What Is Annualized Staffing?

You’ve heard of the 40-hour week. The reason this term resonates is because most business staffing is based on a weekly timetable, meaning that employees work a set number of hours in each seven-day period. But depending on the nature of your business, using an alternate staffing model, like annualized hours, can be more advantageous to both your company and your employees.

In an annualized hours staffing model, you determine your employees’ hours on an annual basis rather than a weekly basis. For example, in a weekly hours model, you might determine that your employee works 40 hours per week. In an annualized staffing model, the same employee would work 2,080 hours per year, which is about 40 hours per week. However, since the staffing reflects annual needs, some weeks might require many fewer hours while other might require many more.

If you’ve ever had to pay your employees overtime, you know it can be expensive. In an annualized staffing model, you can pare down the staff you need during slow weeks or seasons, and require more hours during busier weeks and seasons. As long as the hours worked are within the annual allotment, you won’t need to pay overtime wages. This model is especially beneficial to businesses that have a workflow that varies based on the seasons, like retail or shipping.

Employees often benefit from an annualized hours model as well, since it lends itself to greater employee flexibility. Depending on the nature of your business, you may allow your employees to determine their own hours, as long as their yearly targets are met. Employees may be able to take vacations or shorten workdays without using paid time off, because they can make up the missed hours later. In addition, annualized employees will receive a salary in even payments, so they can plan their finances accordingly. In the case of termination, any wages already paid for hours not yet worked could be deducted from an employee's final paycheck -- or added to it, for hours worked but not yet paid.

For businesses that employ long-shift workers or are open around the clock, an annualized staffing model might be great. But if your business relies on employees who work set business hours, this model likely will not be advantageous. It’s also a poor model if your employees are highly diversified in skills and expertise, as you won’t have the same staffing flexibility as a company that employees many people for similar jobs. For employees, it’s possible that annualized staffing might reduce their take-home pay if they are accustomed to receiving overtime wages.