Shift Differential Pay and Labor Law Compliance

Not surprisingly, holidays, weekends, and late nights are not the most popular working hours for employees. As a result, some employers offer shift differential pay, which provides workers with an incentive to pick up those undesirable hours. In turn, this also helps businesses maintain staffing around the clock when needed.

So how does a shift differential work and what do employers need to do to ensure they are compliant with federal and state labor laws? Let’s explore these questions further.

How does a shift differential work?

Essentially, an employer may offer shift differential pay, which is extra compensation for working undesirable shifts. For example, an employer may pay higher wages to employees that work on Christmas or that agree to work graveyard shifts overnight. The law does not require that employers offer this additional compensation, but it does help companies retain employees.

Although the employee will receive extra compensation for this work, the employer determines the rate at which the worker is paid. However, they may be willing to negotiate with the employee, depending on the company and the circumstances.

Fair Labor Standards Act and shift differentials

The Fair Labor Standards Act (FLSA) is a piece of federal legislation that dictates rules for employee’s payment. However, it does not require business owners to provide shift differential pay for less desirable shifts. Employers may still choose to do so, but their premium pay rules and policies must still comply with minimum wage and overtime laws outlined by the FLSA.

Additionally, the Civil Rights Act of 1964 prohibits employers from discriminating on the basis of race, color, religion, sex, or national origin. That means they have to offer shift differential pay to all workers. However, federal law does not require that employers offer differential pay to all employees working the same shift. For example, an employer might use differential pay to entice an employee to work a shift that he or she does not typically work.

Calculating shift differential

Calculating shift differential isn’t difficult, but to reduce human error, it is best done with an HR compliance and payroll solution that will automatically double check your work for you. Regardless, manually calculating shift differential can be achieved by completing the following steps:

• Determine the percentage of regular pay that is earned for working an off shift.
• Multiply the percentage by the employee’s hourly wage to figure out differential pay.
• Add the differential pay to the hourly wage to determine the total wages earned each hour during the employee’s shift.

Read a similar article about company LMS system here at this page.