Shift Differential

Shift Differential, also call shift premium, is the amount of extra money paid to employees that are not working the day shift.

The purpose of it is to change the behavior of the workforce – To get people to work nights and afternoons instead of the preferred day shift.

In most shiftwork operations, about 75% of the employees would work a day shift, given the opportunity.   A day shift is typically from 7:00 am until 3:00 pm.  People want this shift because it allows them to have a lifestyle that fits the majority of society.  When their kids are at school, they are at work.  When their kids are home, so are they.

Not all shift workers prefer the day shift.  About 25% prefer to work either the night shift (11:00 pm to 7:00 am) or the afternoon shift (3:00 pm to 11:00 pm).  There are a number of reasons for this.  Maybe they are students taking classes during the day.  Many like the lower stress of working at a time when most managers are not on site.  Whatever the reason may be, they willingly work at times when the majority wants to be home.

Companies with shiftwork operations nearly always have to find ways to get people to staff the remaining open positions on the less desirable shifts.  Often, they will use seniority.  While this is a widely accepted practice, it’s often impractical.  Filling a night shift with junior employees often results in poorer performance due to lack of skills.

Alternatively, companies can assign people to shifts based on their skills, maybe using seniority as a tie-breaker.  This allows for skill sets to be evenly distributed but the senior employee that finds himself on a night shift will feel he is being treated unfairly when he sees a junior employee working the day shift.

Some companies rotate shifts.  This means that everyone takes a turn at working all of the shifts.  Since no shift is better than any other, it’s an easy thing to distribute the skill sets evenly across all crews and thus, all shifts.  However, Shiftworkers don’t like to rotate.  In fact, they would rather be permanently assigned to an undesirable shift than to rotate through all of the shifts.

Shift differential, administered properly, solves this issue in a way that is acceptable to all.

Pay 10% to 15% more per hour to those not working day shift and people will move voluntarily to the less desirable shifts.  If you pay significantly less than 10%, the workforce will take the money but not change their behavior so it’s basically a waste.  If you pay significantly over 15%, too many people will want to go to the non-day shifts and you will now have the same problem as before; except now it’s the day shift that is lacking skills.

Many companies make the wrong assumption that they should base their shift differential rates on what other companies in the area are paying.  This is a mistake.  You pay a certain wage rate based on that data.  Your wage rate is what you pay to convince people to work for you instead of someone else. 

Shift differential is different.  You are not competing with other companies, you are competing with yourself.  Employees will not look to other companies to decide if it’s worth their while to work your night shift.  They will look at their options within your company.  They have already decided to work for you; they just need to pick a shift.

They place a certain value on working day shift and they place another value on 10 to 15% more money.  That is where the battle is.  So forget about what other companies are doing.

If you are paying the normal $.25 to $.50 as shift differential now, you may want to consider gradually increasing it to the proper “percentage” over time. 

I hope you found this helpful.

For more information about shiftwork operations, please go to our website at www.shift-work.com.

Overtime 101

I am writing a book about Shiftwork Operations in general. The chapter on overtime is easily 4 times longer than any other.  It's a complicate topic that is often a moving target and certainly - one size does not fit all.

I am planning several posts on the subject of overtime for for now, I just want to put out a few basic principles.

There are two basic types of overtime: Scheduled and Unscheduled.  Scheduled overtime is overtime that is an integral part of a shift schedule.  For example, a typical 24/7 schedule that uses four crews will have an average of 42 hours of work per week.  Those hours, in that schedule, that are in excess of 40 per pay week will be paid at the overtime rate.  These scheduled overtime hours are such an integral part of the schedule that an employee must take vacation to miss them.

Unscheduled hours are those hours added to the schedule but are not part of the regular schedule.  These hours can be scheduled way in advance or at the last minute.  The key is that the basic day-in-day-out pattern does not include these hours.

I take the time to distinguish between these two because when people talk about overtime, it is almost always in reference to Unscheduled Overtime.

There are two ways to calculate the rate of overtime.  It is either (a) Total overtime hours divided by total hours or (b) Total overtime hours divided by total straight time hours.  I prefer the later.  So, if you have a 40-hour schedule and you work 44 hours in a week, you have 10% overtime. (4/40 = .1).

How much overtime is the right amount?  The short answer is between 5% and 15%.  There is a much, much longer answer that takes into account things such as costs, seasonality, labor availability and fatigue.  I will go over those some other time.

The number one myth associated with overtime is that it is much more expensive than straight time.  The reality is that overtime is probably less than 10% more expensive than straight time.  This is because the benefit burden on straight time is probably about twice that of overtime.  Think about it.  When an employee works overtime, they don't earn more medical benefits, do they?

As far as the typical workforce is concerned, about 20% hate overtime, 20% love overtime and 60% will work their fair share.

Overtime causes fatigue, turnover, safety problems and overall disgruntlement amongst those that are forced to work it.

Overtime offers the opportunity to make more money, control costs and move labor to where the work is.

There are good and bad points to any amount of overtime.

Companies that operate with zero overtime are overstaffed.

Companies that think they can save money by eliminating overtime are correct only so far in their current inability to manage their workforce.  If the workforce is properly managed, then eliminating overtime means bringing in more straight time hours which has a marginal savings at best.

For more on overtime, check in on this blog from time to time.

If you want to speak with me about your overtime situation (no charge), I can be reached at (415) 472-3688.  Ask for Jim Dillingham.  Or, you can email me at jim@shift-work.com

Thanks for reading.

Jim

What is a Shiftwork Operation?

For the purposes of this blog, I am going to define shiftwork as any work schedule that calls for employees to work outside of the normal Monday through Friday day pattern.

To take a look at the types of schedules that are out there, I will start with a fictitious company that is growing beyond its Monday through Friday schedule.

Our company started small, using only a few employees to cover the work needed.  As business grew, so did the size of the workforce.  A company that is very successful will find that it has to expand both its capital holdings as well as the number of employees it takes to utilize that capital.

Soon, the company is faced with a decision.  All of their equipment is fully staffed.  To expand operations, they will need to add more capital, an expensive proposition, or try to get more out of the capital they have.  Eventually, they decide to go to a 2-shift operation.  This means they have a full crew working from 7:00 am to 3:00 pm and a second crew working from 3:00 pm to 11:00 pm.  Both crews still work Monday through Friday.

The result is they have doubled the capacity of the facility without adding equipment.  The value of this often is related to the cost of equipment versus the cost of labor.

The company continues to grow and eventually it adds a third crew that works from 11:00 pm until 7:00 am. 

Since all crews work 8-hour shifts, Monday through Friday, each crew is providing 40 hours of coverage for a total weekly coverage of 120 hours.

As the company continues to grow, it is faced with another hard choice.  Should they add another crew or should they add equipment.  There is a third choice, one that is used more often than not.  This choice is to use overtime.  They essentially ask the workforce to work more than 40 hours a week.  There are some advantages and disadvantages to this which will be covered in a later blog.

Continued grow will begin to drive weekend overtime up to unacceptable levels.  Quality, retention and safety will all start to be affected.

Eventually, the company adds a 4th crew.  This is a bigger step than those experienced when they added crews in the past.  Before, where to put the crew was obvious.  Now, there is only the weekend.  If you put the 4th crew on a weekend, they will have to work 48 hours in a row (Do not confuse this with a Weekend Warrior Crew which will be covered in a later blog). 

Since a 48-hour shift is unreasonable, they actually have to create an entirely new shiftwork structure that spreads all 4 crews across all of the hours in the week.  This means that all employees are affected.  It also means that many of the support departments are drawn into the change.  For example, a maintenance department that relied on weekend downtime to do their job will now have to look for other opportunities.  

Policies will have to be changed as well.

The last place companies go to for more hours is the holidays.  They will start out working only the less popular holidays and grow into working Christmas and New Year's.

So there you have it.  That's how many companies get from here to there.  Clearly, there are many exceptions to this scenario.  Many operations, such as oil refineries, are continuous and therefore created as around-the-clock operations right from the start.  Others can shutdown but don't simply because of high start up and shut down costs.  Instead, they throttle back on the average rate of production, intentionally causing the work to be spread across all hours in a week.

Whatever the situation; however you got to "there" from "here".  If you have a shiftwork operation, you have shiftwork issues - chief among them are the shift workers themselves.

Jim

My Qualifications

I am a shiftwork expert.  I might go so far as to say I am THE shiftwork expert.

Here are my qualifications:

1. An undergraduate degree in Mathematics from the United States Naval Academy
2. An MBA (international finance) from Purdue University
3. A Masters in Management from ESC Rouen, a leading business school in France
4. 21 years experience in working with shift workers and shiftwork operations

Simply put, there is no one, anywhere, that has worked with more shift workers and more shiftwork operations than I have.  My industrial experience includes mining, manufacturing, food processing, refining, power generation (nuclear and conventional), semi-conductors and pharmaceutical.

I have worked with most of the major unions.

I have worked with companies in the United States, Canada, Chile, England, Australia and South Africa.

For the last 21 years, I have been fully employed helping shift workers and shiftwork operations overcome obstacles and achieve their common goals.

I am not a cop that worked shiftwork and thus consider myself an expert.  I am not a nurse that has seen the effects of shiftwork.  I am not a researcher sitting in a lab, pretending that it's the same as the production floor.

Those people are out there and you should feel free to look them up if you feel so inclined.  However, there is no one out there that has done this more often and for a longer period of time than me.

I am currently a partner with a consulting firm I founded called Shiftwork Solutions.  If you need help, give us a call.

However, if you just want periodic information about shiftwork, maybe this blog will help you out.  My intention is to cover issues that my experience tells me are important to you.

Bookmark this page.  Send me an email.  Do whatever you wish to stay informed.  If there is a specific topic you would like me to discuss, drop me a line.  I can be reached at Jim@shift-work.com.

I intend to write something for this blog about once a week.  This will depend on how busy I am and how urgent your requests are.

Thanks for dropping by and I hope to hear from you soon.

Jim