What is Differential Pay?

Differential pay is compensation paid to employees for working outside their normal hours or taking on additional work. This type of premium pay is a useful tool for employers to compensate employees in unusual circumstances or unfavorable working conditions.

The term “differential” indicates that the pay is at a higher rate than normal. Differential pay is either a fixed flat premium per hour or shift or a percentage of base pay.

For example, differential pay could motivate employees to work during the holiday season to restock the shelves overnight while providing fair compensation. 

A differential pay rate has to be significant enough to encourage employees to take on shifts or additional work. For example, a 3% increase will likely be too low to motivate an employee to take on undesirable tasks or shifts.