There is no doubt you have worked your fair share of night shifts to meet client demands for your small business. While most employees prefer a day shift, night shift differential pay can make these undesirable hours more tolerable.
What is night shift differential pay?
Before you compensate for nighttime work, you should understand what differential pay is and when it applies. Night shift differential pay – or night differential – is an increase in an employee’s pay rate during second or third shifts. You can pay all employees working these shifts an additional flat rate per hour, or an added 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 describes the wages you give to employees who normally 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.
How to calculate night shift differential pay
Below are two ways to calculate night shift differential pay. The first option is to give the same wage increase to all your employees. An alternative is to give your employees working overnight a percentage of their standard wages.
Universal wage increase
Let’s say you have asked your employees Kevin and Jennifer to work at night this week, offering them an additional $15 per hour to complete the overnight tasks. Kevin normally earns $30 per hour, and Jennifer earns $35 per hour. Both hourly employees worked 30 daytime hours and 10 nighttime hours this week. This is how you calculate their night shift differential pay:
- Kevin: 30 hours x $30/hr + 10 hours x ($30 + $15)/hr = $900 + $450 = $1,350 total
- Jennifer: 30 hours x $35/hr + 10 hours x ($35 + $15)/hr = $1,050 + $500 = $1,550 total
Based on this calculation, you’ll pay $450 in night shift pay to Kevin and $500 to Jennifer. However, your total night shift differential value 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.
Percentage-based wage increase
Using the same employees and standard wages, let’s say you offer each employee a 10% wage increase for nighttime work. In this case, Kevin’s nighttime rate would be $33 per hour: $30/hr x (1 + 0.1); and Jennifer’s overnight rate would be $38.50 per hour: $35/hr x (1 + 0.1). With these schedules, you’d pay the following total wages:
- Kevin: 30 hours x $30/hr + 10 hours x $33/hr = $900 + $330 = $1,230
- Jennifer: 30 hours x $35/hr + 10 hours x $38.50/hr = $1,050 + $385 = $1,435
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.
Tip: Offering percentage-based increases may help you save money on labor while still providing generous perks for nighttime work.
How to tally night shift differential pay
The math underlying night shift differentials isn’t complicated, but it can quickly get tedious. The best payroll software can do this math for you while streamlining employee payments. Consider choosing a highly popular platform that also includes HR features, and you’ll quickly calculate and pay accurate night differentials. Our reviews of Gusto and ADP show how services like these can fulfill your company’s payroll needs.
When does night shift differential pay apply?
Night shift differential pay applies when employees must work atypical hours. Chances are your seasonal demands or projects will require these unusual schedules. Night differentials are a suggestion, however, not a legal requirement.
The federal Fair Labor Standards Act (FLSA) require overtime pay (and, by extension, blended overtime pay), but it does not mandate night differentials. There are also no federal laws that require nighttime differentials. Most states and localities lack second- and third-shift differential pay laws as well, though you may want to consult a local expert to be on the safe side.
FYI: Night shift differential pay is beneficial to offer, but no federal laws mandate that you do so.
When is it best practice to offer night shift differential pay?
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 these situations:
- Pressing projects: Many entrepreneurs like yourself can recall weeks when work did not end at 5 p.m., but at midnight. These weeks were perhaps necessary for you and your employees to complete an urgent project. Giving night differentials to the employees who worked these hours shows your appreciation for their commitment to your company.
- Travel: Let’s say an employee works a typical 9 a.m. to 5 p.m. shift, then immediately takes a cross-country flight for a conference. They then arrive at their hotel close to midnight, immediately go to sleep, and start work at 9 a.m. again the next day. You might want to cover this employee’s travel time with night differentials, as it compensates the employee for their personal time.
- Holidays: Especially in retail, holidays can lead to overwhelming increases in demand. If you can’t find temporary employees for these occasions, you might need to ask some daytime employees to work other shifts. Your employees will more likely do so if you offer pay differentials as an incentive.
Do alternatives to night shift differential pay exist?
Theoretically, yes. You can choose to offer employees vacation time instead of differentials for their nighttime work. For example, if an employee works 20 nighttime and 20 daytime hours during a week when they would typically work 40 first-shift hours, you could give an additional 20 hours of vacation time. This way, you don’t spend extra money, but you show your appreciation.
There are infinite ways to reward employees for working night shifts when they typically work during the day – night differentials are just one suggestion.
Why should you pay night shift differentials?
Showing gratitude through night shift differential pay is more than a kind gesture; it benefits your business in the following ways:
- It stabilizes employee morale. Most employees who work daytime hours don’t want to work at night. If anything, nighttime work is among the most significant ways to drain daytime employees’ morale (whereas a simple initiative like flextime improves employee morale). If you do not provide an incentive for this extra work, it can be a reason why employees quit as their morale hits new lows.
- It helps employees. You may find that some daytime employees are eager to work extra hours or a different schedule for the extra cash. This money can help them pay bills or more quickly reach savings goals.
- It makes staffing easier. If you seek nighttime help without offering incentives, you’ll likely struggle to find willing employees. When your staff is eager to work, your business will be more productive.
If you make your employees feel appreciated for the work they provide, it will reduce your turnover and also keep your company productive and the morale high.