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Definition

What is shift differential pay?

Shift differentials are used to adjust the compensation of an employee due to the time of day or the day of the week that the employee worked. For example, an employee working the midnight shift is generally compensated higher than one who works a traditional 9-to-5 shift. An employee who works on a holiday may also receive a shift differential. Shift differentials are not required by law, as in the case of Fair Labor Standards Act (FLSA) requirements, but will encourage employee retention by incentivizing employees to take less desirable shifts. Shift pay increases are generally given to hourly employees but can also apply to salaried employees.

Requirements

Employees must be paid the same rate if they work the same shift

The shift differential applied to an employee’s pay must be the same for all employees who work that shift. For example, if the typical rate for working on holidays is 1.5 times the employee’s regular hourly pay, then that rate must apply to all employees who work that shift.

Shift differentials are used to incentivize employees who work outside of traditional 9-to-5 hours.

Graveyard Shift
Weekends
Holidays

Industry

Industries that typically have shift differentials

Shift differentials can be used across all industries, but here are examples of industries that commonly use them.

Manufacturing
Production output is critical in a factory environment. Employees are generally required to work around the clock to ensure that production never stops.
Retail
Some retail stores need to remain open at odd hours to be available for customers whenever they decide that they are ready to make a purchase. Shift differential incentives may be given to employees who work these hours.
Health Care
The need for health care can happen at any time. Generally, hospitals offer late night shifts and will incentivize doctors, nurses, and other health care professionals with extra pay for those hours.
Restaurants
In general, bars and restaurants need to remain open late at night or on holidays to meet the needs of customers. Restaurants may offer increased pay for servers and cooks willing to work odd hours.
Customer Service
Businesses in customer service need to have a full staff during their busiest hours. The busiest time could be late at night or early in the morning depending on the location of the service center and the time zone that they serve.
Retail
Some retail stores need to remain open at odd hours to be available for customers whenever they decide that they are ready to make a purchase. Shift differential incentives may be given to employees who work these hours.
Restaurants
In general, bars and restaurants need to remain open late at night or on holidays to meet the needs of customers. Restaurants may offer increased pay for servers and cooks willing to work odd hours.

Why

Why employers should care about shift differentials

Shift differentials are crucial to retaining employees and ensuring that important shifts are consistently staffed in full. Employees will generally stay at their jobs longer if they feel they are being properly compensated. It is also important that employers do not overpay employees for working these shifts as this can eat into potential profits. Employers can prevent overpaying by subscribing to a compensation management solution, such as ERI’s Assessor Platform, to ensure they implement a shift differential policy with competitive rates.

Contact Us

How ERI can help

ERI’s Assessor Platform can account for shift differentials for multiple employees. Our powerful compensation management system allows you to easily compensate employees differently based on the shifts that they work. These differentials are calculated using ERI’s robust database, ensuring that your differentials are comparable to those in your specific industry. See how shift differentials can affect pay by trying a demo version of our compensation software. For additional information on how we calculate shift differentials or to get specific shift differential information for roles, please contact us.