Small business owners are no strangers to night shifts, particularly when they’re starting out. These entrepreneurs are likely passionate about meeting client demands and building equity in the business. They’re willing to do whatever it takes to succeed.
In contrast, hourly employees might not be as motivated. Most employees prefer regular day shifts that align with family obligations, schedules and other activities. Regular hours also make it much easier to stay awake during the day.
However, some businesses, like hotels, require nighttime shifts to cover 24/7 operations. Other businesses may have occasional pressing projects that require employees to work through the night. When employees typically work during the day but are scheduled for the night 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 these 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 describes 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.
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. 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.
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.
The math underlying night shift differentials isn’t complicated, but it can quickly become tedious. The best payroll software can take care of this math for you while streamlining employee payments. Consider choosing a popular platform that includes HR features to help you calculate and pay accurate night differentials, as well as handle other employee needs.
Here are some of the best payroll services to use for this purpose.
Gusto’s Simple service plan integrates with the best time and attendance software; its higher tiers include integrated time tracking. Either way, the platform makes calculating night shift differential pay seamless. You can customize your system to recognize night shifts between specific hours and apply a different pay rate to all work done at that time. To learn more about Gusto’s time-tracking functionality, read our full review of Gusto.
ADP is a robust payroll platform that supports multiple pay rates, including night shift differential pay. You can either apply specific pay rates company-wide or only in certain locations or divisions that have night shifts. Read our in-depth ADP Payroll review to learn how managers can run payroll from a mobile app, computer or phone.
Paychex is one of the few payroll services that includes time tracking, which enables you to apply night shift differential pay without integrating a third-party solution. Our Paychex review explains how the Paychex mobile app allows employees to monitor their pay and access documents.
Night shift differential pay applies when employees are needed to work atypical hours. Chances are, certain seasonal demands or projects will sometimes require these unusual schedules. However, night differentials are a suggestion, 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, though you may want to consult a local expert to be on the safe side.
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:
Theoretically, yes. You can choose to offer employees vacation time or PTO 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 them an additional 20 hours of vacation time. This way, you don’t spend extra money but still show your appreciation.
If you’re looking for ways to reward employees for working night shifts when they typically work during the day, there are plenty — night differentials are just one suggestion.
Showing gratitude through night shift differential pay is more than a kind gesture; it benefits your business in the following ways:
If you make your employees feel appreciated for the work they provide, you will reduce turnover, keep your company productive, and boost morale.
Jennifer Dublino contributed to this article.