10 Restaurant Marketing Strategies to Win Your Market
Some of the best restaurant marketing strategies include creating short videos, ...
If your business is open more than eight or nine hours, you know how difficult it can be to find team members to work the early morning and late-night time slots. But with a shift differential in place, you may actually find that those hours become the ones everyone clamors for.
In this article, we discuss exactly what shift differential pay is and demonstrate how to calculate it so you can make the process work for your business.
Key takeaways
- A shift differential is a pay rate premium (either a percentage or fixed dollar amount) added to an employee’s base pay for working outside typical hours (e.g., early mornings, evenings, overnights, or weekends).
- Shift differentials serve as a financial incentive to encourage employees to cover less desirable, high-responsibility, or hard-to-fill shifts.
- Shift differential rates are completely voluntary and customizable by the business (often between 5% and 20%).
- An employee can accrue overtime while working a shift with differential pay. That overtime is calculated at 1.5 times the differential pay rate.
- Ensure the differential program is open to all qualified employees without discrimination.
- Shift differential pay is part of an employee’s gross wages and remains subject to standard payroll taxes.
- Utilize scheduling and workforce management software to automate complex shift differential calculations, overtime tracking, and labor forecasting rather than relying on differentials to mask broader staffing issues.
Table of contents
- What is a shift differential?
- How to decide which shift differential rate to use?
- How to calculate shift differential pay?
- Shift differential for restaurant teams
- Tips for implementing a shift differential
What is a shift differential?
To fully understand shift differential, it’s helpful to examine one component of the concept individually because it makes up the foundation of everything that comes after it.
Differential
A differential is a pay structure in which an employee makes more than their base pay because they take on more responsibilities, perform work that others don’t want to (or can’t) do, or work abnormal hours.
An easy illustration of a differential is hazard pay in which a high-tension power-line worker, for example, gets paid one rate for work done on the ground and another, higher rate for work done off the ground.
When you understand that a differential is just a higher pay rate for different types of work, the concept of a shift differential becomes easier to understand.
Shift differential
A shift differential (sometimes referred to as shift differential pay or shift differential rate) is an increase in an employee’s hourly or salary rate when that employee works a shift outside the “normal” business hours that typically run from 8 or 9 a.m. to 5 p.m.
So, for example, if your restaurant is open from 6 a.m. to 10 p.m., you may break work hours into two shifts of eight hours each (i.e., 6 a.m. to 2 p.m. and 2 p.m. to 10 p.m.) and offer a shift differential to those who work the early morning slot.
How to decide which shift differential rate to use?
The shift differential rate you use is entirely up to you and can be whatever number works best for your team and your business.
When considering how much to increase pay, consider factors such as:
- Job function
- Level of responsibility
- Geographic location (i.e., where the work occurs)
- Hazards involved
- Knowledge and skill required
- Type of shift (e.g., weekend, early morning, or overnight)
- Labor union input (if applicable)
Many businesses find it effective to start with a low rate (5% or less) and increase by one or two percent until they find a number that motivates employees to volunteer for the shift or shifts in question.
For example, you may start your shift differential at 5% for the early morning shift. That means an employee whose base pay is $10 per hour would make $10.50 per hour for any time worked before 8 a.m.
If that doesn’t get you the number of employees you need, you may decide to try 8% for a few weeks, bump it up to 10% for a few weeks, and then finally settle on 12% so that your team sees the value in working those shifts.
Once you’ve set the rate that works best for your business, the next big step is to learn how to calculate the shift differential when it comes time to cut checks.
How to calculate shift differential pay?
When you offer shift differential pay, you’ll encounter combinations of shifts and overtime that are new to you. The most common are: regular shift differential, shift differential with overtime, and two different shifts with overtime.
Read on to learn how to do the math for each of those situations.
Regular shift differential
For our purposes, that 15% increase will be over and above the base pay rate you offer for the 6 a.m. to 2 p.m. shift (referred to as “first shift” for the remainder of this article).
Here’s the formula for figuring out the exact dollar amount:
Differential Pay Rate = Base Pay + (Base Pay x 0.15)
If the base pay you offer for first shift is $11.50 per hour, here’s what your differential pay rate would be:
Differential Pay Rate = $11.50/hour + ($11.50/hour x 0.15)
Differential Pay Rate = $11.50/hour + $1.73
Differential Pay Rate = $13.23
But what if an employee on the second shift works overtime? How does that factor into the equation? Read on to find out.
Shift differential with overtime
Calculating a shift differential with overtime is just like doing so for base pay: Multiply the pay rate by the legally mandated time-and-a-half for any hours over 40 that an employee worked.
Using the information in the previous section, you’d get:
Overtime Hourly Pay Rate = Differential Pay Rate x 1.5
Overtime Hourly Pay Rate = $13.23 x 1.5
Overtime Hourly Pay Rate = $19.85
For more on calculating overtime, check out this step-by-step guide from the Sling blog.
But what if an employee accumulates overtime working the first shift at the regular pay rate and the second shift at the differential pay rate? Let’s take a look.
Two different shifts with overtime
For this calculation, we’ll use the variables from the previous set of examples:
- First-shift pay (base pay) = $11.50/hour
- Second-shift pay (differential pay) = $13.23/hour
In addition, we’ll establish that the employee (Rebekah) worked Monday through Friday on the first shift for a total of 40 hours and then worked Saturday on the second shift for a total of eight hours (48 hours total for the week).
Here’s how to calculate the differential pay for two different shifts with overtime.
1) Calculate Straight-Time Pay
First, calculate Rebekah’s straight-time pay, which is a combination of base pay and differential pay.
Straight-Time Pay = (First-Shift Hours x $11.50) + (Second-Shift Hours x $13.23)
Straight-Time Pay = (40 x $11.50) + (8 x $13.23)
Straight-Time Pay = $460 + $105.84
Straight-Time Pay = $565.84
Without overtime, Rebekah would make $565.84 for the work week.
2) Calculate Regular Rate
Second, calculate Rebekah’s regular rate, which is based on her straight-time pay and the total number of hours worked.
Regular Rate = Straight-Time Pay / Total Hours Worked
Regular Rate = $565.84 / 48
Regular Rate = $11.79
Thus, without overtime, Rebekah would make $11.79/hour for the 48 hours she worked.
3) Calculate Overtime Wage
Next, we’ll factor in overtime by applying the federal mandate that states that employers must pay any hours over 40 at a rate of 1.5 times the employee’s regular rate.
Overtime Wage Rate = Regular Rate x 1.5
Overtime Wage Rate = $11.79 x 1.5
Overtime Wage Rate = $17.69
With that number in mind, you’re ready to calculate Rebekah’s total earnings for the first shift at regular pay, the second shift at differential pay, and the overtime.
4) Calculate Total Earnings
To calculate total earnings, take the 40 hours Rebekah worked on the first shift (which don’t get overtime pay) and multiply them by her regular rate.
First-Shift Pay = Total Hours Worked On First Shift x Regular Rate
First-Shift Pay = 40 x $11.79
First-Shift Pay = $471.60
Then, take the 8 hours Rebekah worked on the second shift (which include the differential and do get overtime) and multiply them by her overtime wage rate.
Second-Shift Pay = Total Hours Worked On Second Shift x $17.69
Second-Shift Pay = 8 x $17.69
Second-Shift Pay = $141.52
Finally, add the first-shift pay to the second-shift pay to end with Rebekah’s total pay for the week.
Total Pay = First-Shift Pay + Second-Shift Pay
Total Pay = $471.60 + $141.52
Total Pay = $613.12
Shift differential for restaurant teams
Implementing a shift differential for a restaurant team is no different than implementing one for a factory team or an office team.
For other types of jobs, the extra pay is often applied to swing shifts, overnight shifts, or shifts that are different from the “normal” 9-to-5. In restaurants, though, it can be more useful to apply shift differential pay to evenings, weekends, and holidays.
These times are generally considered less desirable, so offering a higher pay rate can help you incentivize the shifts that your restaurant staff wouldn’t necessarily volunteer to work.
As we’ve mentioned, offering a shift differential is entirely up to you. If you think the extra pay might make it easier for you to build a full shift during busy evening, weekend, or holiday hours, give it a try and see what happens.
After a few weeks or months, if you find that it’s not working, you can always eliminate the benefit and try something else.
Tips for implementing a shift differential
Harness the power of technology
Whatever type of shift differential program you implement — or even if you choose not to put one in place — using the right technology to track and process your team’s work hours can make everyone’s job much easier.
Modern scheduling, shift planning, and workforce management software gives you the power to monitor, organize, and control every aspect of the way your team works.
And, advanced automation and reporting make processing complicated pay rates such as shift differential pay, overtime, flex time, and comp time much easier than before.
In most cases, these features are just the tip of the benefits iceberg. Apps such as Sling can help your business in other ways as well.
For example, Sling includes scheduling, task management, team communication, and labor cost management tools that can help you and your employees improve the everyday activities that make your business work.
Customize the pay according to responsibility
Take some time to examine the responsibilities built into each shift and identify those that are more crucial than others. Doing so can help you find the right rate for the jobs being performed.
For example, you may set a higher differential for the chef’s role and a lower differential for the bussers or food runners.
Customizing the shift differential according to the responsibilities at play may be a more effective way to attract high-performing team members to work the shifts you need.
Create policies for shift differential pay
The best way to keep everything fair and productive is to create policies for shift differential pay and make them available in your employee handbook.
These policies should lay out the rules of the program and address such topics as:
- Shift differential pay rate
- Who qualifies
- Applicable shifts
- Maximum work hours at increased pay
- Seniority (if applicable)
- Trading shifts that include differential pay
- Approval for working those shifts
Keep in mind that these policies are an evolving document — once written, they aren’t necessarily set in stone. Revisit and reexamine the “rules” of the program every so often and add or subtract policies to make things run better.
Reserve the right to rescind shift differential pay
As you build the rules and regulations that will govern the shift differential pay in your business, include language that gives you the right to rescind the program at any time.
The only caveat to that is if your business is subject to a collective bargaining agreement with an employee union.
If that situation applies to your operation, consult with an attorney to find out if the shift differential program is part of the employees’ contract. If it is, your business can’t alter anything without first renegotiating the contract.
Ask for feedback
It can be extremely beneficial to ask for feedback from your team before the program starts and once it gets going.
With a pre-interview, you may find that a shift differential isn’t enough incentive to solve the employee engagement or productivity issues it’s designed to address. Employee feedback may indicate that another solution or benefit is a better fix.
Similarly, once the program is in place, asking for more feedback can give you insight into what’s working and what isn’t.
Getting feedback from your team before and after implementing shift differential pay can help you identify how to structure the program so that it has more benefits than drawbacks.
Pick a rate that’s right for your business
Shift differential pay is entirely voluntary, so your business can set whatever rate works best. Many businesses settle on a number between 5% and 20%, but you can go lower or higher if you choose.
You may find that a shift differential of 2.5% works better for your bottom line. Or, you may find that a shift differential of 30% is the most effective at motivating team members to work those hard-to-fill shifts.
If you’re implementing a brand new shift differential program, start with lower numbers and work your way up until you find the sweet spot that works well for your team and your business.
Train your team
Regardless of whether your shift differential program is new or has been in effect for a long time, it’s important to train (and retrain) your team so that they’re thoroughly familiar with how everything runs.
After you create policies for your shift differential pay, meet with your team, familiarize them with the process, and answer any questions that may come up.
Take notes along the way and transfer everything you learn or that needs clarification back into the handbook. It’s also a good idea to include information about the shift differential pay in any onboarding programs you have for new hires.
Treat all employees equally
One very important aspect of implementing shift differential pay in your business is making sure that you treat all employees equally.
You get to set the rules of the program, so you may decide to apply it to specific shifts or use it as an incentive to encourage employees to volunteer for hard-to-fill time slots.
It really doesn’t matter how you choose to structure the extra pay as long as you make it available to everyone on your team.
That said, there may be some non-discriminatory reasons not to offer shift differential pay to certain employees.
For example, a team member may be new to your business and you outline in your employee handbook that the extra pay doesn’t kick in until they’ve been on staff for a full month. There’s no discrimination there, and they will be eligible for shift differential pay after 30 days.
If you’re concerned about implementing fair policies in your business, consult with an attorney. They’ll be able to help you set up a system that is equal for all employees.
Remember payroll taxes
Because shift differential pay is a “bonus” of sorts, many managers wonder if payroll taxes still apply. They do still apply, and here’s why.
Payroll taxes are calculated from all gross wages that an employee earns for any given time period (e.g., a week, two weeks, one month).
It doesn’t matter if those gross wages include regular pay, overtime pay, and shift differential pay (or any combination of the three), you’ll calculate payroll taxes based on the total amount they make for whatever pay period your business adopts.
So, for example, if an employee worked 40 hours at a regular pay rate and earned $400, you’d take the $400 and multiply it by the current payroll tax rate percentage (e.g., $400 x 15.3%).
If an employee worked the same 40 hours but eight of those hours included shift differential pay and they made $450, the calculation remains the same: $450 x 15.3%.
Be sure to talk to an attorney, an accountant, or a payroll specialist if you have any questions about the taxes your business will owe at the end of the year.
Don’t rely on shift differential pay to compensate for under- or overstaffing
If you find yourself relying on shift differential pay because your business is under- or overstaffed, consider analyzing labor data to resolve the issue.
Doing so allows you to engage in workforce forecasting and identify the right number of employees for the work on hand or the time of the year.
In addition, you can use past shift data, seasonal trends, work demands, and any other information available to get as accurate a picture as possible about the future labor demands of your business.
Manage your employees’ time with Sling
Offering shift differential pay (or not) is just one variable in a much larger workforce management strategy. How can you best execute this strategy and keep your team and your business organized? With help from Sling.
The Sling app is a suite of advanced tools that can help make managing shift differential and teams of any size as efficient and productive as possible.
Those tools include:
- Advanced employee scheduling
- Labor cost management
- Integrated time clock
- Comprehensive communication
- Flexible task management
- And much more
Try Sling for free today to experience firsthand how the software can help you get control of your shift differential pay and all of your workforce activities.
Then, for more business management resources, help scheduling your employees, and tips for leading a successful team, visit GetSling.com today.
See Here For Last Updated Dates: Link
This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice. Please contact an attorney or other professional for specific advice.
Frequently Asked Questions
Are all employees eligible for a shift differential?
If you decide to offer a shift differential in your business, then yes, all employees are eligible to receive that pay.
That said, you get to set the rules, so you may decide to reserve it for specific shifts or for employees who volunteer to work more than their normal scheduled hours. However you choose to structure the program, do your best to treat all employees equally unless there’s a non-discriminatory reason not to.
For example, you may encounter a situation where an employee volunteers to stay on after their regular shift ends. You may choose to offer only that employee differential pay while the other employees on that shift (i.e., their regularly scheduled shift) receive their normal rate.
Does shift differential pay affect payroll taxes?
Payroll taxes are calculated on all gross wages an employee earns, so any higher (or lower) rate you offer in addition to their hourly rate will be taxed at the same level as their regular pay.
As a result, you’ll need to withhold Social Security, Medicare, federal income tax, state income tax, local income tax (where applicable), and disability insurance (where applicable).
In addition to those withholdings, your business will also be responsible for matching the Social Security and Medicare taxes as well as paying into the federal and state unemployment fund (where applicable).
Be sure to talk to an attorney or an accountant if you have any questions about the taxes your business will owe at the end of the year.
What is a good shift differential rate?
Because this type of pay is voluntary, meaning you don’t have to offer it if you don’t want to, your business can set whatever rate works best.
While such rates can be anywhere from 5% to 20%, your business may find that a lower percentage (e.g., 2.5%) or a higher percentage (e.g., 30%) is the more effective.
That said, many businesses choose to set their differential pay between 10% and 15%.
So if you pay an employee a base rate (or regular rate) of $15 per hour and offer them a 10% shift differential pay, their rate for the extra work would be $16.50 per hour ($15 + ($15 x 0.10)).
Can you rescind shift differential pay?
Yes, your business can rescind shift differential pay at any time.
For the vast majority of businesses, this type of pay structure is completely voluntary, meaning that management is in total control of the program and can run it however they choose (as long as there’s no discrimination involved).
The only caveat to that is if the company is subject to a collective bargaining agreement with an employee union. In that case, the shift differential pay is likely set in the contract, so it can’t be taken away without first renegotiating said contract.
See more in: Employee Management
