- Why offer hazard pay? Employers offer hazard pay, in the form of incremental pay increases, to encourage employees to accept less desirable positions, shifts, locations or conditions – such as working in extreme weather.
- A decrease in use post-pandemic. A WorldatWork survey found that utilization of hazard pay peaked during the pandemic but has since ticked back down to pre-pandemic levels.
- Try a standalone approach. Hazard pay programs should be added as standalone differential pay benefits, rather than being built into base pay. One advantage of this approach: You can accurately report how much hazard pay is costing the company because the process has its own, separate pay code.
- Examining the landscape. See what your competitors are doing to better inform how to apply hazard pay.
Last summer, many regions experienced record heat waves that made working outside unpleasant — or worse — for many employees. With a new summer season nearly upon us, it may be time to consider offering hazard pay to employees who work outdoors in extreme conditions.
Hazard pay is a pay differential that employers offer to encourage employees to accept less desirable positions, shifts or work locations. Extreme weather – both in the form of excessive heat or cold – is one situation in which employers might offer hazard pay.
Hazard pay spiked during the pandemic, when frontline employees were asked to work amid additional health risk while most other employees were able to work in remote, safer locations. Hazard pay peaked in 2020, when 23% of organizations provided it due to the pandemic, according to WorldatWork’s “Total Rewards Inventory Programs and Practices in 2022.” In 2021, the usage of hazard pay fell to 19%, and for 2022 it has dropped to pre-pandemic levels (at around 15%).
Tips for Implementing Hazard Pay
Employers looking to implement a hazard pay program should add it as a standalone differential pay benefit, rather than building it into base pay, says Julie Trimarchi, a senior compensation consultant with Nonprofit HR. “That way, it won’t be in effect when weather is normal,” said Trimarchi. She adds that employees typically expect pay differentials only for those hours worked in unusual conditions, such as extreme weather.
Trimarchi said that building pay differentials into base pay for every hour worked often will increase costs for other employee benefits — such as 401(k) matches. Also, she added, building hazard pay increases into base pay can drive higher year-over-year annual compensation increases.
When implementing hazard pay, Trimarchi suggests using a separate pay code, so you can accurately report how much hazard pay is costing the company.
How Much to Offer
How much should you consider offering in hazard pay? Trimarchi said an effective formula is to take 5% of the midpoint of the pay grade in question (or if multiple grades, you can average the midpoints at 5%) to calculate a flat rate. Then, offer everyone that same flat-dollar rate differential on days when hazard pay applies — for example, when the outdoor temperature reaches certain high or low marks.
Other Hazard Pay Approaches
Hazard pay isn’t limited solely to conditions where extreme heat exists.
In a discussion on Engage, an online community for WorldatWork members, one compensation practitioner whose company is in the warehousing industry said the organization applies the practice to what are classified as “undesirable” shifts and adds a premium similar to the amount it uses for shift differentials for employees working weekends or nights.
“Usually, it’s a few dollars higher than a typical hourly rate,” the member said.
To get a sense of how much to offer, this practitioner recommends looking at job postings from competitors in your industry or geographic location to see what they provide for seasonal hazard pay. “That will give you some insight into how to be competitive in your market (s),” said this practitioner.
Another WorldatWork member said their company did implement a small percentage differential for a set number of months for specific employees who worked outside in the snow and/or cold.
“For example, we have had ‘yard’ employees who clean heavy equipment outside and stage that equipment for customers,” they said. “This is the first year we have done that, but in certain areas that we operate, last winter was a particularly harsh one.
“In our case, the pay differential expired after a certain number of months and our payroll team automatically suspended it until we need it again.”
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