Shift Differentials: Definition & Payroll Calculations

Instructor: Maneesh Mehra
In this lesson, we will define shift differential pay and learn how to calculate it in payroll. We will also discuss its uses in different industries and the federal laws by which shift differentials have to follow.

What is Shift Differential?

Shanice has taken on a job as a triage nurse at her local hospital. She works 8am to 5pm, a pretty typical shift for employees everywhere. As she meets some of her coworkers, she notices that some of them work tough hours - sometimes from 11pm to 7am. Shanice wonders why they would want to take such an unpopular shift - how tiring!

Businesses often need to extend their hours of operation to meet certain consumer demands. This can mean that employees are needed to work in less desirable shifts like swing, night shift or on holidays. As an incentive, companies can pay shift differentials to employees as compensation.

A shift differential refers to extra pay, or 'differential pay,' received by employees for working an odd shift.

Federal laws do not make it mandatory for an employer to provide the shift differential pay to the employees (as it does with overtime pay). But businesses often offer it anyway to help retain employees, as long-term workers are a benefit to any industry. Some companies choose to provide other benefits instead, such as additional paid leave.

Common Industries Using Shift Differentials

Shift differentials are provided in the healthcare industries, customer service and support, banking industries and especially in manufacturing where work hours are often extended to meet a sudden increase in demand. Managers take later shifts to handle difficult situations and are often paid more than other staff. In the healthcare industry, an emergency doctor may get paid more to work on night shift instead of normal day shift.

Payroll Calculations

As shift differential pay is not regulated by the government, there is not any standard way of paying it. Payroll for shift differential can be calculated as follows:

  1. Find the regular hourly pay and the percent extra earned for the odd shift.
  2. Multiply the percentage by the regular hourly pay. This is your differential pay.
  3. Add the differential pay to the regular hourly pay to figure out the total earned for working an odd shift.

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