Wage Drift | Meaning and Definition

What is Wage Drift?

Wage drift refers to the difference between the salary that is actually reimbursed to an employee at the end of a work period and the salary contracted by an organization. A work period can be weekly or monthly. Wage drift generally happens when an enterprise has unprepared demands and requirements where employees need to invest additional hours. The employees receive overtime pay for the work done beyond usual working hours and accrue a difference over their base salary (which was negotiated) over a period. This occurrence typically happens in industries or areas which face highly unpredictable demands on a short-term basis, such as high-growth economies or tourism. Wage drift can also mean the difference between the basic pay of an employee and their gross compensation at the end of a work period. The actual wages/ total compensation are generally higher than what was initially negotiated because of overtime pay and bonuses.

Causes of wage drift

Wage drift, as mentioned, is brought about by uneven or unpredictable demand where employers need their employees to work beyond the usual hours to meet that demand. This leads to:

•   Company bonuses: Employers may provide bonuses to employees or teams for hitting a particular goal. In the scenario of wage drift, this simply indicates a limited workforce to meet high customer demands.

•   Additional responsibilities: If an employee unexpectedly exits the company or is sick, another employee might need to cover their responsibilities until that position is filled. As this employee grapples with extra responsibilities, he/she is offered additional reimbursement.

•   Overtime: Employees who work overtime hours are compensated with an additional 1.5 times their regular wages.