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Annualised Hour Review - Should Employers Consider It? - Cobalt HR

September 5, 20220

Annualised Hours Review – Should employers consider it?

by Zoe Ross – July 2022

Annualised hours are a contractual policy by which employees’ hours are calculated on an hourly basis rather than a daily or weekly basis. This means that the employer can alter the number of hours worked each week over the year depending on the needs of the company.

Annualised hours can provide greater flexibility concerning working hours than a standard contract but include a commitment to a minimum number of overall hours for the year.

Why implement annualised hours?

        • Annualised hours tend to suit companies that experience a fluctuation in demand over the year. Implementing annualised hours allows employers to employ staff annually while altering their work pattern to suit these variations in demand. For example, if a company experiences a lack of demand over Winter but an increase in demand over summer employees may work fewer hours during the former season than the latter.
        • It also eliminates the need for overtime during busy periods if hours are managed well.
        • It can suit parents, guardians or carers. For example, some parents or guardians may wish to work for longer during term time so that they can have more time off during school holidays.
        • Annualised hours are well-suited to employees who need flexibility from staff concerning working hours but don’t want to implement zero-hour contracts.

What are the challenges?

Firstly, you need to ensure that you calculate the number of hours an employee is contracted to work accurately. An underestimate could result in understaffing or unbudgeted overtime. Overestimating the number of hours will result in you paying employees more than you needed to. So, as you may already have guessed, annualised hours can be difficult to set up.

There are also issues concerning payslips; should you pay workers a set amount each month, or only pay them for the work that they did that month? Employers need to be careful and ensure that they are meeting the demands of the National Minimum Wage and that employees are paid correctly if they exceed the total annualised hours.

Staff may also dislike the reduction in overtime payments and having to work varying shift patterns. Irregular hours can have a negative impact on employees’ work-life balance.

What are the benefits?

Annualised hours can provide your company with more flexibility and, if they’re managed correctly, the policy can provide employees stability in terms of regular income.

The policy can also allow you to manage resources without creating additional costs in the form of overtime or training for temporary workers. As well as this it can help to reduce absence and increase efficiency and productivity.

Staff who would otherwise be on a zero-hours contract are happier as they have guaranteed hours.

The policy will also give some employees more flexibility allowing them to have a better work-life balance.

A factor to consider…

You still need to ensure that you are meeting Working Time Regulations. This means that unless employees opt out of the requirement, the maximum number of hours that an employee can work each week is 48hrs. You must also stick to other regulations concerning breaks and rest etc.

So will annualised hours work for your company?

Whether or not annualised hours will work for your company is dependent on the industry the company belongs to, the opinions of the employees, whether or not you can make it work and meet the required legislation and regulations and whether you can accurately calculate employees’ contracted hours.

If you’re interested in Annualised Hours or you want to implement other flexible working policies but would like more advice, please reach out to us and one of our HR experts would be happy to help!

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        1. Farrer & Co, Insights, ‘What’s the deal with annualised hours?’ (2022) [Accessed 18 May 2022]
        1. Carol Smith, ‘Annualised Hours: Employers’ Guide’ (2019) [Accessed 18 May 2022]
        1. HR and You, ‘Your Complete Guide to Annualised Hours in 2021’ (2021) [Accessed 23 May 2022]

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