The episode was written by Mr. Lender and Povenmire also served as storyboard directors. The series follows the adventures and endeavours of the title character and his various friends in the underwater city of Bikini Bottom. In this episode, Squidward and SpongeBob are forced to work 24 hours a day by Mr. Krabs , so that he can get more money. Squidward soon gets bored, and tells SpongeBob a scary story to have some fun with him. After scaring SpongeBob, Squidward tells him that the story is fictional. However, when Squidward and SpongeBob are alone, the events in Squidward's story begin to occur. The episode featured stock footage of Max Schreck as Count Orlok from the silent film Nosferatu. Episode writer Lender proposed the idea as a gag at the end of the episode, which series creator Stephen Hillenburg accepted.

Production Notes from IMDbPro
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It was revealed to be some guy who wanted a job application. According to Squidward, he was once a fry cook at the Krusty Krab who was more clumsier than SpongeBob. One night, when he was cutting some patties, he accidentally cut-off his left hand. He immediately replaced the severed hand with a rusted spatula.
The hash-slinging slasher
Squidward : You mean you've never heard the story of the SpongeBob : The slash-bringing hasher? Squidward : The hash-slinging slasher. SpongeBob : The sash wringing Squidward : Yes. The hash-slinging slasher.
The hash-slinging slasher is the main character in a ghost story told by Squidward in the episode " Graveyard Shift. He has a rusty spatula for a left hand and has dark red eyes and a black hunch-backed body. Squidward creates the character of the "hash-slinging slasher" in order to scare SpongeBob as a form of entertainment during their hour night shift.