Shift differential pay is additional compensation provided to employees who work non-traditional hours, such as evenings, nights, or weekends. It is used to incentivize workers for taking on less desirable shifts outside of standard working hours.
Make every shift desirable
Shift differential pay is additional or modified compensation based on the time or job tasks associated with an hourly employee's shift.
For example, employees who work an overnight shift from midnight to 8 a.m. may receive a higher hourly rate than employees who work a standard day shift. Another typical example is incentivizing shifts immediately before and following major holidays—times that can be inconvenient for employees but essential to businesses. It’s important to note that shift differentials are identical for every employee who works the hours—they do not vary by the employee.
The truth about shift differentials
According to surveys conducted in 2010 and 2017, shift differentials are more common in manufacturing and customer support than in other types of jobs. These roles are on the frontlines of dynamic and essential industries—there is a perpetual need for goods and services.
As noted in the Culpepper U.S. Shift Differential Pay Practices Survey, which examined the practices of 202 U.S. organizations:
- The third shift is paid at a slightly higher rate than the second shift
- Holiday shifts typically are paid 1.5 times the base rate
- In lieu of paying shift differentials, some companies compensate employees for working undesirable shifts with additional paid time off
A 2017 survey published by ERC, noted similar findings:
- Participants report that 2nd and 3rd shift work (both weekday and weekend) are the most common shifts to be paid a differential
- Double shifts and holiday shifts are rarely paid a differential, most likely because the employers in the survey sample simply do not run shifts during those times, not because employers don’t place a premium on work performed during those hours.
- The most common shift differential paid by employers is a flat premium per hour
Shift differentials are common, especially for hourly employees:
- 92 percent of companies pay shift differentials to hourly employees
- 36 percent pay shift differentials to salaried employees
Shift differential pay is often calculated as 10% of the hourly wage for the role. Companies offering shift differential pay to salaried employees will extrapolate a theoretical hourly wage based on yearly salary and apply the rate across the board.
What’s a normal shift anyway?
The definition of a “normal shift” is dependent on the industry in which one works. Shift differential pay is most often applied in the security, healthcare, manufacturing, and customer support industries—and those industries have vastly different goals and demands.
It’s not uncommon for customer support businesses to have typical “9-to-5” hours. If an employer needs to add extended hours to accommodate a product launch, the holiday season, or a recall effort, for example, they may offer differential pay for those hours.
The expectations in the healthcare industry are different. Weekend and overnight work are typical—hospitals never close. Here, shift differential pay may be applied to accommodate an unexpected surge in demand, incentivizing employees to work hours outside their normal schedule.
Shift differential pay vs. overtime
Shift differential pay is not overtime. The two are related and complementary, but not calculated in the same way, nor do they have the same legal implications.
Shift differential pay is not legally required. It is simply used to incentivize work during hours outside the norm. It also varies by business—for example, some businesses may offer shift differential pay as a percentage of an hourly rate while others offer a fixed dollar amount. Those percentages and rates can vary significantly within identical industries as well.
Overtime pay is legally required for most hourly employees who work more than a standard 40-hour workweek. The Department of Labor has more information on the Fair Labor Standards Act (FLSA) and defining overtime pay in your industry and state.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.