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Learn how to compensate appropriately for nighttime shifts to boost morale and show appreciation.
Not all businesses operate during standard business hours. Industries such as health care, manufacturing and transportation often have employees working around the clock. Since many employees prefer day shift hours that align with a more regular schedule for sleep and family obligations, it can be difficult to motivate them to work at night.
That’s where night shift differential pay comes in. When employees typically work during the day but are scheduled for a late or overnight shift, extra pay can motivate them to accommodate these undesirable hours.
Night shift differential pay — also called night differential — is an increase in an employee’s pay rate during second or third shifts. You can pay the employees working the shifts an additional flat rate per hour or an additional percentage based on their wages.
Night shift differential pay applies to employees who don’t typically work night shifts. It’s not the same as night pay, which is the wages you pay employees who usually work a second or third shift. For example, your overnight security guard, who always works 10 p.m. to 6 a.m., earns night pay. Your employee who typically works daytime hours — or first shift — but instead takes a later shift earns night differentials.
The math underlying night shift differentials isn’t complicated, but it can quickly become tedious. The best payroll software can take care of the math for you while streamlining employee payments.
You can calculate night shift differential pay in two ways:
Here’s more information about each method.
Let’s say you ask your employees, Kevin and Jennifer, to work at night this week. You offer them an additional $15 per hour to complete their overnight tasks. Kevin normally earns $30 per hour and Jennifer earns $35. Both hourly employees worked 30 daytime hours and 10 nighttime hours this week. Here’s how you’d calculate their night shift differential pay:
Based on this calculation, you’ll pay $450 in night shift pay to Kevin and $500 to Jennifer. Your total night shift differential value, however, is just $300: $15/hr x (10 hours + 10 hours). This is the extra money you’re paying Kevin and Jennifer for night work. The remaining $650 represents wages you’d pay anyway: ($450 + $500) – $300.
Using the same employees and standard wages, let’s say you offer each employee a 10 percent wage increase for nighttime work. In this case, Kevin’s nighttime rate would be $33 per hour: $30/hr x (1 + 0.1), while Jennifer’s overnight rate would be $38.50 per hour: $35/hr x (1 + 0.1).
With the schedules above, you’d pay the following total wages:
In this case, you’re spending $3 per hour on Kevin’s night differentials and $3.50 per hour on Jennifer’s differentials. That totals $65 in night differentials ($3 x 10 + $3.50 x 10), which is substantially less than the $300 you would spend using a $15 universal wage increase.
When it comes to calculating night shift differential pay, every business is different. “I’ve had clients offer it at a percentage and others offer a flat rate,” said Stacy Kildal, founder at Kildal Services LLC and QuickBooks ProAdvisor. “It’s best to find out what the industry average is, so that a business can be competitive when filling those positions.”
Night shift differential pay applies when employees are needed to work atypical hours. Chances are, certain seasonal demands or projects will sometimes require unusual schedules. Night differentials are a suggestion, however, not a legal requirement.
The federal Fair Labor Standards Act (FLSA) requires overtime pay (and, by extension, blended overtime pay), but it does not mandate night differentials. No federal laws require nighttime differentials. Most states and localities lack second- and third-shift differential pay laws as well, but you may want to consult a local expert to be on the safe side.
Integrating the best time and attendance software with your payroll software can help ensure proper time tracking and pay rates. Although FLSA doesn’t require night shift differentials, it’s essential to understand and properly record time, attendance and pay to ensure that you remain in compliance.
Night differentials wouldn’t exist if they didn’t benefit your business. It’s generally best practice to offer night shift differentials to your employees in the following situations:
How you speak about night shift pay is also important. “I’ve had clients in the past offer it when they are asking employees to move from a regular day shift to an evening or overnight shift, or when they’re having a rough time finding good candidates for open positions,” Kildal said. “They a/b tested what they called it and found that candidates were more interested when it was called a ‘shift premium’ vs. ‘shift differential.’”
Theoretically, yes. You can choose to offer employees vacation time or PTO instead of differentials for their nighttime work. If an employee works 20 nighttime and 20 daytime hours during a week when they would typically work 40 first-shift hours, for example, you could give them an additional 20 hours of vacation time. That way, you don’t spend extra money but still show your appreciation.
There are plenty of ways to reward employees for working night shifts when they typically work during the day, and night differentials are just one suggestion. “There are always alternatives,” Kildal said. “Whether employees and employers agree they are reasonable is really the question.”
Showing gratitude through night shift differential pay is more than a kind gesture; it also benefits your business.
If you make your employees feel appreciated for the work they provide, you will reduce turnover, keep your company productive and boost morale.
Casey Conway and Jennifer Dublino contributed to this article.