Employers that add weekend hours during the holiday season might offer differential pay for those irregular hours. A hospital is less likely to offer weekend differentials because weekend work is typical in the industry.
Industries that offer shift differentials often require hour work. Source: Unsplash. Hourly employees who work more than a hour standard workweek are generally entitled to overtime pay, according to the Fair Labor Standards Act FLSA.
Some states require overtime pay when employees work more than eight, nine, or 10 hours in a day. It can happen that you must pay an employee overtime on top of shift differential premium pay. Add in the differential pay before the overtime rate. Overtime pay must be calculated as 1. Chris already worked 35 hours this week before going into the eight-hour shift. First, calculate hourly pay for the overnight shift. Shift differentials and overtime together can significantly increase your payroll costs.
Your payroll software payroll analytics can reveal ways to keep payroll costs within budget. As with other hourly employees, they are entitled to overtime pay and may be offered differential pay. Think of restaurant workers who might be both bartenders and waiters. They might have one hourly wage when bartending and another when waiting tables. When employees with two hourly rates work overtime, their employers must calculate a blended overtime rate, also called a weighted average overtime rate.
Put multiple hourly rates, shift differentials, and overtime together, and you have a pretty complicated payroll calculation. Her entire shift is subject to both shift differential and overtime pay. Next, determine her gross pay without overtime by multiplying each premium hourly rate by the number of hours spent in each role. Then, find the average hourly rate by dividing total gross pay before overtime by the number of hours worked. Now you can calculate the blended overtime rate by multiplying the average hourly rate by 1.
Payroll taxes are calculated on gross wages or taxable wages, depending on the tax. Shift differentials are taxed in the same way as regular wages. As their employer, you can take the same payroll deductions for their wages.
Shift differentials can be a strong incentive and help employers keep their operations running at all hours. Are you paying more in taxes than you need to?
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Another way to pay call-back premiums might be to pay the employee for more hours than he or she actually worked or a minimum number of hours. Some states have laws requiring premium pay for work performed on weekends or holidays. Hazard Pay. This type of pay is often offered when workers are deployed to countries involved in a war or conflict or in situations where individuals may be directly exposed to hazards on the job e. Employees would typically receive the regular rate of pay for their job plus an additional hourly hazard pay rate, although some employers will provide hazard pay in the form of lump sum bonuses based on the length of the hazardous duty.
Whatever your company practice for differential or premium pay, it is important to have a written policy that clearly communicates the amount of additional pay employees receive and under what circumstances. SHRM offers several sample policies:. Shift Differential Policy.
Hazardous Duty Pay Policy. On-call Pay Policy: Emergency Call-back. Pay raises in the U. You may be trying to access this site from a secured browser on the server. Please enable scripts and reload this page. Reuse Permissions. Page Content. Shift Differential The most frequently offered type of differential pay is given for specific work shifts and is common in the manufacturing industry.
Call-back Premiums Call-back premiums are provided for work performed after normal hours, such as during a workplace emergency. In many cases, shift differential is used to incentivize employees to work evening or overnight shifts or on weekends or holidays. Because the government does not mandate shift differentials, employers are free to set their own policies as long as those standards conform to minimum wage and overtime laws.
According to the Fair Labor Standards Act FLSA , nonexempt employees must receive overtime pay — at one-and-one-half times their regular rate — for work hours exceeding 40 for the week. If an employee works outside normal business hours but does not work more than 40 hours for the week, you can pay him or her shift differential.
However, under the FLSA, you do not owe him or her overtime.
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