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Is Your Healthcare Organization Spending Premium Pay Dollars Wisely?

Is Your Healthcare Organization Spending Premium Pay Dollars Wisely?

Comparing Your Premium Pay Programs with those of Similar Organizations May Save Significant Resources

During this time of pandemic, uncertainty shadows every decision for healthcare organizations. Controlling labor costs while balancing compensation for those on the front lines has become a key concern for administrators working to mitigate a severe drop in revenue.Compensation plans in healthcare organizations may be more complex than those for other industries because of the many components of various pay systems.  Premium pay falls among the elements that make compensation in healthcare unique.

Premium pay is defined as any cash payment above the base rate. Examples include hazard pay, extra shift incentives, shift differentials, on-call pay, holiday pay, overtime, charge pay and so forth. Organization typically deploy special pay programs to recognize work during unfavorable times (evenings, nights, weekends or holidays), recognize additional duties to the regular job (charge pay, preceptor pay), or recognize special achievements and skills (critical care pay, certifications, educational degrees).  These programs are designed to satisfy and retain employees in an always-open operation. The various programs can take the form of a percentage of base pay differential, flat rate, bonus, or paid as an addition to base rate.  Premium pay should fall under a formally documented program, but many organizations offer it as an ad hoc payment.

Knowing when to introduce—and close—special pay programs is critical
Organizations often create premium or special pay programs to satisfy a need or fix a problem. The current pandemic represents a great example of an unexpected need.  Finding ways to reward employees who take the challenge and risk associated with serving on the front lines, while maintaining the organization’s fiscal stability demands careful management.  Leaders must understand when it makes sense to create special premium payments and when to close those programs when no longer needed.  When there is no “sunset provision,” these programs may continue even though the organization’s need for them has ended.

Premium pay programs paid above market competitors may represent a wasteful use of labor cost dollars that could be applied elsewhere.  Organizations must understand where they are spending those dollars so they can discern when they are necessary to maintain vital operations and when they are no longer needed. For example, paying employees to serve on-call when they are never called in is a waste of resources.  Is a pyramid program necessary for extra shift pay incentives?  Are employees receiving spot bonuses? Without tracking why they were paid, how do leaders know if those payments were necessary?

Now is the time to account for every compensation dollar
Leaders should review their premium pay programs regularly.  Now is the time to examine how the organization is spending every dollar on employees.  When trying to keep base pay competitive and employees on payroll, leaders must consider every labor dollar spent to avoid waste.

We at Gallagher use a proven methodology to review premium pay programs. Our system identifies all cash payments made to employees and compares them against our extensive database of premium pay programs from similar organizations.  We identify those premium pay programs that leaders can modify to save and reallocate compensation dollars to other programs, general increases, merit increase, or equity adjustments.

Learn more about strategies to maximize organizational wellbeing. Let Gallagher assist you with premium pay analysis, minimum wage modeling, annual assessments, market benchmarking, strategy, and total rewards needs — to help your organization face the future with confidence.  

Contact Tom Wardrip,, or visit

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Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as “Gallagher Benefit Services of California Insurance Services” and in Massachusetts as “Gallagher Benefit Insurance Services.” Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.


Tom Wardrip

Tom Wardrip is a Principal Consultant with Gallagher’s Human Resources & Compensation Consulting practice. Mr. Wardrip has comprehensive management experience in the service and health care managed services industries. 



During his time in the service industry, Mr. Wardrip was a part of growth organizations and participated in the rollout and management of new locations where his focus was hiring, training, and process improvement. His time in the managed services industry continued his focus as a turnaround specialist ...

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