Annual-hours contracts: the way of the future?

Citation

(2003), "Annual-hours contracts: the way of the future?", Career Development International, Vol. 8 No. 2. https://doi.org/10.1108/cdi.2003.13708bab.003

Annual-hours contracts: the way of the future?

Annual-hours contracts: the way of the future?

Annual-hours contracts can lead to higher hourly wages, lower overtime, stronger job security, more efficient use of plant capacity and greater flexibility in scheduling work and responding to demand for products. So says research by professors David Bell and Robert Hart, funded by the UK's Economic and Social Research Council.

Annual-hours contracts have been embraced by companies including BP Chemicals, Blue Circle Cement, ICI Chlor Chemicals, Grampian University Hospitals NHS Trust, Manchester Airport, United Distillers, Samsung Electronics, Tesco Stores and Zeneca.

The research reveals that the contracts cover about 4 per cent of full-time female and 3.3 per cent of full-time male employees in the UK.

Employees covered by annual-hours contracts are often union members. While it may seem paradoxical that unions are required to help to bring about greater working-time flexibility, annual-hours contracts are complex and require extensive bargaining between employers and employees. Unions provide a focus for such bargaining.

The hourly wage, under an annual-hours contract, is around 13 per cent higher than the hourly wage under an equivalent standard contract. This is the pay-off to employees for streamlining their working practices.

Overtime workers average six hours of paid overtime under the standard contract. This is roughly 3.5 hours a week more than employees with annual-hours contracts. After allowing for other influences, annual-hours contracts are associated with a halving in paid overtime.

Annual-hours contracts often occur in companies that experience relatively volatile and unpredictable movements in the demand for their products. Employees with annual-hours contracts experience more variation in their hours over the working year. This seems to suggest that annual-hours contracts provide flexibility of hours over and above the standard contract.

Annual-hours contracts are strongly linked with a desire to obtain more plant use over the working year, particularly associated with the operation of complex shift systems. For example, companies with annual-hours contracts are more likely to operate complex Continental-type shift systems and/or more weekend and bank-holiday working.

Employees involved in annual-hours contracts tend to have been in their jobs for a long time, tend to regard their jobs as permanent and tend not to be interested in seeking new employment. This is a strong argument in favour of annual-hours contracts: they may be useful for bringing stability to the workforce.

In a typical annual-hours contract, management and workers agree on a number of annual or rostered hours. Leaving aside holidays, rostered hours may vary over the year so that, for example, the firm is better able to meet seasonal fluctuations in demand. Annual-hours contracts also include rostered shift systems: for example, Bell and Hart describe the case of a company with 1,872 rostered annual hours that comprise 156 12-hour shifts.

As well as rostered hours, workers may agree to an annual number of reserve hours. These are used to provide additional flexibility. For example, they can be used to meet unforeseen events such as short-run upward surges in demand or abnormal absenteeism. They can also be used to cover planned events that support production and service activities such as training courses, planning meetings and company briefings.