An HR Glossary for HR Terms
Glossary of Human Resources Management and Employee Benefit Terms
What Is Wage Drift?
Wage drift is the difference between an employee’s base wage compared to the wage they are actually paid at the end of the pay period. It may also refer to the difference between an employee’s basic pay and their total compensation. The total compensation/actual wages are usually higher than what was negotiated because of company bonuses and overtime pay.
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What Are the Causes of Wage Drift?
Wage drift is generally caused by unpredictable or uneven demand—employers must ask their employees to work extra hours to compensate for that demand. This may result in:
- Overtime: Employees working overtime hours are paid 1.5 times their regular wages.
- Company bonuses: Employers may offer bonuses to teams or individuals for reaching a goal. In the case of wage drift, this could simply be meeting customer demand with a limited workforce.
- Additional responsibilities: If one employee is out sick or unexpectedly left the company, another employee might need to cover some of their responsibilities until that role is filled. While this employee juggles the additional responsibilities, employers may offer them additional compensation.
What Is an Example of Wage Drift?
Let’s say you operate a package fulfillment center. One of your employees (we’ll call them Kyle) who assembles your packages was hired to work 40 hours per week. Kyle is scheduled across five days at a rate of $15 an hour. That means, without wage drift, you pay Kyle $600 per week.
Now, let’s say you received an unusually large rush order that needs to be completed on a day Kyle usually has off. Unfortunately, a couple of your other employees who work that day are out sick, so Kyle needs to cover for them.
Kyle works a full eight-hour shift to complete this order, which means he is eligible for eight hours of overtime:
$15 (Kyle’s wage) x 1.5 (Overtime calculation) = $22.50 (Kyle’s overtime wage rate)
$22.5 x 8 (Number of overtime hours) = $180 (Kyle’s overtime compensation)
$180 + $600 (Kyle’s normal wage) = $780
In this example, your employee’s wage drift is $180.
What Are the Negative Effects of Wage Drift on an Employer?
Wage drift is a product of unforeseen variables that can inhibit employers from predicting precise wages during pay periods. Wage drift can make budgeting difficult.
How Can You Compensate for Wage Drift?
While you must always pay employees their deserved wages, there are some things employers can do to better manage their wage drift:
- Paying in arrears: Payment in arrears means delaying payment until the end of the payment period. This is a common practice among most employers. Doing so lets you know what you need to pay your employees ahead of time.
- Pause bonuses: If your company is struggling financially, and wage drift is putting a strain on your budget, you could pause company bonuses.
Which Employers Are Likely to Be Affected by Wage Drift?
You’ll most likely be affected by wage drift if your company does any of the following:
- Hires employees who are paid hourly
- Offers overtime compensation
- Offers company-wide bonuses
- Operates with a smaller workforce
- Schedules employees to reach the maximum number of regular hours every week