The Employer’s Complete Guide to Hazard Pay

Kim Porter

The coronavirus pandemic has vaulted hazard pay into the national spotlight, as employers consider bumping employee pay in exchange for working in hazardous conditions. 

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 extra money 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.

Is hazard pay mandatory?

No federal or statewide laws require private-sector employers to provide hazard pay. Small-business owners can decide to offer this type of pay if a worker performs duties that expose them to risk. 

But hazard pay may be required for certain government workers. According to the U.S. Office of Personnel Management’s COVID-19 guidelines, federal employees are entitled to a 25 percent pay increase if their duties expose them to “virulent biologicals” such as COVID-19. A few localities have also instituted hazard pay laws. 

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.

The Fair Labor Standards Act (FLSA) doesn’t specify who must receive hazard pay and when. But the FLSA does say that hazard pay for government employees should be calculated as part of the employee’s regular wages when overtime pay is involved. 

For example, let’s say a government employee typically earns $20 per hour plus an additional $5 per hour for hazard pay. The employee works overtime one week and receives one and a half times their normal wage. The worker’s overtime pay would be calculated as $37.50 per hour:

  • Base pay plus hazard pay: $20 + $5 = $25 
  • Overtime pay: $25 x 1.5 = $37.50 per hour 

Hazard pay and COVID-19

Several leaders have introduced hazard pay legislation on the federal level—but they have yet to pass laws that define who should receive this type of compensation, when they should receive it, and how it will be taxed. In the meantime, some private companies have chosen to increase pay for certain employees who are working during the pandemic. 

To qualify for hazard pay, employees generally have to fall under the category of “essential frontline worker.” This definition varies with each state or private entity, but it typically includes:

  • All medical 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

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.
  • Whether the hazard pay only applies during the COVID-19 pandemic.
  • 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. 

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.

Kim Porter Kim Porter covers personal finance topics for AARP The Magazine, Bankrate, U.S. News & World Report, Reviewed, Credit Karma, and more. When she’s not writing, you can find her training for her next race, reading, or planning her next big trip. Twitter | LinkedIn
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