• Extra compensation for employees working outside of a standard day shift, or shift differential, should be included when calculating overtime pay.

Shift differential refers to extra compensation an employee receives for working outside of a standard day shift or, in some cases, on weekends. As an example, an employer might pay one employee, who works from 6 a.m. to 2 p.m., Monday through Friday, a base wage of $10.50 an hour. That employer might also pay a second employee, who works a 2 p.m. to 10 p.m. shift, $11.50 an hour, offering the extra dollar per hour for working on second shift.

Another employer might pay double time on Sundays. Organizations might also offer premium compensation for employees who work on holidays. Beyond applicable overtime pay, shift differentials aren’t required, and employers decide how much or little extra pay to provide.

Employers use shift differentials as an incentive to attract employees to less-desirable shifts or reward them for working outside of their normal hours. For example, a manufacturer might offer a higher hourly rate to those who regularly work second or third shift, or to employees who are asked to work on Christmas Day to meet production demands.

Since a shift differential is traditionally added to hourly pay, it will generally have to be included when calculating overtime. For example, if a position would normally pay $12 per hour (with overtime at $18 per hour) but employees on second shift are given a differential of an extra $1 per hour, they are treated as earning $13 per hour, and overtime must be paid at $19.50 per hour.

In some cases, a differential is provided in the form of a daily or weekly bonus. However, it still affects the regular rate upon which overtime is calculated. This is because the payment was made under a contract or agreement, and was provided as consideration for hours worked, production, or efficiency.

For example, if an employee works a 10-hour shift, it does not matter whether the employer provides an extra $1 per hour or a flat $10 bonus for working that shift. Both forms of compensation are provided as consideration for hours worked, so both affect the overtime rate.

Occasionally, an employee may work a “split shift” where some hours get the differential, and others do not. For example, an employee who works the day shift might work a double shift to cover for someone on the night shift who called in sick, and get the differential during the night shift. In this case, the employee may be paid overtime based on the average hourly rate for the week.

Alternative assignments

Since employers are not required to offer shift differentials, company policy will control when they must be paid. This can create potential conflicts when, for example, an employee is temporarily assigned to a different shift or voluntarily works another shift. This may occur when a transfer is needed to cover for another employee’s absence or when an employee is reassigned to another shift for light duty.

If the policy states that anyone who works a particular shift will receive the differential, an employer will likely be obligated to follow that policy, even if the company did not intend to provide the differential in that situation.

Some employers even provide a differential for working on weekends, and an employee may voluntarily work on a weekend, then expect the differential for that time. A strict reading of the policy may show that the employee is entitled to the differential, and state labor agencies will often enforce the terms of company policy.

For these reasons, employers should consider writing exceptions into the policy. For instance, the policy may state the differential is only available when employees are assigned to work another shift, or when the requirement to work another shift (or a weekend) is mandated by the company. The provision may clarify that employees who request a temporary transfer for their own convenience, or who voluntarily work during another shift without having been assigned to do so, will not be eligible for the differential.

Similarly, the policy may include a provision that if an employee is temporarily reassigned to another shift for light duty, the shift differential will not be available for that light-duty assignment.