Yes, that is perfectly legal. A shift differential, to begin with, is NOT something required under law; it is something that an employer voluntarily choose to pay. Since it's not required under law, the employer has substantial discretion to set terms and conditions for it, such as not paying it for PTO. Furthermore, cases have consistently held that special or above-normal-wages payments, including those required by law (i.e. overtime) only have to paid when work is actually done that meets their criteria. So there  is no need to pay performance bonuses or overtime for PTO hours, for example--or to pay a shift differential for taht time.IF the employer has previously paid employees using their PTO their shift differential, you'd have a good case that the employer's behavior has established an implied contract to do so, an implied contract you may be able to enforce; but without a past practice or precedent of doing so, you probably don't have any grounds.