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
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
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
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
Annual hours can be applied to all employees, including
day workers and white collar employees, but in practice the system is often
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
for employees include improved basic pay and progress towards salaried
- 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
who have high overtime earnings may resist the introduction
of annual hours.