When an employee's negotiated wage and the wage they get at the end of the pay period differ, this is known as "wage drift." Additionally, it may describe the discrepancy between an employee's basic salary and total remuneration.
Wage Drift Example
Say employee A works 40 hours/week for $20/hour; at the end of the week, he gets paid $800 typically. However, due to some unavoidable cause, at the end of a given week, A's employer asked A to pull off an additional 6 hours to meet the work demand, for which he will be paid an overtime rate.
So, that week, A was paid a negotiated wage of $800 plus 1.5 × ($20 ×6hr), which is $180. So, that week, he got a total compensation of ($800+$180) which equals $980.
In this example, the negotiated payment was $800, the actual payment was $980, and the wage drift was $180.
Which Factors Cause Wage Drift?
Wage drift typically occurs when an organization experiences an unprecedented or uneven demand, forcing employers to ask for extra work from their employees to compensate for it.
Here are the factors that lead to wage drift:
Overtime: A business may compel workers to work extra hours during unusually high demand. Companies are required by law to compensate workers for contributed overtime hours at a rate higher than the base wage in such a situation. And this will cause wage drift.
Bonuses: Bonuses are paid in addition to base salaries. Employers may reward teams or specific employees with bonuses for achieving a goal or as an incentive.
Additional Duties: When an employee is absent due to illness or has abruptly left the organization, another employee may be required to cover some of their responsibilities until the position is filled. Employers may provide this additional employee remuneration while they juggle the added obligation.
Disadvantages of Wage Drift
Wage drift is suitable for an employee but negatively affects the company.
Due to wage drift, it becomes difficult for the human resources department to predict and budget for these fluctuating wages and set fixed wages.
Unchecked wage drift can cause inflation. It is especially concerning when wage growth outweighs worker productivity.
Which Employers Are Prone to Experience Wage Drift?
Employers who engage in any of the following will probably experience wage drift:
Operates with a smaller workforce
Hires employees who are paid hourly
Offers overtime compensation
Schedules workers to work the greatest number of regular hours per week
Offers company-wide bonuses
How to Compensate Wage Drift
Although employers are obliged by law to pay employees their deserved wages, there are various things companies may do to better control wage drift:
Stop providing bonuses if your business is having financial trouble and wage drift is straining your budget.
Follow the paying-in-arrears method, where you can delay payment until the end of the payment period. Most employers follow this standard procedure. By doing this, you'll be able to plan how much to pay your employees.