The understanding of how an employee earns one may lead to an expectation to receive the bonus regularly. See Regulations 29 CFR 778.419. The following is an example of how to compute overtime pay based on the employees regular rate: $10.00 per hour x 43 hours = $430.00 (total compensation for straight time), $430.00 + $50.00 (excludes $25.00 discretionary bonus) = $480.00 (total compensation), $480.00 + $16.74 +$25.00 (discretionary bonus) = $521.74 (total due). Shift Differential [Defined] The shift differential is the amount a staff member gets paid for working a shift that is outside of the normal 8 a.m. to 5 p.m. workday. Under Section 778.221 of the current regulations, if an employee is called back to work after his or her normal shift ends, the employee's pay for the number of additional hours actually worked is included in the regular rate calculation. We explore how to calculate them and the most common questions about the process. Only 2 percent of companies build shift differentials into salaries and pay a higher base salary. Before sharing sensitive information, make sure youre on a federal government site. The additional half-time must be computed based on the regular rate of pay. @media (max-width: 992px){.usa-js-mobile-nav--active, .usa-mobile_nav-active {overflow: auto!important;}} Since it can be less desirable to work the graveyard shift or weekend shifts,. All remuneration for employment (including shift differentials and bonuses) except those payments specifically excluded by statute. Table 1. The employee also receives a $25.00 on-the-spot bonus that week (because it was not preannounced to the employee, it is an excludable discretionary bonus). Shift differential will be included in the regular rate calculation for the computation of overtime. Shift differentials aren't required by federal law, but many companies, especially in the manufacturing industry, offer them as a way of encouraging employees to take an "undesirable" shift such as the night shift or a weekend shift. } Some states require overtime pay when employees work more than eight, nine, or 10 hours in a day. This can immediately attract qualified candidates and be the reason an employee accepts your job offer over another. $("span.current-site").html("SHRM China "); Please try again later. Some industries, like healthcare, also use this type of pay to accommodate a surge in demand. See Regulations 29 CFR 778.109. 92 percent of companies pay shift differentials to hourly employees. Culpepper Pay Practices & Policies Surveys, June 2008, Does this bonus have to be included in the regular rate? Shift differentials can be a strong incentive and help employers keep their operations running at all hours. Shift differentials are not legally required, but theyre a common perk given to employees who agree to work at odd hours or on holidays. The following examples provide guidance on how to calculate overtime for employees who receive shift differential pay. Finally, you can give a lump sum differential payment for second and third shifts. Shift differential premiums for salaried employees are usually calculated as percentage of base salary. .dol-alert-status-error .alert-status-container {display:inline;font-size:1.4em;color:#e31c3d;} A personal care assistant at an assisted living facility is paid $8 an hour and overtime on the basis of the 40 hour workweek system. A shift differential is a powerful tool that can help employers fill shifts that most people dont ideally want to work. Shift Differential Eligibility for Hourly Employees, Percent of CompaniesPaying Shift Differentials. #block-googletagmanagerfooter .field { padding-bottom:0 !important; } Shift differentials come in three forms: a percentage of basic hourly pay, a dollar amount per hour, or a dollar amount per shift. Shift differentials are taxed in the same way as regular wages. Consider how it will appear on your employees paycheck; as a separate line item or rolled into any overtime pay. The employee worked 45 hours, 30 of which were during evening shifts, in a week. .manual-search ul.usa-list li {max-width:100%;} " ? 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. Eligibility for Differential Pay Shift differential is paid for full 8, 10, or 12 hour shifts scheduled to begin between 11:00 a.m. and 9:00 a.m. the following day, provided the majority of straight time hours are worked between 3:00 p.m. and 7:00 a.m. Breakdown by size: Up to 100 employees: 8% 101 to 500 employees: 20% 501 to 2,500 employees: 33% 2,501 to 10,000 employees: 23% Over 10,000 employees: 16%, Breakdown by sector: Technology: 47% It may be changed if the change is designated to be permanent and not to evade the overtime requirements. A non-exempt employee is paid $10.00 per hour and receives a $50.00 bonus that was promised in a particular week for helping to produce a special order for a customer two weeks earlier than previously scheduled. Members may download one copy of our sample forms and templates for your personal use within your organization. Fact Sheet #22 provides general information about determining hours worked. $25/hr x 51 hours = $1,275 Step 2: Calculate extra pay The actual accounting term for extra pay is shift differential. Receive a free quote from our experts today. Regular rate + the half-time premium. The contents of this document do not have the force and effect of law and are not meant to bind the public in any way. To receive the shift differential, the employee must work at least one full hour after 5:00 p.m. or anytime on a Saturday or Sunday. Specifically, 29 U.S.C. Even if we go into a recession. Offering this unique compensation can prove to be beneficial to your business. Table 2. How much should she be paid for her eight hours of overtime? The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine whether to pay the bonus; The employer has the sole discretion, until at or near the end of the period that corresponds to the bonus, to determine the amount of the bonus; and. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. When employees with two hourly rates work overtime, their employers must calculate a blended overtime rate, also called a weighted average overtime rate. Eligible job titles and hourly rates to be paid must be authorized by the vice president, Human Resources, or a designee, following University rules governing delegation of authority. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. /*-->*/. Picture this: Its the holiday season, and inventory is flying off the shelves at your store. Public 49%; private 36%; not-for-profit 14%; government 1%.. Question 1:I know employers can't reduce wages retroactively, but what about shift differentials? Employers must include shift differential pay when determining an employee's regular rate of pay. There are businesses that must remain open after standard business hours to serve customers. Many employers think you calculate FLSA overtime based on an employees basic hourly rate, but thats incorrect and illegal. Chris earns overtime for those three hours, calculated based on premium rate, $54 per hour. p.usa-alert__text {margin-bottom:0!important;} Influence of labor unions on specific jobs. By paying more for those shifts, employers can attract workers who want to earn more per hour. Information regarding additional exclusions from the regular rate is available in Fact Sheet #56A. Since regular hours of operation vary by industry, so do the hours that offer differential pay. If so, how does it need to be calculated? Premiums calculated as a percentage of hourly pay rate typically range between 5 and 15 percent. Culpepper and Associates Inc., which conducts worldwide salary surveys and provides benchmark data for compensation and employee benefit programs. Applicable shift differentials are not included in the pay of employees who are on paid leave, such as vacation, sick leave, holidays, etc. The most common statutory exclusions in the long term care industry are vacation, holiday, and sick pay. Your financial situation is unique and the products and services we review may not be right for your circumstances. They all just look at you with blank stares. Jobs covered by labor unions might have different shift differential payments than nonunion jobs. These findings are discussed in detail below. If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience. Shift Differential Eligibility for Salaried Employees. Methods for Calculating Shift Differentials: Hourly Employees. Offering shift differential pay can help your organization overcome these staffing challenges since it shows your commitment to competitive pay. Type of shift. When someone is asked to work outside of the normal 8 a.m. to 5 p.m. shift, they may be eligible for pay that follows the shift differential formula. An official website of the United States government. If an employee works overtime during the 26 week period, the increase in the regular rate is calculated by dividing $76.92 by the total hours worked during the overtime week. Shift premiums can also vary based on the time and length of shift and the number of days and hours worked per week. While a bonus may be labeled discretionary, if it does not comply with the provisions of the statute, then the bonus is not an excludable discretionary bonus. .agency-blurb-container .agency_blurb.background--light { padding: 0; } Members can get help with HR questions via phone, chat or email. Many industries pay shift differentials to employees who work outside regular hours, but differential amounts and when theyre offered vary by industry. payments. Factors Influencing Shift Differential Premiums. Please purchase a SHRM membership before saving bookmarks. This compensation comes from two main sources. You can utilize differential pay as a recruiting tool and advertise it on job listings or during interviews. Shift differential pay incentivizes employees to pick up shifts at irregular times of day. Copyright, Trademark and Patent Information. Shift Differentials: Compensation for Working Undesirable Hours, New OSHA Guidance Clarifies Return-to-Work Expectations, Trump Suspends New H-1B Visas Through 2020, Faking COVID-19 Illness Can Have Serious Consequences, Holiday Employee Gift Giving in a Post-Pandemic World, Employers Get Innovative with Compensation, Average US Pay Increase Projected to Hit 4.6% in 2023. For additional information, visit our Wage and Hour Division Website: http://www.dol.gov/agencies/whd and/or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243). /*-->*/. If an employee works 85 hours in a 14-day pay period (including five overtime hours), a $75 bonus would increase the regular rate by $.88 an hour as follows: $ .44 (increase in the additional half-time), $2.20 (increase in overtime earnings due to the bonus). Join us at SHRM23 as we drive change in the world of work with in-depth insights into all things HR. #block-googletagmanagerfooter .field { padding-bottom:0 !important; } Copyright 2018 - 2023 The Ascent. When they work the evening shift, they are paid a shift differential of $1 an hour. }); if($('.container-footer').length > 1){ You add a flat payment to an employees pay without adjusting the basic hourly rate. The FLSA requires employers pay overtime hours at 150% of an employees hourly pay, also known as time and a half, after 40 hours of work in a week. An intermediate care facility for the disabled pays its employees on a bi-weekly basis. A shift differential is an extra bump in pay that some workers make for working outside of normal business hours. An employer can use both the standard 40 hour overtime system and the 8 and 80 overtime system for different employees in the same workplace, but they cannot use both for a single individual employee. An effective practice used by many employers is paying employees a premium to work undesirable shifts. Virtual & Las Vegas | June 11-14, 2023. This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations. Shift differential refers to the bump in pay (usually 10% to 15%) to work undesirable hours. What can you do to make them raise their hands enthusiastically? Certain longevity bonuses are excludable from the regular rate as gifts when given as a reward for service or tenure and provided the bonus payments are not made pursuant to a collective bargaining agreement or a city ordinance or policy.[2]. Next, determine the differential. var currentLocation = getCookie("SHRM_Core_CurrentUser_LocationID"); Regardless, it can be a challenge to determine when an employee is working outside their regular hours. 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