Annualised Hours

Annualized hours: The most important questions are answered

How can you effectively implement annual working hours in your company? Today we look at the topic of annual working hours and some of the key issues facing businesses in the UK. Enjoy reading!

What are annualized hours worked?
Annual working time is a type of employment contract under which an employer pays its employee a salary for the number of hours worked in a whole year. In an employment contract, employees are usually paid on the basis of weeks or months of work, whereas in an annual employment contract, employees are paid based on the number of hours they work in a year.

Annual employment contracts vary in the number of hours an employee works daily, weekly and monthly. However, the total number of hours the employee works in a year is specified in his contract.

This type of employment contract offers numerous advantages, but we’ll go into that a little more later. First, let’s take a look at the concept of annual salary.

What is an annualized salary?
An annual salary is a salary that employees receive based on the number of hours they work in a year. An employee receives the same monthly salary regardless of how many hours they worked in a given month.

In some months, e.g. in peak months, the employee will work more hours than in others. In other months, when there may be less work, the employee will work fewer hours. Nevertheless, the employee receives the same salary every month.

How do you calculate annual working hours?
An employer can calculate annual working hours as follows:

• Take the normal number of hours the employee would work in a day (7.5 hours)
• Multiply this number (7.5 hours) by five days to get the average number of hours the employee would work in a week (7.5 hours x 5 = 37.5 hours)
• Now take that number (37.5 hours) and multiply it by 52 (the number of weeks in a year) and you get (37.5 hours per week x 52 weeks = 1950 hours)
• Take the total number (1950 hours) and subtract the 20 days of vacation (20 days x 7.5 = 150 hours) (1950 hours – 150 hours = 1800 hours)
• Now take this number (1800 hours) and subtract the 8 public holidays (8 days x 7.5 hours = 60 hours) (1800 hours – 60 hours = 1740 hours) to get the basic number of working hours per year

This number may also vary depending on specific situations, such as: for possible sick days, parental leave or further training.

An employer would then take the base number of hours worked per year (1,740 hours) and determine which of those hours are core hours and which are flexible/reserved hours.

The core working hours are those that employees have to work in the specified time frame, while the reserved working hours are those that the employer can call up when necessary (during peak times).

What is an annualized hours contract?
An annualized hours contract sets out the conditions for an annual employment contract. The following points are stipulated in the contract:

• The start and end dates of the contract
• The notice period for employees
• The location from which the employee will work (location)
• Fixed vacation pay
• Job description and responsibilities of the employee
• Types of vacation
• Working conditions
• and any other measures that employers and employees deem necessary

What are the advantages of annualized hours?
Introducing an annualized hours contract at your workplace offers numerous advantages:

• Cost-effective. Annual employment contracts are more cost-effective than paying your employees overtime or hiring an agency to fill in for them.
• Higher productivity. As an employer, you do not force your employees to work even when there is no work to be done. You only work when there is an actual need, which increases productivity and prevents wasted time.
• Family friendly. Parents and carers want more flexibility when it comes to their workload. A parent may work more hours during the months when the children are in school and fewer hours during the children’s vacation period. The annual working hours can really be family-friendly.

What are the disadvantages of annualized hours?
There are also some disadvantages of annual working hours in the workplace:

• The set workload per hour. Annual working hours are about how much the employee should work in a year, and this is not always easy to estimate. Employers can either stipulate too few hours in the contracts and thus force overtime, or stipulate too many hours and then pay for hours that the employee did not work.
• Flexible shifts on weekends. The problem with flexibility in annual working hours is that the employee may not want to take shifts they don’t like. These are usually night shifts, weekend shifts or holiday shifts.
• Employee engagement. If there has been no communication with an employee for an extended period of time, it may be difficult to re-engage them when needed.

What is the best way to manage annualized hours contracts?
When it comes to annual employment contracts, you need to decide on the following elements:

• How do employees report to work if they are sick?
• How will you distribute the hours between core time and reserved hours?
• How will you ensure that no particular group is discriminated against as a result of the new working time regulations?

If you have problems with any of these points, you should consider IceHrm’s absence management software. Ultimately, every employer should be able to manage absences without having to deal with mountains of paperwork.