Hazard pay is additional pay employees receive in exchange for working in hazardous conditions. The coronavirus pandemic brought the concept of hazard pay into the national spotlight in 2020, but it remains relevant in many industries.
Hazard pay isn’t mandatory in most cases, but employers can provide this perk to motivate employees to perform dangerous job duties. Learn more about hazard pay, when it’s mandatory, and how to create a hazard pay policy.
What is hazard pay?
Hazard pay, or “hazard duty pay,” is additional compensation you can add to an employee’s regular salary if you feel the job involves some risk of injury, sickness, or death. This can incentivize people to work even in the face of potential illness or harm.
That was the case with COVID-19, when countless private companies chose to increase pay for employees during the pandemic. To qualify for hazard pay, employees generally had to fall under the category of “frontline workers” or “essential workers,” which included:
All health care workers such as doctors, nurses, lab technicians, and pharmacists
Grocery store employees
Law enforcement officers and border patrol officers
Firefighters
Postal workers
Delivery and truck drivers
Transit employees
Teachers
Janitors
Food processors
Maintenance workers
Truck drivers
Other employees who perform public-facing job duties
Is hazard pay mandatory?
Hazard pay may be required for certain federal government workers, but no federal or statewide laws require private-sector employers to provide hazard pay.
The U.S. Department of Labor Fair Labor Standards Act (FLSA) doesn’t specify who must receive hazard pay and when. Small-business owners can decide to offer this type of pay if a worker performs duties that expose them to risk.
If you’re unsure whether you’re required to offer hazard pay, head to your state or local government’s website and search for hazard pay laws. You can also check out this database on state and local hazard pay, compiled by the American Action Forum.
Is hazard pay different from overtime or bonuses?
Though it’s technically extra money, hazard pay is in a separate category from overtime or bonuses.
Overtime is the money employees earn from working beyond their standard hours, whereas hazard pay is the money employees earn from working a risky or dangerous job. People might work overtime and require hazard pay at the same time.
When that’s the case, the FLSA says that hazard pay for government employees should be calculated as part of the employee’s regular wages when overtime pay is involved.
Bonuses, meanwhile, are money employees earn not usually because of the type of work they’re doing, but because of the quality of their work performance. Employees typically earn bonuses for reaching a certain level of work tenure or output, or because employers have a company-wide offering at specific times of year (like the holidays). Where bonus pay and hazard pay are similar is that they can both be used as incentives.
How to set your hazard-pay policy
Are you thinking about offering hazard pay to your employees? Great! To help you get started, we’ve compiled a list of details to consider including in your policy:
Roles or duties that are considered hazardous.
Which employees qualify for hazard pay. Hint: The pay rate must apply to everyone who does the same job.
The amount of the hazard pay.
Whether the pay is set up as a percentage, hourly rate increase, or flat rate.
If the hazard pay is hourly, it’s a good idea to specify whether employees will earn their base rate plus hazard pay. Also, what happens to the employee’s wage during breaks, while on paid time off, or during a leave of absence?
A breakdown of hazard pay laws in your area, if applicable.
Include information about workers’ compensation, too.
Keep in mind: You’ve got to keep your employees in the loop before sending them off to work in a hazardous role. If an employee is injured or dies because they weren’t briefed on the hazardous conditions, you may be held responsible. It’s also a good idea to provide safety gear for the same reason. And of course, always follow Occupational Safety and Health Administration (OSHA) requirements.
Once you establish a hazard pay policy, put it in writing, have your employees sign it, and keep those documents for your records. Then, make sure you follow it consistently. Employees may take legal action if they don’t receive hazard pay after you approve it. Consider working with an HR partner to set up and implement your policy.
Setting your hazard-pay rate
As the employer, you get to set your own hazard-pay rate. But first, you’ll need to define whether the hazard pay will be provided as an:
Hourly pay increase, such as $5 extra per hour while performing dangerous duties.
Flat percentage, such as a 10% premium on the employee’s normal pay while the employee works in hazardous conditions.
Monthly rate, such as a flat $500 extra per month, regardless of the number of hours worked.
Payroll and tax information
Generally, hazard pay is subject to federal income taxes (and state and local taxes where applicable), with the exception of certain combat zone pay for military members.
That means you’ll likely need to run payroll taxes on hazard pay if you provide it, and the employee pays ordinary income tax on the extra compensation. Check your local and state laws for guidance. In some places, you may have access to hazard-pay grant programs and refundable tax credits that help cover the cost of providing this benefit to employees.
What risks or liabilities should employers consider when offering hazard pay?
When you offer your workers hazard pay, there are a few risks to prepare for:
Miscalculating overtime: If you don’t add hazard pay onto your employee’s base pay when calculating their overtime hours, you’ll be short-changing them and setting yourself up for potential wage violations.
Not creating clear hazard pay policies: You need to update your employee handbook to reflect the addition of hazard pay, and explain when it begins, when it ends, and who’s entitled to it. If you don’t have clear terms in place, your employees could claim breach of contract if you end hazard pay suddenly, or claim discrimination if you don’t explicitly state which employees/departments can receive hazard pay.
Frequently Asked Questions
Who qualifies for hazard pay?
There’s no universal eligibility criteria for hazard pay. Employees may qualify for hazard pay if their employer introduces it because their job involves a new, unsafe element of work. A perfect example was COVID-19 hazard pay back in 2020 and 2021.
Is hazard pay required by law?
In the private sector, hazard pay isn’t required by federal law. It’s something certain employers offer when they need to incentivize their employees to continue working through temporarily hazardous work conditions.
How is hazard pay calculated?
You can set your own hazard pay methods and rates. The most common approaches are an hourly wage increase, a percentage premium of the employee’s normal pay, or a flat monthly rate.
Is hazard pay taxed differently than regular pay?
Hazard pay isn’t taxed differently than regular pay. For purposes of federal and state income tax, hazard pay is taxed just like ordinary wages.
