Annualised hours agreements: service sector leads the way

Annualised hours systems have long been recognised as an important way to increase flexible working and tackle the "overtime culture" in British industry. Yet it is in the service sector more than manufacturing where annualised hours have been successfully implemented, reflecting differences in patterns of demand, workforce characteristics and trade union approaches. The National Health Service (NHS), which in September 1998 introduced its first-ever national human resource strategy explicitly hailing annualised hours as the key to flexible working, is a leading case.

Annualised hours have long been seen as a cost-efficient means of delivering labour flexibility in industries which are subject to varying levels of demand or which have extended operating times. The basic principle behind annualised hours contracts is that working time is defined in terms of the year rather than the week, so that the employer is better able to match working time to fluctuations in demand for products and services. Originally, it was in manufacturing industries such as paper-making and cement manufacture where such arrangements were mostly found. Increasingly, however, it is the service sector, such as television, finance, education and local authorities, which is now to the fore.

Official figures from the Labour Force Survey show that around 4% of workers in the UK are on annualised hours contracts. This figure has actually decreased from a coverage of 9% of the workforce in the early 1990s. However, although fewer workers overall are covered, there is evidence to suggest that in sectors such as engineering and health, more organisations are turning to annualised hours arrangements, at least for certain key groups of employees.

The growth of annualised hours in engineering and health

The annual panel survey of the University of Warwick Industrial Relations Research Unit pay and working time study (UK9705126F) is a particularly important source of data on recent and ongoing changes in organisations' use of annualised hours contracts. In engineering, around 130 workplaces are represented in the survey each year, along with around 75 National Health Service (NHS) Trusts, covering a combined workforce of approximately a quarter of a million people. The survey results show a substantial increase in recent years in the number of workplaces with annualised hours arrangements for their largest occupational group (see table below). The increase in annualised hours working has occurred in both sectors but is particularly pronounced in the NHS.

Annualised hours in the engineering and NHS sectors, % of respondents reporting, 1995-8
Year Engineering NHS
1995 2 6
1996 3 10
1997 4 10
1998 8 18

The view that annualised hours is one of the keys to improved performance reflects ever-increasing competition in the private sector, and a scarcity of resources and increasing "marketisation" in the public sector. In the public sector, it is budgetary flexibility resulting from tightening controls over public spending, together with the introduction of greater managerialism and market testing, that have been important catalysts for change. In the NHS, working time flexibility has also long been a prime concern due to the need to reconcile permanent opening with variable levels of demand. Likewise, the need to make working time arrangements more acceptable to the workforce owing to recruitment and retention problems associated with relatively low pay, demanding work and the high proportion of "unsocial hours" has been an important additional factor. Especially significant, however, has been the response of local managers to a regime of tight cash limits and highly centralised (but under-funded) pay settlements for groups such as nurses (UK9710170F). In effect, if they are to live within their budgets, they have had little option but to focus on the variables in labour costs under their control, which means the numbers of workers employed and the hours that they work.

Current developments in the NHS

The Labour Government unveiled its human resource (HR) strategy for the NHS, Working together: securing a quality workforce for the NHS, in September 1998. The new approach introduces central targets for each local NHS Trust on a range of HR performance criteria, including tackling recruitment and retention problems, promoting equality and tackling violence in the workplace. The Government's legislative programme outlined in the Queen's Speech in November 1998 included an NHS bill which will abolish the "internal market" and replace it with "decentralised arrangements based on partnership, quality and efficiency". Trusts will be provided with central support and advice, which will extend to the measurement and "benchmarking" of HR activity. Amongst the main priorities for the Government are to develop a "partnership" approach to employee relations and to promote more efficient and flexible working practices, including part-time work and annualised hours.

Since a December 1997 white paper on The new NHS, annualised hours has been one of the main areas on which progress has been made on the Government's "immediate human resource priorities" for the health service, with many Trusts having at least implemented pilot projects. In a recent survey of 180 Trusts (Health Service Report, Industrial Relations Services, autumn 1998), 43 reported that they had finalised work on annualised hours and a further 105 said that they were examining it. The high level of interest was reported as deriving simultaneously from the search for cost-effective working time flexibility, and recruitment and retention problems which were leading to staff shortages and a more pressing need to accommodate to employees' working time preferences.


Annualised hours working in the UK is very much a minority practice, and one which is in overall decline across the economy as a whole. This is despite the many pressures in terms of competition, technology and tightening resources which would otherwise be expected to have stimulated their wider use. However, in some sectors where these pressures are at their most acute, such as engineering and the NHS, the number of organisations which are trying to reach agreement on annualised hours is in fact increasing. In the NHS, in particular, annualised hours working has grown particularly fast in recent years. This may be because patterns of demand for healthcare services, though variable, are generally more predictable than in manufacturing and less subject to wide-ranging peaks and troughs. There is also greater familiarity with variable hours working on a monthly or weekly basis, and far more part-time working owing to the high proportion of women in the NHS labour force. The extent of these other forms of flexible working also helps managers to make their adjustments to their labour scheduling without sole recourse to the annualised bank of hours. Subject to less extremes in their requirements, managers are also then able to use the annualised hours system as a "family-friendly" labour practice to accommodate to workers' own working time needs and preferences. It is this potentially greater ability to "give and take" in the public and service sectors more generally that has helped underpin the recent and dramatic growth of annualised hours agreements in these sectors. (J Arrowsmith, IRRU)

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