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Flexible working - annualised hours

Author: Jim Riley  Last updated: Sunday 23 September, 2012

Flexible working - annual hours contracts

What is an annual hours contract?

An annual hours contract is a system whereby the period of time within which full time employees must work is defined over a whole year.

For example, an average 40-hour week becomes 1,880 annual hours, assuming five weeks of holiday entitlement (37 weeks x 40 hours per week). This is the total hours an employee must work each year under the contract.

Once the annual hours of work have been agreed these hours are usually distributed in a schedule.

Some of the hours may be held in reserve to be used when the employer and employee agree, or they may all be used within the schedule. It will also be necessary allow for public holidays and overtime.

Annual hours can be applied to all employees, including day workers and white collar employees, but in practice the system is often restricted to shift workers.

Why might a business introduce an annual hours system?

An annual hours system can be used:

• To help reduce the working week (often an objective of trade unions)

• To reduce, abolish or control overtime

• To help the business cope with seasonal variations and/or peaks and troughs in demand

• To maximise productivity

• To help introduce technological change

• To harmonise terms and conditions of employment

Advantages of an Annual Hours System

- For employers annual hours can provide greater employee flexibility, reduce overtime and maximise productivity and efficiency

- Benefits for employees include improved basic pay and progress towards salaried status

Possible Disadvantages

- Most annual hours agreements specify that employees can be asked to work extra hours at short notice which may be beneficial to employers but can reduce the freedom of employees to plan their leisure
- Employees who have high overtime earnings may resist the introduction of annual hours.

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