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What is Differential Pay?

If you’ve been working odd hours for your shifts, you’ve most likely heard of the phrase “differential pay.” What is differential pay? It is an amount given to the worker as an additional compensation for taking on work that other employees don’t want to complete. It is not required to be given by law, but employers give it as an incentive to encourage employees to perform work that others do not like to do. The most common type of differential pay is shift differential pay.

Shift differential pay

Shift differential pay is an amount given to an employee for working on an undesirable shift. Company policy would dictate what an undesirable shift is and when shift differential pay is available.

For federal employees under the Office of Personnel Management, there is shift differential pay of 7.5% for working between 3pm to 11pm and 10% for 11pm to 8am. In New York, under the Bureau of State Payroll Services, for state employees to be entitled to shift differential pay, the employee must:

  1. have that shift as a regular continuing assignment and not an occasional shift; and
  2. for employees regularly assigned to the day shift and temporarily reassigned to the night shift, remain on the night shift for ten working days in a two-week period.

Examples of shift differential pay

If you regularly work during the day and you suddenly had to work overtime until the wee hours of the morning, are you entitled to differential pay? No. Differential pay is given to employees regularly working an undesirable shift (which is usually from 3pm to 11pm or 11pm to 8am). It is not given in isolated cases where an employee had to work overtime for a day or two days in a month.

Will you still be entitled to shift differential pay if your shift was from 2am to 11am? It would depend on company policy, but usually, even if the three hours are considered as part of the regular shift for the day, due to the odd working hours, the entire period is considered for shift differential pay.

Computing for shift differential pay

The computation for shift differential pay is straight forward. If you receive $20 per hour for a day shift and you are required one day every week to work the night shift for an additional 20%, your shift differential pay is $4 and you will receive $24 per hour for that night shift. So if you work 4 day shifts per week at $20 per hour and 1 night shift per week at $24 per hour, your gross pay for a 40-hour work week is $832, computed by adding the straight rate (800 = $20 * 8 hours * 5 shifts) with the shift differential pay (32 = $4 * 8 hours).

Computing for shift differential pay with overtime

Unlike shift differential pay which is dictated by company policy, overtime pay is mandated by law. Under the Fair Labor Standards Act, employees shall be paid 1.5 times their regular rate for hours worked in excess of 40 hours per week. In this case, we need to compute for “regular rate.”

To compute for this amount, we first get the straight time pay and the shift differential pay. We add this to any other compensation received to get the total compensation, and divide the total compensation with the total number of hours worked to arrive at the regular rate. Once we have the regular rate, we multiply this by .5 (the rate) and the number of hours to get the overtime pay. We add the overtime pay to total compensation to get the gross pay.

Here are some notes for computation:

  • Straight time pay: hours worked * hourly rate
  • Differential pay: hours worked on that shift * shift differential pay
  • Total compensation: straight time pay + differential pay + other compensation
  • Regular rate: total compensation / total hours worked
  • Overtime pay: regular rate * 0.5 * OT hours
  • Gross pay: total compensation + overtime pay

Suppose in the example above, six shifts were worked, composed of 4 day shifts and 2 night shifts, for a total of 48 hours worked that week, 8 hours in excess of the regular 40-hour work week, how much is the gross pay for that week?

  • We first compute for straight time pay: 48 hours * $20 = 960
  • We then compute for differential pay: 16 hours * $4 = 64
  • We then compute for total compensation: 960 + 64 + 0 (other compensation) = 1024
  • We then get the regular rate: 1024 / 48 = $21.33/hour
  • We can now compute for overtime pay: $21.33 * 0.5 * 8 hours = 85.32
  • The gross pay is now computed: 1024 + 85.32 = 1109.32

Should you have issues in computing your gross pay or need legal assistance in any other way, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at attorneyalbertgoodwin@gmail.com.