Time & Attendance
Time and Attendance
By Jana Reserva
May. 23, 2023
Operations that run 24/7, 365 days a year, face the unique challenge of ensuring they have people working around the clock, especially during odd hours. This is where shift differential pay comes into play – where employers pay their staff variable rates based on the type of shift they work.
The concept of shift differential pay may seem straightforward at first, but it can get quite complicated. Here’s a rundown of things you need to know about shift differential pay, plus tips on making your shift differential policy effective.
Shift differential pay is additional pay for working less desirable hours, such as graveyard shifts or holidays. This is typical for shift-based businesses and industries that operate round the clock, such as call centers, manufacturing, healthcare, and security.
Businesses that need to extend operations due to peak seasons may also offer shift differential pay to employees who must come in after hours or during holidays.
Shift differential pay is not mandated by law, but it’s a good way to incentivize employees to pick up shifts outside of their typical schedule or comfort level. It can also help curb turnover rates, especially among shift-based organizations.
Companies decide how much shift differential pay to offer. But, again, this is just an incentive and optional. So the amount and implementation will be up to your discretion. Sometimes, the rate can even be up for negotiation between you and your employees. Whatever the rate, remember that the goal is to encourage your employees to be more receptive to working odd hours.
Shift differential rates are assigned in different ways. Some of the common options are:
No, because time and a half pay is mandated by law for non-exempt workers whenever they work above a certain threshold of hours in a day or week. On the other hand, shift differential pay is simply an incentive for workers to work odd hours or days and is not mandated by law.
Factors such as wages and work responsibilities affect an employee’s eligibility for overtime under the FLSA; this means that even some salaried employees are entitled to overtime pay. With this in mind, it’s important to consider how overtime can affect shift differential pay decisions and calculations.
While shift differential pay can improve employee retention and help ensure coverage, it’s not just about assigning a dollar amount to unconventional hours. You need to be strategic in the way you deploy this kind of policy. Here are some helpful tips.
As the employer, you decide how much shift differential pay will be. So how do you figure out the best rate? Here are factors you can look at:
For instance, an operation that runs for 24 hours, typically comprising three shifts. The first shift begins at 8AM to 4PM. The second shift starts at 4PM until 12AM. And the third shift runs from 12AM until 8AM. In this type of operation, it would make sense to incentivize those that work the second and third shifts.
In this model, you can assign a shift differential for the second and third shifts. Another option would be to set a differential hourly rate for a range of hours from 9PM to 6AM. This covers a portion of the second shift and third shift. Or if one shift has more responsibilities or tasks than the other, you can assign a higher shift differential pay to either.
The key here is to understand what happens on the ground during these hours so that you can assign a reasonable rate. Aside from hours being odd, considering the workload is also essential.
The same goes for assigning shift differential pay for holidays or during peak seasons. Consider how busy it’s going to be. Remember that you’re primarily paying them for the job they perform, but you’re also incentivizing them for the time they could’ve spent resting or spending time with their loved ones. So factor all those in so you can arrive at a rate that makes the most sense for you and your employees.
Take a look at the roles and their corresponding responsibilities. While it’s more straightforward to assign a single rate, consider that giving a higher incentive for functions that take on more responsibility may be more attractive to employees.
So you’ve decided to incentivize employees with shift differential pay. Great. Now, how are you going to calculate it efficiently?
Sure, it’s straightforward to calculate shift differentials when, say, “John” works the graveyard shift for an entire pay run, and that’s it. Whether you pay a bonus amount or a multiple of John’s standard rate, this is a fairly easy calculation.
But what if John works variable shifts across multiple teams during this period? What if he worked the first shift on some days and the second on certain days? And on top of that, he worked for more than 40 hours and is entitled to time and a half pay on top of the differential pay? Now, imagine you have 50 different Johns. This is where things get tricky.
You need to have software in place that can do all the work for you. Here are a few of the things it should do:
It’s all about transparency. You need to let your employees know that shift differential pay is offered for working certain shifts and that a policy states the rate and eligibility.
Train your managers to know the ins and outs of shift differential pay, so they can quickly clarify when staff has questions about it. It’s also essential to make the policy accessible to everyone so that they can refer to it when needed. A good employee self-service system can do this.
Money can solve most problems, but not the lack of employee engagement. Compensation is a crucial element, but it doesn’t mean that you simply throw money at the problem, hoping to make operational issues disappear.
Shift differential pay will only be effective if employees find it valuable. Aside from time, consider potential hurdles staff must face when working odd hours or days. Think about extra spending on their end for transportation or babysitting if they need somebody to stay with their kids while they work nights or holidays. With this insight, you’re more equipped to improve your shift differential pay policy.
Furthermore, a shift differential policy only supplements an overall employee retention program. It’s vital but not the end-all and be-all of keeping employees engaged. Aside from this incentive, it’s best to have a good feedback system, training opportunities, flexibility, and recognition programs.
Shift differential pay may be an added expense, but you can still be cost-effective with it. The key is properly forecasting your labor needs to avoid instances where you need to offer differential pay incentives due to under or overstaffing issues.
Accurate labor demand forecasting looks at historical data, weather, booked appointments, seasonal trends, foot traffic, and much more to paint a picture of how much demand you can expect every day for every shift.
At the end of the day, it’s all about compensating your employees right. And the best way to ensure accuracy is error-free timekeeping.
Workforce.com has a robust time and attendance platform specialized for shift-based industries. It records clock ins and outs accurately and automatically generates timesheets. Employees on the field can also clock in and out via their mobile devices, ensuring time spent on work is recorded correctly.
Aside from accuracy, Workforce.com is also compliant and can apply multiple pay rates, including shift differential pay. So you can rest assured that once timesheets are pushed to payroll, your staff will receive accurate and compliant pay.
Discover how Workforce.com helped organizations manage time and attendance, employee scheduling, and payroll.
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