Shift Differentials: Compensation for Working Undesirable Hours

Organizations with 24/7/365 operations face the challenge of recruiting and staffing employees to work beyond standard day shifts. An effective practice used by many U.S. employers is using shift differentials—pay premiums to compensate employees for working shifts other than regular weekday hours. (To learn more, see the SHRM Online resource "How to Calculate Overtime Rates for Shift Differentials.")

Key Findings

The following are highlights from the 2010 Culpepper U.S. Shift Differential Pay Practices Survey of 202 U.S. organizations, fielded July 16-Sept. 17, 2010:

• Shift differentials are more common in manufacturing and customer support jobs than in other types of jobs.

• The third shift consistently is paid at a slightly higher rate than second shift.

• Holiday shifts typically are paid at time and a half, or 1.5 times base rate.

• In lieu of paying shift differentials, some companies compensate employees for working undesirable shifts with additional paid time off.

These findings are discussed in detail below. For more about the survey sample, see "About the Survey" at the end of this article.

Shift Differential Eligibility

Shift differentials are more common in manufacturing and customer support jobs than other types of jobs. (Table 1.)

Shift Differential Eligibility: Hourly Employees

Most companies with multiple shifts pay premiums to employees working second shifts, third shifts and holidays (Figure 1). In lieu of paying shift differentials, some companies compensate employees for working undesirable shifts with additional paid time off.

Hospitals and health care service organizations pay differentials more often than other types of organizations for holiday (78 percent) and weekend shifts (68 percent).

Methods for Calculating Shift Differentials: Hourly Employees

Companies are nearly equally split on the method used to calculate shift differentials for hourly employees: 49 percent pay shift differentials as an additional flat amount per hour, and 47 percent calculate the differential as a percent of the hourly base rate (Figure 2).

Shift Differential Eligibility for Salaried Employees

Nearly one-fourth of companies with multiple shifts pay premiums to salaried employees working shifts other than regular workday shifts (Figure 3).

Methods for Calculating Shift Differentials: Salaried Employees

Most companies pay their salaried employees an additional percentage of base salary for working undesirable shifts (Figure 4).

Only 2 percent of companies build shift differentials into salaries and pay a higher base salary. Although incorporating shift premiums into an employee's base salary might be the least difficult way to deliver them, problems can result from this approach:

• Providing premiums within base salary compounds the costs of regular salary increases, incentive payouts and other benefit costs. If an employee moves to another shift, rescinding the premium requires a base salary cut, a difficult action to communicate to an employee without affecting morale and productivity.

• Paying shift differentials as a separate salary supplement or cash bonus avoids these problems and allows for variation in the payment of premiums as shifts change.

Factors Influencing Shift Differential Premiums

Shift differential premiums vary depending on a number of factors, including job function, level of responsibility, influence of labor unions on specific jobs, location and type of shift. For example:

• Employees with high levels of responsibility, such as managers, usually qualify for higher shift differential premiums than other employees working the same shift.

• Jobs covered by labor unions might have different shift differential payments than nonunion jobs.

• The time and length of shift and the number of days and hours worked per week can cause shift premiums to vary.

Culpepper and Associates conducts worldwide salary surveys and provides benchmark data for compensation and employee benefit programs.

Reposted with permission.

Source: 2010Culpepper U.S. Shift Differential Pay Practices Survey, October 2010, www.culpepper.com

Related Article:

How to Calculate Overtime Rates for Shift Differentials, SHRM Tools and Templates, December 2010

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