What Is A Shift Differential & How Does It Work? (2024)

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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. It considers shifts Monday through Sunday, so weekends are also counted when considering the shift differential. Essentially, the worker gets a bump in pay for working hours outside of the normal business day. This bump can entice workers to take an undesirable shift because they get a higher pay rate.

Reasons To Use a Shift Differential

The reasons for using a shift differential are simple and make a lot of sense. It gives an employee more money to choose a shift that others might not want to work. By getting a bump in pay, the employee is able to justify working hours that fall outside of the typical workday. The shift differential rewards employees for working those shifts and makes it easier for employers to find someone to work unusual hours.

Shift Differential vs. Overtime

Shift differential and overtime are two different things. Shift differential refers to the bump in pay (usually 10% to 15%) to work undesirable hours. Overtime refers to the bump in pay (usually one and a half times the contracted pay rate) for working more than the standard 40 hours per week.

Overtime can apply to those working standard schedules or those who are working on a shift differential schedule. The key with overtime is that the 40 hours per week has been exceeded, and the employee gets more money because of that. The shift differential is just a bonus rate for working up to 40 hours at a nontraditional timeframe.

Take a look at some common examples of how shift differentials are used:

• Second or third shift: A factory has three shifts, with the second two shifts starting after the normal eight-hour workday. The second and third shifts may receive a shift differential of 20% to work the later shifts so that the factory can continue to produce products throughout the entire 24-hour day.
• Holidays: Employees may receive extra compensation to work on holidays. This rewards people who are willing to give up time with family and friends to keep the company operating.
• Weekends: A retail store offers employees more money to work weekends so that they can be open when most consumers have time off.

To calculate the shift differential, you need to know the starting rate of the employee and the actual differential. These two numbers are used to establish the shift differential rate.

1. Determine the Normal Rate

To start, determine the normal rate. Let’s say a factory pays its workers $10 an hour to work a standard shift from 8 a.m. to 5 p.m. The $10 is the normal rate and will be used to calculate the differential pay.

2. Determine the Differential

Next, determine the differential. Differentials are voluntary, though most companies choose a differential between 10% and 20% of the normal rate. Assume the factory is willing to pay 20% more for the later shift payroll. This is the differential.

3. Multiple the Normal Rate by the Differential

From there, take the $10 per hour and multiply that by the 20% shift differential. This is $2.

4. Add the Differential Value to the Normal Pay Rate

Lastly, take the $2 differential value and add that to the $10 per hour normal rate. This is $12 and is considered the shift differential rate. Employees will get paid $12 per hour to work non-ideal shifts.