Annualized hours contracts are a popular work model in seasonal industries, but it’s now spreading to the wider working community. So, with that in mind, why is it gaining popularity? Plus, let’s look at the annualized hours pros and cons to see if it’s all it’s cracked up to be! Find out all the need-to-know good and bad points in the remainder of this article.
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Annualized Hours Pros And Cons
| Annualized hours advantages | Annualized hours disadvantages |
| Greater work flexibility | Can be less structured |
| More efficient way of working | Unrostered work can be last minute |
| Increases productivity | Overtime may have to be paid if hours underestimated |
| Allows workers to be scheduled for busy periods | Employer may have to pay for hours not worked |
| Reduces absenteeism | Difficulty tracking hours worked |
| Full holiday entitlements | |
| Helps avoid paying overtime |
The annualized hours contract is yet another strategy for flexible working that can benefit both the employer and employee. While it’s typically associated with seasonal work and employment which has busy and quiet periods, that’s not to say it can’t be adopted for more traditional jobs. So, who does it suit and could this working model be a fit for you or your company? Let’s find out if it’s as good as it sounds to be!
In a study of workers, 54% stated that they work in a part-time or flexible role. Source
Annualized hours advantages
Annualized hours allow greater work flexibility
People who work on annualized hours contracts tend to have more unorthodox hours and fewer working days to people in a standard 9 – 5 job. This often grants them greater freedom and flexibility with their work hours.
For instance, a company might establish core working hours where staff must be present. Once those hours are worked, staff can work up the remaining hours when it suits or when it’s needed by the company.
Plus, if staff work on longer shift patterns during busy periods, they may have fewer commutes to work and more days off as a result.
Annualized hours contracts are not just for seasonal industries. They are also becoming more prevalent in companies that want to offer flexible working arrangements to their staff.
This also lends itself to greater talent acquisition and talent retention as more workers want greater flexibility with their working hours.
Related: Annualized Hours Explained – Helpful Tips & How It Works!
Annualized hours is a more efficient way of working
Traditional working hours mandate having staff present until their work hours are done, regardless of whether there’s work or not. With annualized hours work, staff can be scheduled to work when there is work to be completed.
We are all familiar with the concept that compressed working hours, such as the 4-day work week, increases productivity.
If staff work 4 days v 5 days, it optimizes the efficiency of people, the premises and equipment.
This means equipment doesn’t need to be turned on and off as often. Overhead bills and expenses from the likes of cleaning contracts can also be reduced.
Furthermore, staff spend less time in start-up and daily meetings which allows them to get real work completed.
If staff worker longer hours over fewer days, it saves them time on commuting and the associated growing costs of working more days, such as fuel, childcare, lunches.
Related: Does A 4 Day Work Week Save Money? Discover How to Save Now!
Annualized hours increase productivity
If working hours are scheduled in conjunction with the busy periods of a business, it returns a higher rate of productivity amongst workers.
Additionally, this contract also means that staff can put in greater hours when the company needs it or when they feel most productive.
We all know that Friday evenings can be a very unproductive time, which is more often than not spent counting down the hours till home time.
Annualized hours also help avoid the need for temporary staff. Having existing staff saves on time spent training up new workers which makes for more productive working.
Additionally, there is less risk that existing staff will make a mistake which could cause the business downtime and costly expenses.
Annualized hours allow workers to be scheduled for busy periods
Seasonal work and industries where there are busy and quiet periods can benefit greatly from annualized hour contracts.
There’s little value in paying workers in quiet times to twiddle their thumbs when there is limited work to be completed.
Instead, more workers can be scheduled to be present and work the busier times. They can even work longer hours (within reason) and then have more time off in the quieter seasons.
Annualized hours reduce absenteeism
Annualized hours contracts often reduce the number of days that the employee spends working. Instead, it is compressed into shorter days.
This helps to reduce absenteeism as the worker has more time to attend appointments, time to rest and complete errands at home.
Annualized hours also allow the worker to be more in control of their hours, especially when they are not working core hours or rostered hours.
With this setup, if personal commitments arise, they can work the hours necessary at whatever time in a day or week that suits and attend to their other demands without taking time off.
Annualized hours offer full holiday entitlements
Annualized hour contracts are calculated based on the number of hours in a working week multiplied by 52. Annual leave and public holidays are then deducted from the number.
So, if you work the same number of hours as a full-time worker would in the whole year, you will be entitled to the same statutory leave and public holidays.
Equally, if you work part-time, your holiday leave will correlate with the number of hours you work.
So, if you only work 50% of the time that a full-time worker dose, you will be eligible for 50% of the holidays.
That said, in many scenarios, you may end up having more days off than a person in a traditional 5-day job. Especially if you work compressed working hours.
Related: Best 4 Day Work Week Alternatives – 7 Proven Strategies!
Annualized hours help to avoid paying overtime
In a traditional contract, if staff were needed to work weekends or late evenings to meet business needs, it would be paid as overtime. With annualized hours, the employer can request staff to work up hours to meet these demands.
This isn’t considered overtime once it fits within the annual hours contract.
This saves on the cost of paying overtime which can add up to a sizable bill, which is often time and a half per hour extra worked. This can be double time on public holidays!
Annualized hours disadvantages
Annualized hours can be less structured
Annualized hours contracts can be less structured than traditional 9 – 5 jobs, especially when there is seasonal work or higher demanding periods.
There is generally a structure to the hours that a person on an annualized hours contract works. These tend to fall into 3 types of schedules:
Some annualized contracts may require a set of core hours to be worked each day while the remaining hours are worked up when needed or suits, e.g., working longer hours to meet deadlines at busy times.
Annualized work contracts can operate on a rostered schedule which can include set hours or days on or days off. This is similar to shift work.
Unrostered hours can also be a stipulation of the annualized hours contract. These are the most unstructured types of contracts. This requires an employee to work often on short notice to meet the demands of the company, e.g., covering sick leave, unusually high tourism periods.
There can be a mixture of all 3 types of schedules to accommodate work demands.
For instance, in a restaurant, staff may have a combination of rostered hours during the week and unrostered hours during the weekend to cater to events and celebrations.
Related: 4 Day Work Week V 5 Day – Full Of Surprising Facts & Results
Annualized hours unrostered work can be last minute
Many contracts, be they annualized contracts or standard contracts often stipulate that a worker may have to be flexible to accommodate emergency scenarios that arise. This is more prevalent in seasonal work where busy periods crop up.
While employers can give staff a heads up to be prepared, there will always be the odd occasion where an unexpected work demand arise.
Consequently, workers may be called on to work with little notice.
This last-minute request often won’t suit many people, especially if they are not anticipating it.
Equally, if you don’t have anyone to mind children or elderly relatives, unrostered hours might not suit.
Overtime may have to be paid if hours underestimated
When calculating the number of hours an employer wants the staff to work in the year, the company need to account for busy periods.
However, if the employer ends up underestimating the number of hours that staff are needed for during the year, this will result in overtime having to be paid. Or else work not being completed.
This can be counteracted by careful scheduling of workers and allowing a slight surplus in the hours they anticipate the worker will be needed for.
Employer may have to pay for hours not worked
Annualized hours contracts stipulate the number of hours in the year that the employee is required to work. If the employer doesn’t need the employee to work all those hours in the year, they are still required to pay the person for the total number of hours.
This is the case even if the worker didn’t complete the hours.
Again, careful scheduling of work hours and anticipating work in the year can reduce such costs.
Of course, this has an advantage to the worker as they have been paid for not doing anything.
Annualized hours creates difficulty tracking hours worked
If people working on annualized hours contracts are not scheduled on routine working patterns, it can become more difficult to track what hours they have worked.
Additionally, if they are required to work overtime or they work from home on their own schedule, there needs to be a mechanism to allow working hours to be accounted for.
This could be as simple as timesheets, or there are time attendance tools available which allow staff to log their hours.
This creates more visibility on how many hours they have worked and have left in the year.
Tip: Annualized hours contracts should offer as much notice and scheduling as possible to enable a smoother working structure for everyone involved.
Conclusion
Annualized hour contracts bring both positive and negatives for both the employer and employee. How well an annualized hours work model suits depends on your personal circumstances and preferences.
Equally, such contracts will often suit many companies, even those who have a standard work volume throughout the year. However, it can be more difficult to manage if the right structure isn’t in place.
That said, it can also be used in traditional jobs to attract talent and grant workers more freedom with their work hours.
With the right structures and engagement in place, annualized hours can work like a dream.
The annualized hours strategy is only one of many methods that can be employed to grant workers greater work flexibility while also enhancing productivity.
If you’d like to hear about other flexible working strategies, I’ve listed them below for easy access:
- Does A 4 Day Work Week Save Money? Discover How to Save Now!
- Does 4 Day Work Week Save Companies Money? + Proven Results!
- 4 Day Work Week V 5 Day – Full Of Surprising Facts & Results
- Best 4 Day Work Week Alternatives – 7 Proven Strategies!
- How Unlimited Holidays Work – An Insider Guide + FAQs!
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