Shift Differential Pay & Other Healthcare Payments, Explained

As an HR Manager or Payroll Administrator in the healthcare industry, you’re responsible for ensuring employees receive the correct type of pay based on the hours worked. Managing various pay rates, such as shift differential pay, can be challenging, though, especially if you have to calculate them manually. This type of process can lead to paycheck errors and, even worse, upset employees.

That’s why it’s essential to understand the various types of pay rates your employees may be subject to and have a solution in place to help accurately manage them. Here’s a guide explaining the anatomy of a healthcare employee’s paycheck and what you can do to ensure accurate wages every time.

What Makes Healthcare Payroll Different

As a manager in the healthcare industry, you’re facing constant challenges associated with payroll. Automatic deductions, on-call time tracking, floating labor distribution, shift differentials, and regulatory compliance are just a few of these complexities. While some of these labor and time tracking factors are associated with most industries, the added challenges of floating employees and shift differentials are what makes healthcare payroll so unique.

Unlike your average 9-5 job, healthcare employees work multiple shifts to cover all hours in a day. Managers have to create, assign, and manage schedules for different hours, departments, and units within those departments. This kind of scheduling leads to various shift pay differentials like on-call pay, call-back pay, in-charge pay, overtime pay, and floating employee pay.

In addition to shift differentials and multiple pay rates, the positions associated with each shift are unique. A manager could have a team of registered nurses (RNs), licensed practical nurses (LPNs), emergency medical physicians, etc., all within one unit. These diverse teams make payroll scheduling difficult. Each worker has their own set of credentials and licenses that keep them compliant with healthcare regulations.

If one team member gets sick, it’s not always easy to fill that person’s shoes. Departments may need floating employees or temporary workers regularly. Without a proper payroll solution, these temp workers can create a lot of extra work for healthcare managers.

Hospital Shift Differential Pay

What is shift differential pay? It’s essentially the extra compensation an employee receives for hours worked outside of 8:00 am to 5:00 pm, Monday through Sunday. Some healthcare facilities operate 24/7, 365 days a year, and need to staff their locations beyond regular day shift hours adequately.

While the Department of Labor does not require shift differentials, healthcare companies can offer them as a way to fill “undesirable shifts,” including night shifts, holiday shifts, and second and third shifts. Differential shift pay must be included in overtime pay calculations, even though the shift differential pay rates are up to the company.

Calculating Shift Differential Pay

Shift differential rates can be calculated in three different ways. Here are examples of how to calculate each:

Figuring out how much your workers should be earning can be difficult, especially if you offer different pay rates for various shifts. Here are some other things to consider:

• Holiday shifts are usually paid at time and a half (1.5 times base pay rate).
• The third shift pay differential rate is regularly higher than a second shift pay rate.
• Some companies don’t pay shift differentials and instead offer additional paid time off, pay shift differentials as a cash bonus, or provide premiums within the base salary.

It’s essential to be up-to-date on your organization’s shift differential pay policy. Communicate policy changes and make them easily accessible to employees, primarily if new pay rates get implemented and employees notice changes in their paychecks.

Call-back Pay and On-call Pay

Call-back pay is when an employee has completed their shift, and they are called back into work. When someone is “on-call,” they must remain on the worksite while working or be within so many miles of the hospital or clinic. On-call employees often can stay home and carry a beeper or cell phone to be reached when needed.

An employee’s call-back pay is based on the specified number of hours’ pay at the current or overtime pay rate. On-call pay only includes the hours the employee worked at the hospital, not the time spent at home.

On-call and call-back shifts are common among healthcare employees, so it’s essential to be familiar with the differentials in pay and verify the actual hours worked. This approach means less time spent correcting payroll errors after processing, in addition to a clear call-back pay policy.

In-Charge Pay

In-charge pay refers to the pay grade for a particular position, such as Pharmacist-In-Charge (PIC) or a Charge Nurse. These employees have sole responsibility for the supervision, management, and state and federal regulations within their department. Whether delegating assignments or ordering medicine, these employees have to balance managerial and clinical tasks in their positions.

Employees in these positions play an integral part in healthcare facility operations. They need adequate compensation for the additional duties they are performing. You don’t want to lose these essential employees to a simple error because their pay stubs do not correctly reflect their in-charge pay.

Hospital Overtime Pay

Unless exempt, employees covered under the Fair Labor Standards Act (FLSA) are required to receive an overtime rate for time worked over 40 hours in a workweek at no less than 1.5 times their regular pay rate. The FLSA reports there is no limit on the amount of hours employees may work in any workweek.

Although working extra hours may not be ideal, the overtime pay with the extra hours can be appealing to some employees. If your department is understaffed and you need additional help, offering overtime pay can lessen the burden of finding service on short notice. However, it’s a good idea to keep an eye on the number of overtime hours your employees are working. You might find that an excess of overtime hours worked for a department warrants an additional hire or shifting of schedules.

The eight and eighty (8 and 80) overtime system

The (8 and 80) Overtime System exception in Section 7 (j) of the FLSA gives hospitals and residential care establishments the ability to offer a fixed work period of fourteen consecutive days for computing overtime, instead of a 40-hour workweek. Employers pay an employee time and a half for overtime hours worked in excess of 8 hours in a workday and 80 hours in the 14-day period.

Employees must have an agreement or understanding with their employer before working the 8 and 80 schedules. Hospitals and residential care facilities can have some staff under the 8 and 80 rule or the traditional 40-hour workweek, but one employee cannot be subject to both overtime pay methods.

There is an exception to the 8/80 rule. Premium pay for daily overtime above 8 hours may count towards overtime compensation for hours worked beyond 80 in a pay period. Take a look at the example below to explain this concept further.

Using Technology to Streamline Healthcare Payroll

We’ve discussed several types of employee pay rates you may encounter in the healthcare industry, but how do you track and manage them efficiently? We suggest you automate pay rate calculations with payroll and HR technology.

Using multiple systems to calculate and manage different forms of payment is time-consuming and prone to errors. A unified payroll and HR solution with a centralized database helps streamline complex healthcare pay workflows.

An all-in-one software is designed for one-time data entry. The data syncs across your payroll, HR, and attendance workflows, eliminating the potential for errors. Here are a few more ways the right payroll and HR technology can help you automate even your most challenging workforce processes:

• Advanced clock rules are assigned to employees with shift differentials, overtime pay, and more, saving you valuable time.
• Multiple pay rates are calculated and applied to the correct workers automatically for accurate paychecks and happy employees.
• Advanced scheduling lets you track and manage employee shifts to avoid under or overstaffing while gaining better control of labor expenses.

From shift differential pay to overtime pay, healthcare employers have many types of pay rates to oversee. With the right payroll and HR technology, managing those pay rates is no longer a headache. When you implement a solution that accurately and efficiently pays your employees, you can dedicate your workday to more strategic HR and healthcare-related tasks.

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