Annualised hours contracts offer a flexible approach to structuring work time and payment.

Under this type of contract, your work hours are calculated over the course of a year rather than on a traditional weekly or monthly basis. This arrangement can benefit both you and your employer, because you get more control over when you work. It’s especially useful if your role is influenced by seasonal demands or peaks in business activity.

But is this working arrangement actually good for employees? How about the companies they work for? Let’s take a look.

What annualised hours are and how they work

In short, annualised hours are a working arrangement where you have a set number of hours to work over a year, with the flexibility to work those hours at different times. It's a system that can adapt to the peaks and troughs of business demands.

For full-time and part-time employees looking for greater work-life balance, an annualised hours contract can be a rather nice alternative to the standard nine-to-five work schedule.

With this setup, your annual hours are calculated by considering the total yearly contracted hours and subtracting entitlements like annual leave. So you might start with a gross figure of 1,950 hours in a year (based on a standard 37.5-hour week) and then deduct 20 days of annual leave and 8 bank holidays, which are the standard UK amount.

These hours are typically split into 'core hours' and 'flexible hours'. Core hours are the times when you're expected to be available or working, while flexible hours are reserved for busier times or when extra work is needed. With this model, you aren't constrained to a conventional 9-to-5 shift pattern; instead, your working hours could vary week-by-week or month-by-month to align with the demands of the workplace.

Comparing full-time, part-time, and zero-hour contracts

When comparing full-time and part-time contracts to annualised hours, the key difference lies in the predictability of hours. Full-time typically involves a consistent 35-40 hour work week, while part-time could mean any number of hours fewer than this, but still on a predictable schedule.

In contrast, zero-hour contracts offer no guaranteed hours, meaning you could work varied hours week-to-week with little to no notice. Annualised hours provide a middle ground, with guaranteed hours annually but flexibility in how the shift pattern is worked.

For roles on a pro rata basis – which might be casual part-time or term-time work – the concept of annualised hours still stands, but the total hours and the division between core and reserve hours will be proportionally reduced.

Working within this framework lets you plan your year with an overarching view of your time allocation, balancing work with other commitments with foresight of your working patterns over the long term.

Employee work schedules and notice periods

Managing your work schedule with an annualised hours approach will be different to your standard full time hours agreement. Typically, the actual hours you work per week might vary to meet the annualised hours scheme agreed upon in your contract of employment.

Your employer should give appropriate notice periods before changing your work hours. This gives you the chance to arrange your life around your work commitments, so you aren't caught off guard. That said, there’s no legal minimum notice period in an arrangement like this – any specific period will be outlined in the employment contract.

Annualised hours: the business perspective

Why use annualised hours in your company?

If you’re managing people, why should you introduce annualised hours into your rota? Well, one key benefit is cost-effectiveness – it can be more economical than paying overtime or hiring agency staff to cover peak periods.

This system also allows you to adjust staffing according to yo-yoing work demands, making sure employees are at work during busy times and not when demand is low, which can lead to higher productivity levels.

Additionally, annualised hours contracts can help maintain a core workforce of regular employees, which brings a bit of stability to proceedings. But it then adds the flexibility of extra help as needed. This flexible working can also bring improved work-life balance for employees and reduce long hours which cause stress, tiredness, burnout, and so on.

If you manage it correctly, an annualised hours policy can provide your company with more flexibility and potentially reduce absenteeism, as the diversified choice in working patterns can lead to better employee satisfaction.

How to implement annualised hours in your company

If you’re a manager looking to implement annualised hours into your organisation, you’ll want to have a proper process in place.

To kick off an annualised hours system, you'll need to calculate the total number of hours your employees are contracted to work over the year, minus their holiday entitlement and bank holidays. For instance, if the standard working week is 40 hours, multiply this by 52 weeks to gauge the base working hours. Remember, every employee is entitled to a minimum of 20 days of annual leave plus the usual 8 UK bank holidays. So, you'll deduce these from the total to get their actual working hours.

Managing working hours and leave

Your annualised hours strategy should properly cover both peak periods and quiet times in workloads. When the workload lightens, your employees may have 'trough' periods where they work fewer hours. And during busier peak times, they might need to put in more hours or even overtime.

Remember – employees' working days need to comply with the Working Time Regulations, capping the work week at an average of 48 hours over a 17-week period. It's also your responsibility to ensure they get the minimum rest they are entitled to.

Holiday pay calculations can get a bit complicated with annualised hours. It's generally based on the average pay over the previous 12 weeks, which includes any overtime payments. When employees take holiday, they receive instalments based on their accrued hours, ensuring they're compensated fairly for the time not worked.

Things to consider with annualised hours

When you're considering an annualised hours agreement, you’ll want to think about the total number of hours you’ll work over the course of the whole year. You’ll have a changing, flexible workload that can work in your favour – but it can also offer some challenges. Here are a few important things to keep in mind.

  • Variability of rostered hours: Your actual hours worked may vary week to week or month to month, as demands from your employer change. Sometimes you might be called in on short notice, while other times, you might work fewer hours than you want.
  • Open communication: It’s important to maintain open communication with your line manager. You won’t quite be ‘on call’ but you need to be available to talk at appropriate times. They'll provide you with further information on your schedule and any potential changes.
  • End of the year reconciliation: As you approach the end of the year, check in with your manager to ensure your work hours align with the contractual agreement. Any significant deviations might result in either overtime pay or a reduction in hours as required. (You’ll also want to make sure you’ve taken your annual leave entitlement and figure out if holiday carry over is possible.)
  • Short-term fluctuations: Don't worry too much about short-term fluctuations in work hours. The system is designed to balance out over the long term so your total annual hours add up. If you’ve any concerns, raise them with your manager.
  • Working Time Regulations: In the UK, you're protected by employment law including the Working Time Regulations. These ensure that your average working time, including overtime, doesn’t exceed 48 hours per week over a 17-week period unless you’ve opted out.