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What Is a Differential Rate?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 October 2014
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    Conjecture Corporation
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A differential rate is a type of rate that is unique from the standard published rates normally used in a transaction. Typically, this type of rate only applies when certain events or conditions impact the nature of the transaction. A differential rate may impact the amount of wages received by an hourly worker or have to do with some change in the cost of moving freight, given specific circumstances associated with the shipment.

As it relates to compensation, a differential rate may apply that increases the hourly wage of an employee due to specific conditions related to the job. For example, if is not unusual for nurses and others who work the night shift in a hospital to receive what is known as a wage differential or wage rate difference as a benefit of working those less desirable hours. The same may be true for employees of a textile plant, with anyone who works the evening shift being granted what is sometimes called a shift differential. In this scenario, the differential rate is a combination of the standard wage for the specific job position, plus and additional amount as part of the incentive for accepting the assignment.

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The differential rate can also be related to shipping situations, usually as an additional charge for providing services above and beyond those provided under the standard pricing for shipments. Additional care for shipments containing volatile or extremely fragile contents may be subject to this type of special rate structure. In addition, if the shipment process is complicated with the need to make multiple deliveries in order to complete the shipment, this additional rate or differential may apply. Typically, the agreement between the shipping firm and the customer will break down the costs associated with the differential rate, identifying exactly why a rate other than the standard pricing was applied to the shipment.

With any application, the differential rate represents the application of a rate or wage that is different from the norm. In order to justify the rate differences between the differential and the standard rates, many companies will identify specific circumstances that would need to be present before the differential could be applied. Defining those conditions in which a differential rate is appropriate is especially important when some sort of contractual agreement is involved with the arrangement. With a detailed agreement in place, there is less room for miscommunication about why the rate was applied, a factor that can be very important to keeping the working relationship intact.

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