Understanding how shift differentials impact overtime

Policy considerations

Employers that offer differentials should review any policies that define eligibility for the differential. State labor agencies will often accept wage claims for compensation promised under the terms of a policy, even if the terms are interpreted in a manner that the employer did not intend.

For example, if a policy stipulates that employees who work after 6 p.m. will receive a differential, an employee from the day shift who works late may have a valid wage claim to receive the differential for hours worked after that time. Similarly, a policy might offer a differential for working on weekends. If an employee who missed a shift was approved to make up the missed hours, the employee might choose to make up the time by working on a weekend — and expect to receive the differential.

These situations can be avoided by clarifying that the differential is only available to employees who are assigned or scheduled to work a qualifying shift, but not to employees who voluntarily choose to work those shifts.

Holiday, vacation, and sick pay

When employees regularly work shifts that qualify for a differential, some employers wonder whether to include the differential in holiday, vacation, or sick pay. This is also entirely up to company policy.

Some employers feel that the differential is a reward for working undesirable shifts, so if employees are not actually working (e.g., on vacation), they are not entitled to the differential. Others feel that employees who are assigned to those shifts should receive the differential, even for paid time off. Either choice should be outlined in the policy to avoid confusion about when the differential applies.

Overtime credits

Some employers provide a differential that is at least 1.5 times the regular rate, such as paying time and a half for working on weekends. If the premium is at least 1.5 times the regular rate, it may be counted as a credit toward any overtime due that week.

For example, an employer's workweek might run from Sunday through Saturday. An employee who works eight hours on Sunday may receive time and a half, then work a total of 45 hours that week. This employee is entitled to five hours of overtime pay. However, this employee already received eight hours of pay that meets the overtime requirements, so no additional premium is required.

In this example, the employee doesn't become eligible for additional overtime upon reaching 40 hours. The fact that the premium was paid at the start of the week doesn't matter. As noted, the employee was already paid the required overtime premium (and then some). This overtime credit is also something that should be outlined in a policy to avoid complaints from employees who might otherwise expect additional premium pay.