Is Flat Rate Flat Wrong?
Our shops run like they do for many reasons. The culture we have developed, our policies and procedures, and the way we pay our technicians. Chances are the pay plan you are using was decided long ago. It’s easy to decide on something and then forget about it. It may be time to take another look at how you currently pay your technicians. What factors caused you to choose flat rate or an hourly pay plan? Do those reasons still hold true to your present situation? Let’s evaluate the pros and cons of both pay plans as a review. Ask yourself if the way you are paying your technicians is still the best way to achieve the vision and goals you have for your company. It may be time to re-think the entire system of technician compensation.
FLAT RATE PAY
This system puts emphasis on production. The technician is only paid for the billable hours produced. It keeps the cost of labor in line. These are beneficial to the shop because the cost of labor ratio will always stay in balance. But like so many things, there are some unintended consequences. Technicians on this plan have a survivalist mentality, from the beginning of the pay period to the end. The primary thing they think about is turning hours. In fact, it may be the only thing they think about.
Consider a simple brake job. Think about some of the things that separate a high quality brake job from just slapping on a set of new brake pads; cleaning the caliper and rotor, hanging caliper so the hose is not kinked or pulled, removing caliper bracket and slide bolts, cleaning and lubricating them thoroughly, machining the rotor or cleaning the new rotor, wire brushing hub to contact area, wire brushing lug and stud bases to remove rust and debris, applying brake quiet to the pads, lubricating all metal to metal contact points, lubricating wheel studs and bolts, and replacing new hardware, etc. My point is that there is a good chance a flat rate technician will cut some corners in the interest of beating the clock.
A problem could result if your service advisor sold your customer a professional brake job, but they received a backyard style pad slap. The flat rate pay plan puts the technician into the production only mindset. This type of thinking can also mean your technicians take no pride in shop cleanliness, the care of equipment, or their team mates for that matter. It is a dog eat dog mentality that erodes everything you are trying to build, except possibly billable hours.
The hourly pay system has been around forever. What kind of behavior does this pay plan create? This plan encourages attendance more than other things. An hourly technician is not going to compete with other technicians to get the next job. He will probably just take his time on the job he is completing. This pay system allows time to do a quality job. The problem can be that the technician may spend his time on anything, not necessarily on doing a quality job. Many times, technicians who are on this pay plan only produce about 60-70% of the time they are on the clock. This makes a huge difference in total business and your cost of labor. If you pay $28/hour x 40 hours, your technician’s gross pay is $1120. Divide this pay by the 28 billable hours they produced, which is 70% production, and it cost you $40 per hour. This will put your labor cost way out of line. This pay plan also brings the need for overtime. Teamwork may benefit from paying hourly, but not necessarily. Most techs try to get jobs they prefer doing. Everyone wants the next gravy job more than the intermittent drivability problem. An hourly technician is often fine with waiting for parts or authorizations. The mindset is to stay clocked in more than to focus on time management. This will create equilibrium where the technician knows how many hours to produce to meet his financial needs and to keep the manager or owner of the shop from pushing him for more production. This will become his comfort zone. This situation limits your shop in many ways.
You can create a pay plan that benefits all involved, a pay plan that puts the technician on a course of constant professional development. It will create motivation without sacrificing quality. You will need a plan that has all the positive attributes of flat rate and hourly while bringing many other benefits.
PERFORMANCE PAY PLAN
This pay plan does more than blend the best of flat rate and hourly. This plan creates incentives to produce as a team. It puts focus on training. It removes the flat rate stress to survive but does not make it so comfortable that apathy creeps in. Best of all, it benefits your customer with great quality and service. Many of the challenges of managing technicians will become easier. This plan will reward individual effort and team achievement.
Have a base hourly pay for each level of technician, Master, Journeyman, and Apprentice technician. This pay should be enough to survive, but minimal enough to create interest in the following incentives.
Individual weekly productivity bonus. This will promote time management, efficiency, and productivity in each technician individually. For example; 100% = $1 & 110% = $2/hour for each hour worked.
Training bonus. To be eligible for this a technician must complete 4 hours of company approved training in the previous month. This creates shared responsibility for continuing education between the shop owner and the technician. For example; $1/hour for meeting the training bonus for the month.
Team weekly productivity bonus. This creates focus on the entire success of the team. Technicians will help each other function as a cohesive unit working towards one goal. For example; 100% = $2/hour for each hour worked.
Certification Bonus. Pick the certifications you need for your shop that also fit well with an individual technician. You may need your master tech to get ASE certified in Advanced Engine Performance. Maybe you want your apprentice to get his ASE certification for G-1, auto maintenance and light repair. Some examples are; MACS, Mobile Air Conditioning Society certifications, and EVT, Emergency Vehicle Technician certifications. Work with each technician to find certifications that interest them and would be valuable to your shop as well. They should be pre-approved certifications and you could have a maximum of 12 certifications at $.50/hour for each hour worked.
Build this plan to fit your shop. In this example, a Master technician who hits all the performance goals, starting with a $20/hour base hourly pay, would make $32/hour. You would need a labor rate of $107 per hour to hold a 70% gross profit margin. Have a written job description for a Master Technician, Journeyman, and Apprentice. Technicians want a clear career path with attainable goals. Having this type of plan creates a culture of continuous learning that benefits everyone. Your team will be improving constantly and moving your shop forward. It’s a great way to accelerate your team’s success!