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Understanding Shift Differential Pay

Scheduling employees for unpopular shifts can be a challenge. That’s why many businesses offer shift differential pay, meaning they pay employees more when they work the shifts others don’t want to. It’s a simple way to incentivize, reward, and retain employees for performing a difficult but necessary service for your company.

Companies typically offer shift differential pay for:

  • Evening shifts
  • Overnight shifts
  • Weekend shifts
  • Holiday shifts
  • Shifts outside an employee’s typical schedule
  • Ongoing coverage of an undesirable shift

Companies with hourly employees often increase the hourly wage during these times by a set percentage, perhaps at the rate of time-and-a-half. Salaried employees, on the other hand, may receive a flat rate on top of their monthly pay for taking on a difficult shift. In other cases, employees may receive extra paid time off instead of extra money.

Please note that shift differential pay is not the same thing as overtime pay. Any hour someone works beyond the standard 40 in one week is paid out at a higher rate. But shift differential pay applies only to hours worked during specific, inconvenient times, regardless of the total number of hours the employee has worked.

Should your business offer shift differential pay? Read on and find out for yourself. Below, we’ll explore the benefits, relevant laws, and logistics of implementing this practice.

What businesses have shift differential?

Businesses with long or irregular hours are the most likely to offer shift differential pay. Below are a few common examples.

24/7 retail stores

Lots of convenience stores, pharmacies, gas stations and rest stops remain open 24/7. Though managers may cut down on staff during the slower hours, they still need someone around to provide round-the-clock service.

Medical Services

Emergency centers, including veterinary practices, may offer overnight, weekend and holiday care outside of regular practice hours.

Manufacturing

Construction and manufacturing companies may employ overnight workers to make their work less disruptive to neighboring communities or to meet difficult deadlines.

Transportation

Bus drivers, pilots and additional travel personnel often work non-traditional hours. Managers may offer differential pay to attract drivers during these times.

IT and Customer Support

24-hour hotlines and online answer systems help companies provide ongoing support for those using their products.

Businesses with High Seasonality

Businesses with heavy seasonal trends such as resorts, caterers, and retailers who get more customers around the holidays may require more help during busy times. Working during peak hours in a seasonal business can be more taxing compared to other times of the year, so employers may offer increased pay during those shifts to encourage employees to take them.

How do employees benefit from shift differential?

The first and foremost benefit of shift differential pay for employees is that they make more money when they work an undesirable shift. But there are other benefits as well. The opportunity to take on a shift with differential pay means staff have options if they have an unexpected expense or need to take time off and make some extra cash to cover it.

On an emotional level, shift differential pay also gives a sense of recognition to employees who go above and beyond. Working at odd hours is a form of sacrifice, and differential pay lets employees know that their company understands and appreciates that.

Shift differential laws and regulations

Though differential pay is a popular practice, private businesses are not required to offer this incentive for holiday, weekend or night work. Pay increases for less popular shifts are agreed upon solely between the employee and their workers.

Federal law does, however, require overtime pay for those that work more than 40 hours in a week. This is true no matter what times of day employees work those hours. Individual state laws may include additional overtime laws as well.

Government employees, however, are governed by a separate set of night shift laws. These employees receive a percentage of differential pay for late night schedules depending on the hours worked.

Is shift differential right for your company?

Offering a set amount of additional pay for difficult shifts can be used as a tool to streamline scheduling issues. Differential pay may be right for you if:

  1. You require 24/7 support
  2. Evening, overnight or weekend shifts occur on a regular basis
  3. You’re looking for ways to improve morale and employee appreciation
  4. You’re seeking dependable employees to take on undesirable or last-minute shifts

Differential pay might be especially helpful with the transition to late-night or weekend hours if your business’ schedule has recently changed. Breaking employees out of their regular work schedules can be tricky, but offering incentives may attract the attention you need.

How to implement a shift differential policy

Consistency and communication are crucial when implementing any changes that affect payroll. You need to clearly and publicly document your shift differential policies in your employee handbook, contracts, and communications with staff during the hiring process. If you choose to create a new policy throughout the company, communicate the change to your entire team.

In your shift differential pay policy, be sure to include:

  1. A rundown of which shifts are covered by the policy
  2. The amount you’ll increase pay for those shifts
  3. Any special cases when employees can receive shift differential pay outside of the shifts you describe in #1. For instance, you may offer shift differential pay on a one-off or ongoing basis if an employee takes on a new shift outside of their normal schedule or provides last-minute coverage.

The actual math of your shift differential policy will depend on the types of employees who’ll be benefitting. Let’s look  at a few examples.

Shift differential for hourly employees

Offer a percentage-based increase to an employee’s hourly wage if they work a shift covered by your differential pay policy. As mentioned earlier, many employers offer time-and-a-half in these cases. For example:

If an employee makes $20 an hour and works 15 normal hours during the day and 5 shift differential hours in one week, their pay would be as follows:

$20 X 15 hours: $300

$30 (time-and-a-half) X 5 hours: $150

Total gross pay for the week: $300 + $150 = $450

Shift differential for salaried employees

What if salaried employees take on non-traditional hours? There are two ways to provide differential pay in this case. You can determine the salaried worker’s “hourly” wage by dividing their weekly rate by 40, and then follow the steps for hourly employers above to determine their extra pay for the hours covered by your policy.

You can also institute a flat fee policy for working differential shifts. For example, some employers add a $100-$200 bonus to an employee’s next paycheck for each shift they work covered by the policy. Others may set the fee at a specific percentage of an employee’s overall income.

For example, if an employee’s monthly pay is $5000, employers may add a 5% bump ($250) for each additional shift worked under the differential pay policy. So, let’s say that in one month, that employee works two shifts covered by the policy. They’re monthly take-home would be:

Standard monthly pay: $5000

0.05 X $5000 X 2 (5% of $5000 for each differential shift): $500

Total gross pay for the month: $5000 + $500 = $5500

PTO for shift differential

Instead of extra pay, some companies offer additional paid time off if a team member works a weekend, holiday, or evening shift. This is particularly helpful for businesses with salaried staff, and may occur when employees work a conference or promotional event hosted by the company. An extra day of PTO is almost always cheaper for the company, but can be just as enticing for the employee.

Increasing base pay

Raising an employee’s base salary or hourly wage can also make up for a large shift in the work schedule. For example, an employee that previously worked afternoons in a call center may agree to switch to working overnights several times a week. If the change is permanent, the employer can simply increase their base pay to cover the difference and prevent the employee from looking for a new job.  

Shift differential recommendations

Employees will always naturally favor some work hours over others. Working overnight or through holidays can affect one’s quality of life, and it’s important for employers to recognize this. Differential pay provides that recognition and offers a financial incentive for employees to .

Though differential pay is not regulated in private companies, choose a system that best reflects the lifestyle of your team to maintain a healthy and steady schedule.

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Henry heads up marketing at Nowsta: the easiest way to schedule, manage, and pay hourly staff.

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