Managing working time: Annual hours
Section six of the Personnel Today Management Resources one stop guide to managing working time. Other sections.
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Understand the concept of annual hours Become familiar with the wide range of shift patterns Learn how to
overcome resistance to the introduction of annual hours |
The origins of annual hours
Annual hours systems were first adopted in the UK as cost-reduction and efficiency improvement measures during the early 1980s. Adapted from Scandinavian models, they were applied in continuous process industries such as the Lancashire-based Fort Sterling papermaking plant and the ICI chemical manufacturing conglomerate.
In these industries, reduced-hours contracts, restrictive practices, high overtime and soaring sickness rates were pushing costs beyond acceptable limits. The implementation of annual hours achieved major savings and benefits for these companies, ranging from reduced and more predictable labour costs through to markedly higher productivity and service levels to the end customer. As if these benefits were not enough, implementing companies also found that the concept had provided a powerful catalyst for change in how their businesses operated and the relationship with the workforce.
The elimination or very substantial reduction of overtime gave rise to different levels of motivation and teamworking, and from a management point of view, a clear focus could be placed upon operational efficiency rather than the myriad of workforce and industrial relations issues experienced pre-implementation. For the workforces involved, although the loss of overtime had an initial impact, which was severe for some, the evidence shows they very quickly came to appreciate the extensive leisure time and work-life balance opportunities the system provided.
While the initial UK implementations were in continuous process industries, it did not take long for seasonal industries to recognise the potential of annual hours for dealing with fluctuating demand levels through the year. Food processors and manufacturers, such as Frigoscandia, Unilever and Kelloggs, were among the early adopters of such schemes, again with benefits for all of the stakeholders in the business, including the workforce.
More recently, the concept has been adopted by logistics and public utility companies, white goods manufacturers, hotel and leisure operators, air services and vehicle rescue businesses - each one fine tuning and developing the various measures and mechanisms to suit their own particular operational needs and to deal with their own specific business issues.
According to Incomes Data Services, in its report on annual hours of February 2004, more than 800,000 employees in the UK are engaged on annual hours contracts in some form, representing approaching 5% of the total UK workforce. The study noted significant growth in the hospitality and leisure, and health and social services sectors, although in absolute terms the biggest group continued to be manufacturing with almost 170,000 employees.
Perhaps the most striking evidence from the study is the range and diversity of organisations, with examples from food and fmcg manufacturing, health, vehicle rescue, insurance services, engineering, box office, power generation and local authorities. Across these examples the same concepts and methods have been used to design annual hours systems for each application with the objective of achieving greater flexibility, better service and reduced or stabilised operational costs.
Among the reasons quoted by IDS for the move to annual hours are:
increased competition, cost efficiency
merger/takeover/new management
desire for new culture or attitudes in the workplace
wish to maximise benefit of investment in plant and machinery
matching supply of labour to demand
need to control costs.
The fundamental principle of annual hours is simple in that it can express any 'hours-per-week' contract in terms of the equivalent number of hours over a year. All weekly contracts can therefore have an annual hours equivalent. Many mature annual hours users no longer use an hours-per-week equivalent to their net hours per year contract and their terms and conditions simply state the number of hours each employee is contracted to work across the full year. Systems can be either 'gross' or 'net' and in some organisations there are hybrid arrangements which leave an element of holiday entitlement to the choice of the employee.
Gross hours systems represent the simple form by the straightforward multiplication of the weekly contract hours by the number of weeks per year. Thus a 37-hour weekly contract expressed in annual terms will be:
52.18 weeks x 37 hours = 1,931 hours
(Note 52.18 weeks is derived from the number of days in the year 365.25 divided by seven - the additional quarter day representing the occurrence of a leap year every four years.)
While a gross hours contract represents the hours for which an employer pays, a net hours contract represents the hours that the employer actually receives from the employee, minus holidays. Net hours are a more useful mechanism since they are a more reliable guide to the time available and the actual cost. A gross hours system leaves holidays to be covered from outside the system at additional cost.
For a 37-hour contract with 25 days (five weeks) holiday and eight bank holidays (1.6 weeks), a net arrangement could be expressed as follows:
52.18 weeks x 37 hours = 1,931 hours
Less five weeks x 37 hours = 185 hours
Less 1.6 weeks x 37 hours = 59 hours
Net hours = 1,687 hours
What is different about annual hours?
Many traditional shift systems average the weekly worked hours over periods greater than one week. Twelve-hour-based 4-on-4-off patterns will schedule 36 or 48 hours per week over an eight-week or 16-week cycle to average 42 hours per week, while eight-hour patterns can range from 32 to 40 and 56 hours per week over a four-week cycle and average 42 hours. There is nothing new then in extending the cycle time beyond a week and generating a roster for a full year. So what is different?
Under annualisation the target number of production or service hours are identified for the year at the outset. This is a process of business analysis and forecasting which then provides the basis upon which a system is designed and a base line upon which an underlying labour requirement may be forecast. The actual hours planned to be worked through the year can reflect either a flat or fluctuating demand profile. The target hours arrived at can then be divided by the gross or net annual contract to give an indication of the numbers of employees and an idea of the team structures that may be required.
From here, the design process can involve a range of measures from the annual hours toolkit (see below), which enables users to tailor systems to meet specific needs of the business or organisation. This is vital to the success of a system since each application must be designed for purpose and will apply uniquely to resolve the key local issues. Elements of the toolkit can be used as appropriate and as practically acceptable to the workforce, to ensure that the system delivers the desired results. Failure to adapt according to circumstance can be disastrous and those who take an external system and try to superimpose it upon their own environment are unlikely to succeed.
Annual hours patterns
There are many tried-and-tested UK experiences of annual hours in continuous process activities where demand is constant at 168 hours weekly, and the basic operating programme can be projected for years in advance if required. The papermaking, chemicals, heavy engineering, power generation, glassmaking and security sectors are prime examples. Net hours systems of 4.5 and five teams are common, with 38-hour and 39-hour-based contracts providing a good 'fit'. Larger contracts may have a 'reserve' of unrostered hours. The five-team application is highly attractive, offering participants one week of leisure time in every five-week cycle. Both eight-hour and/or 12-hour systems are used (see below).
In these illustrations, the average hours per cycle are 33.6, but when applied to an operating year of, say, 51 weeks, the scheduled hours will average around 1,714 hours per team. With a contract based upon a 38-hour week, the net target hours would be 1,732, leaving a small unrostered 'reserve' of 18 hours per person per year.
During the summer months, two consecutive 'week 5s' can be scheduled to provide the expected two-week summer break. Where there is a high requirement for additional day-based activity or training, five-team patterns can be extended to six-team patterns.
Semi-continuous activities
In the 12-hour semi-continuous pattern (see below),industrial application activities may demand an average of 5.5 to six-day operations which would require require a four-team rostered structure. Systems like this are very flexible and can be used in either a seasonal or a constant demand situation. In seasonal applications, a system may flex between 4.5-day and seven-day cover. Other applications may support a variation of up to 60% between the upper and lower range of hours to be covered. Sectors where this is typical include soft drinks, packaging, food manufacture and aerospace components. The working time regime can be demanding, but time-off (one week in four) can seem highly attractive to employees. Twelve-hour systems can be more appropriate for six-plus days of cover, providing fewer visits to the workplace and longer periods of time away. Twelve-hour shifts can be mixed with eight-hour shifts where fewer days are scheduled to be run.
Rotating two-shift or double day
The rotating two-shift, or double day system is appropriate where an average of around 90 hours of cover per week is needed, with a half-team application rotating over five weeks, usually based on eight-hour shifts. With these systems, organisations will have to make sure they give due consideration to skills allocation such that any half-team combination will provide the necessary skills to operate.
This application can be either seasonal, flexing between four and six days of cover, or provide a constant resource. With this approach, there is the attractiveness for some of enhanced leisure time. These applications tend to be found within food and fast moving consumer goods (FMCG) manufacturing and warehousing and logistics sectors.
Regular days and regular nights
Regular days and regular nights can be used in isolation, or in conjunction with each other. A regular nights system can be used to supplement double days to provide a semi-continuous environment. Systems covering up to 44 hours per week rotating on a five-week or six-week cycle are practical. The demand may be fixed or seasonal in terms of the hours required. Regular days and regular nights are commonly found in food, household and industrial chemicals, and pharmaceuticals manufacturing and engineering.
Varying or cyclic demand
These applications are appropriate usually in service functions where there is a need for varying numbers of participants as the day progresses - typically in call centres, leisure and hospitality, health and public services, logistics and warehousing. The demand may vary through the day, from day to day and from season to season. The systems may use a range of shift lengths and start and finish times and have a longer cycle to accommodate the variability required.
Rostered holidays
A characteristic of many of the above systems is the provision for holidays within the pattern of work. Regular weeks off will occur as part of the pattern, often at the rate of one in four, five or six weeks over a period of time, although there may be particularly busy periods where there is no rostered time off. In many cases the pattern delivers the holiday entitlement in its entirety while for other situations some 'floating days' may still be available.
Overcoming resistance
This concept and the associated perceived lack of choice of holidays might lead to initial problems of acceptance by employees. But the experience of many organisations is that once the system has been implemented, there is widespread understanding and appreciation, with few employees preferring their previous regime. Careful explanation and presentation of these ideas is essential to achieving understanding and buy-in.
Employees can be offered liberal shift-swapping arrangements and a choice of the pre-scheduled holiday periods to mitigate any perceived loss - with a willingness from the employee to plan in advance, and clear explanation from the employer, many of the objections can be overcome.
If difficulties remain, an alternative is to build in 'spare' shifts over holiday periods, where the 'spare' covers for the shift that is on leave. With tight control systems governing holiday consent levels and consumption of holidays by workforce, such systems can be successful.
These arrangements significantly reduce the burden of rota supervision, and the time expended in the search for overtime or alternative cover during holiday periods. Scheduling of cover for holidays within the annual roster also reduces the cost of cover and ensures that the cost base remains predictable.
Reserve, bank and committed hours
It is frequently argued in the UK that overtime is essential to flexibility, because demand for labour is market-determined, and, therefore, impossible to predict accurately. But analytical studies of labour shortfalls and the historic use of overtime can be very helpful in highlighting times when additional hours can be usefully scheduled.
Many organisations using annual hours have now become adept at estimating labour requirements throughout the year and planning appropriately. But situations always occur which cannot be planned for. These include sickness, unusual customer demand, breakdown or other forms of absence. An annual hours scheme must be flexible enough to cope with these unpredictable events and will use a number of different mechanisms to assist. Each of these work in similar ways.
Reserve hours Generally an element of contractual time, which is not scheduled within the pattern or roster. This time is held in reserve and called in to cover contingencies such as sickness or increased service or production provision.
Bank hours Similar to reserve hours but hours may be added to the bank if they are not required on a particular day.
Committed or supplementary hours are generally hours purchased over and above contractual time and may or may not bear a premium.
These 'contingency' or 'flexible' hours are generally called in as required to cover the various situations that may occur, but clear rules need to be laid down in respect of the circumstances when they can be used. It may, of course, be decided that use of such time should not completely rule out various forms of peripheral staffing - in which case, such hours can be used as a buffer between normally scheduled time and overtime or the use of agency or temporary staff.
Some systems have a provision for time in the bank or reserve, to be periodically written off if not called upon. For instance, over a period of three months, if only 20 hours of a 40-hour reserve have been used, the balance may be written off and the next quarter will start again at 40 hours.
This may sound expensive as well as generous, but building in a way of giving back some of the reserve can act as an incentive to employees to offer higher productivity and efficiency during their normal rostered time. The employee sees the challenge in not working these hours and the organisational and workforce objectives become aligned. The shared aim becomes to get the job done speedily and conscientiously within the timescales set and without the use of additional hours.
Covering short-term absence
In the case of short-term absences, the use of a reserve or bank means that a colleague may be called in to provide the cover. If a write-off scheme is in place, colleagues will not wish to work their own reserve hours if this can be avoided. In this situation peer pressure begins to act to minimise this type of absence. A recurring statistic for many new annual hours users is a reduction of short-term sickness absence of 50% or more. In some organisations the shift team can decide upon cover for short-term absence. If they feel they can complete the objectives set for them within the shift, without covering for the absence then they are empowered to do so. Clearly, in such a situation, they will be motivated to prove their decision sound.
Multi-Skilling and Team Working
The introduction of annual hours will often give rise to opportunities to implement other improvements such as the removal of restrictive practices and job demarcations. Multi-skilling means that all the members of a crew are able to fulfill all of the roles or functions. Or it may be that teams having all the skills required, come on and off shift together, working and communicating creatively for the benefit of the teams and the organisation. In either situation, the skills base on shift will be appropriate for all eventualities and disruption to operations are kept to a minimum.
The process of analysis prior to the implementation of an annual hours system stimulates review and rationalisation of working practices and allows workloads to be redesigned to anticipate enhanced levels of skills. Where this is the case, allowance must be made for additional training and education requirements.
Greater team cohesion
Team-working becomes an in-built part of many annual hours structures where all holidays are rostered. As there is no need to cover holiday absence and there is minimal fragmentation to disrupt the cohesion of the team, the component members of the teams tend to remain together at all times. This leads to the development of enhanced team spirit and further improvements in motivation, morale and productivity.
Pay
Annual hours systems are often characterised by equalised pay arrangements on a weekly, fortnightly or monthly basis. As a result, the employee benefits from predictable earnings levels through the year, regardless of hours worked.
Depending on the benefit and savings to the business there may be opportunities for upward revision to basic rates of pay and for some level of consolidation of the previous allowances and earnings levels experienced. If the overall rates or the package as a whole is improved, an added attraction can be a positive effect on pensionable pay, which would not be influenced by overtime. Along with improved leisure time, this salary status and improvement to overall rates can enhance the general perception of the job and assist in gaining buy-in from the workforce.
Overall the package may be advantageous to the majority of the workforce. However, it is quite often the case that a few very high earners within a traditional overtime environment will be vociferous in their opposition. In this case it is important that the focus is on 'selling' to the majority if a successful implementation is to be achieved - although some systems have mechanisms to assist with gradual reductions to hours and earnings for traditional high earners.
Manage the system, not the people
The key focus should be on establishing the correct working time structure which matches the demand upon the function. With systems which include rostered leisure time in particular, the traditional task for supervisors of arranging cover for holidays is removed. They are freed to concentrate upon their primary task.
Also, it need not be assumed that an increase or decrease in demand must necessitate a redesign of the working pattern. A well constructed shift pattern can often accommodate such changes by the simple subtraction or addition of people to the core pattern to reflect the changing requirement. However, there will be occasions when a fundamental change in the nature or pattern of demand requires a re-design. An annual review or audit of the system should be carried out as a matter of course.
Training and communications initiatives can also be programmed and booked into the system in advance and with confidence, with the impact of the associated hours well flagged.
The emergence of self-managing and empowered teams is supported through team-based net-hours systems. The experience of the Colman's of Norwich condiments factory is well documented. Within a developing atmosphere of trust, management has been able to hand a substantial proportion of the day-to-day running of the department to the workforce, with the result that productivity has shown significant improvements.
Afters = Afternoons.
Morns =
Mornings.
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12-HOUR 5 TEAM continuous pattern with rostered leisure time | ||||||||
|
Week/ team |
Mon |
Tues |
Wed |
Thurs |
Fri |
Sat |
Sun |
Totals |
|
1 |
Nights |
Nights |
|
|
Days |
Days |
Days |
60 |
|
2 |
|
|
Nights |
Nights |
|
|
|
24 |
|
3 |
Days |
Days |
|
|
Nights |
Nights |
Nights |
60 |
|
4 |
|
|
Days |
Days |
|
|
|
24 |
|
5 |
|
|
|
|
|
|
|
0 |
|
Totals |
24 |
24 |
24 |
24 |
24 |
24 |
24 |
168 |
|
Week/ team |
Mon |
Tues |
Wed |
Thurs |
Fri |
Sat |
Sun |
Totals |
|
1 |
Nights |
Nights |
Nights |
|
|
|
|
36 |
|
2 |
Days |
Days |
|
Nights |
Nights |
|
|
48 |
|
3 |
|
|
Days |
Days |
Days |
Days |
|
48 |
|
4 |
|
|
|
|
|
|
|
0 |
|
Totals |
24 |
24 |
24 |
24 |
24 |
12 |
0 |
132 |
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HALF-TEAM DOUBLE DAY SYSTEM BASED ON EIGHT-HOUR SHIFTS | ||||||||
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Week/ team |
Mon |
Tues |
Wed |
Thurs |
Fri |
Sat |
Sun |
Totals |
|
1 |
Lates |
Lates |
Lates |
Lates |
Lates |
|
|
40 |
|
2 |
Earlies |
Earlies |
Earlies |
Earlies |
Earlies |
Earlies |
|
48 |
|
3 |
Lates |
Lates |
Lates |
Lates |
Lates |
|
|
40 |
|
4 |
Earlies |
Earlies |
Earlies |
Earlies |
Earlies |
|
|
40 |
|
5 |
|
|
|
|
|
|
|
0 |
|
Totals |
32 |
32 |
32 |
32 |
32 |
8 |
0 |
168 |
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VARYING (OR CYCLIC) DEMAND | ||||||||
|
Week/ team |
Mon |
Tues |
Wed |
Thurs |
Fri |
Sat |
Sun |
Totals |
|
1 |
Lates 8 |
Lates 8 |
Lates 8 |
Lates 8 |
Lates 8 |
|
|
40 |
|
2 |
Nights 8 |
Nights 8 |
Nights 8 |
Nights 8 |
|
|
|
32 |
|
3 |
Afters 10 |
Afters 10 |
Afters 10 |
Afters 10 |
|
|
|
40 |
|
4 |
Earlies 8 |
Earlies 8 |
Earlies 8 |
Earlies 8 |
Earlies 10 |
Earlies 6 |
|
48 |
|
5 |
|
Nights 10 |
Nights 10 |
Nights 10 |
|
|
|
30 |
|
6 |
|
|
|
|
|
|
|
0 |
|
Totals |
34 |
44 |
44 |
44 |
18 |
6 |
0 |
190 |
Afters = Afternoons.
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There are some essential prerequisites and some limitations associated with annual hours systems. These include: Detailed planning, development and design is essential if the system is to work effectively
The concept can be perceived as radical, for some this may mean that it is challenging and threatening
Systems can be perceived as complex
Anecdotal and inaccurate information about annual hours in the public domain
Systems must be actively managed and controlled
Sponsorship and support must come from the highest levels of management
Applications can be seen as prescriptive and inflexible
Expert advice and guidance increases the chances of success but there will be costs associated to establishing feasibility and implementation
Highly volatile and seasonal applications have to be designed with flexibility and agility of response in mind
Ultimately, there may be some individuals who are unable to adapt and who may need to be offered another role or considered for redundancy |
THE ANNUAL HOURS TOOLKIT
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Annual scheduling |
A basic building block which demands a long-range view, published patterns however may only be for part years and in some circumstances may run for multiple years |
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Seasonal scheduling |
Accommodates variations of demand through the year within the supply model |
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Rostered holiday |
Takes the net hours contracts and schedules only working time and leisure time - there is no further entitlement to holiday but extended periods of rest are built in to the schedules |
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Single status contracts |
Builds on the motivational Japanese model of single-status for all employees regardless of grade or rank - open plan offices, communal food and refreshment facilities, identical workplace clothing |
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Equalised pay |
Across-the-year pay is by equal monthly instalments regardless of hours worked - the normally clear relationship between hours and pay in the industrial environment is taken away as is the boom and bust of overtime earnings. Equalised pay or salary status enhances the perception of a post and often makes for easier availability of finance for the employee. |
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Harmonisation |
Multiple historic contracts and nuances of of terms and conditionsfrom previous negotiations and settlements can be rationalised to provide a level contractual playing field which all can understand |
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Contingency planning |
Building in mechanisms that will ensure the availability labour without additional cost or management overhead in situations where supply of labour or demand for labour deviates from the pre-planned levels |
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Zero tolerance of overtime |
The principle that all demands for additional hours are met from within the contract or from outside sources. No premium payments for additional hours are tolerated. |
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Long-range planning |
Annual scheduling demands a long range perspective of the underlying demand profiles and plans for levels of labour supply to meet the profile |
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Multi-skilling |
Revised working time arrangements and teamworking often go hand-in-hand with increased skilling and zero tolerance of restrictive practices |
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Trust-based environment |
Trust and empowerment gives control of operations and working time over to the workforce as a part of the psychological contract between workforce and employer which in practical terms means that the contract is to achieve the operational targets set by the management team and agreed with the workforce |
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Implementing companies often experience a range of
benefits deriving from annual hours and the associated restructuring
package. These include both quantitative, and qualitative or softer
benefits and it is usual to find that there are advantages for all of the
stakeholders including customers, the workforce and representation. The
effects although sometimes dramatic, are not always immediate and some
time must be allowed for systems to bed in and to overcome teething
problems and snags. It is not unusual after this period to see what is
known as a 'benefit build' with results being derived often from
unforeseen areas and unpredictable sources. | |
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less waste and rework
fewer breakdowns
fewer interruptions
increased productivity
reduced overall labour cost
fewer temp or agency workers
higher skills base in the core workforce
less ineffective or waiting time
better use of supervisory and managerial resources
lower stocks
improved accuracy in planning and forecasting | |
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improved response time
out-of-hours or extended hours service provision
team working
right service levels
higher morale/motivation
right-first-time operations
higher base-line on quality/service standards | |
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access to leisure time assured ( no calls for overtime)
earnings guaranteed and predictable
attractive periods of time-off and 'usable' leisure time
security through organisational well-being
job satisfaction, training and skills enhancement opportunities
attraction of "teamness" and empowerment
ability to plan social matters at a distance and with confidence
improved basic pay and consolidation of earnings | |
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Increased communication and relationship building with management
Work-life balance improvements
Security of jobs
Increased membership
Partnership and inclusiveness | |
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Section one: Why employers must
tackle working time |
