How to Provide Shift Differential Compensation to Employees

Shift differential compensation is additional compensation meant to recognize and reward time worked outside of daytime shifts and, in some cases, weekday shifts. It has long been part of bargaining agreements covering labor that occurs in manufacturing, retail, hospital and other institutional sites that operate around the clock. More recently, Internet-based companies serving global customers 24/7 have come to provide shift differential compensation to maintain round-the-clock employee coverage.

Instructions

Difficulty: Moderate

Provide Shift Differential Compensation To Employees

1. Define your company's regular daytime hours, then separate out all hours that will qualify for shift differential compensation. Regular daytime hours in your company may run, for example, from 8 a.m. to 5 p.m. or from 7a.m. to 7 p.m.. In a company where most employees work first (7a.m. to 3 p.m.), second (3 p.m. to 11 p.m.) or third (11 p.m. to 7 AM) shift, simply follow the shift schedule, with first shift getting base pay with no shift differential.
2. Create an hourly grid showing all 168 hours in the week and designate each of the 168 hourly blocks with one of four categories: Daytime, Evening, Night or Weekend. If you don't intend to recognize weekend hours differently from weekday hours, or night hours differently from evening hours, simply collapse the category breakdown from four to two or three categories.
3. Establish the shift differential that you will apply to each category, either as a percentage of base pay or a fixed dollar amount. Many companies provide a 10 percent differential to evenings and a higher differential for nights and weekends.
4. Define jobs and employee groups to which you will provide shift differential compensation, driven by company needs and fairness. Generally the differential should be available to groups of employees whom the company needs to be at work at non-daytime hours in order to ensure company effectiveness.
5. Write a statement detailing your shift differential compensation plan to include in your personnel policies. Review it with your accountant and human resources manager to ensure that it complies with the Fair Labor Standards Act and your state's labor laws.
6. Count an employee's shift differential compensation for a given work week as part of the employee's base pay for purposes of determining overtime and cash-out payments for accrued paid time off.
7. Specify in writing how you will apply shift differential compensation to other benefits, such as sick leave and vacation.
8. Compound differential compensation when two categories apply, such as evening and weekend.

Tips & Warnings

• Make sure that your payroll manager and payroll services vendor understand your shift differential compensation policy and have automated systems in place to handle all resulting situations routinely.