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Premium Pay

>> HR Glossary/  Compensation & Benefits / Premium Pay

What is premium pay?

Premium pay refers to increased compensation that may be provided to an employee for a variety of reasons:

  • Working what are typically less desirable hours or days, such as holidays or weekends
  • Last-minute changes to an employee’s schedule, be that location or shift time, particularly when the employee is not consulted prior to the change
  • Night shift, if not part of the employee’s regular schedule
  • Call-back, which refers to when an employee is asked to work during a workplace emergency
  • Hazard pay, which is offered when the work environment involves challenging circumstances, such as direct exposure to hazardous chemicals
Types of Premium Pay

How do I calculate premium pay?

Depending on the job and the type of hours worked, the rate of the premium has to be determined. Usually, the premium rate may not be less than one and one-half times the normal rate for an employee. This, of course, is dependent on the regulations of your state, city, county, or company. 

For example, if an employee is asked to work on a Sunday (which is usually their day off), the calculation would be as follows: 

  • Monthly salary = $2,000
  • Premium rate = 60%

Now, calculate the day rate:

$2,000 / 21 days (the number of working days in a month) = $95.24 (Daily Rate)

Then multiply the daily rate by the premium rate:

$95.24 x 60% = $57.14

Therefore, the premium rate is: 

$95.24 + $57.14 = $152.38

What’s the difference between premium pay and overtime pay?

Premium pay is paid for work done during less than desirable hours or work done on special days. Overtime pay is paid when an employee works beyond the usual 40-hour workweek. If an employee is a member of a union, the collective bargaining agreement between the company and the union often will dictate the premium pay calculations and the circumstances in which it will apply.

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