplinary and grievance procedure
• Commencement date and terms of employment
• Any other additional policies

Expert advice

Contact us today for support with working hours, internal policies and employment contracts within your organisation. Talk to a Croner expert on 0808 145 3380.