Finding the Right Pay Plan for Your Technicians

Nov. 1, 2017
Nailing down a pay plan that works for your shop can be a grueling, daunting task. From hourly rates to flat-rate to individual structures to team-based systems to bonus plans, here is everything to consider when choosing a pay plan for your technicians.

When shop owners are measuring efficiency and productivity, Kelly Bennett says they’re judging the performance, metrics and speed of their technicians.

But they’re forgetting one key driver of those numbers.

“If somebody is a poor manager and they're going to blame the technicians for not turning the hours and decide to put them on performance-based pay,” Kelly says, “maybe they should be putting themselves on performance-based pay because, hey, it's probably more of a management problem.”

There’s a larger point that Bennett, a 30-year industry veteran who consults shops through his company, Kelly the Coach, is getting at: You can’t just assume your shop’s pay plan will motivate your technicians; you can’t change it up at a moment’s notice and assume it will improve efficiency and productivity. The key is to find the right pay plan for your team and your processes, and then flesh it out in a way that earns everyone more money.

Really, Bennett says, it goes beyond deciding between a flat-rate or hourly system—you must also decide between a team-based or individual structure, establish a bonus program, and get everyone invested in the growth of the company.

While most payment plans are fairly straightforward, Bennett says it’s also a daunting task to nail down the specifics. He spoke with FenderBender to lay out everything to consider when choosing a pay plan for your technicians.

Build a pay plan with your team.

Even before you can build a pay plan, Bennett says you need to connect with your team and collaborate to find what works best.

“From a leadership perspective, people are not truly motivated by money,” he says. “I've interviewed thousands of technicians over the years and asked them, ‘Why do you work where you work?’ And money sometimes is the case. But it's far more about the person that they work for.”

With that in mind, Bennett says it’s more important to be a “leader” than a “manager” when choosing the basic components of your pay plan. Even a simple choice between hourly and flat-rate pay should be a group decision.

“Some people want that security of a paycheck being the same every single time and can't have less,” he says, “and some think that the only thing better than a regular paycheck is a bigger paycheck.”

Choose an hourly or flat-rate system.

“It’s impossible to say what’s best,” Bennett says about choosing between hourly and flat rate. “If you pay hourly, some people think they'll be working for themselves. And some people think if you pay flat rate, they won’t do a good job.”

Still, you should evaluate both hourly and flat-rate systems and see how they fit into your shop. Bennett even suggests offering both a flat-rate and hourly check to your employees for a two-month period. Then feel out which is working best for camaraderie at the shop, and which is contributing to greater overall productivity and efficiency.

Specifically, here are how hourly and flat-rate systems work:

Hourly system

In a shop that pays by the hour, employees are compensated for the number of hours they actually work. If a job that was supposed to take seven hours turns into a 10-hour job, the employee is paid for all 10 of those hours.

Flat-rate system

Under the flat-rate system, the technician is paid by the job. If a job is estimated at seven hours but takes 10, the employee is still paid for seven hours. However, if the technician completes the work in just five hours, he or she still receives the full flat rate.

Choose an individual or team-based structure.

Much like how shops should test out both hourly and flat-rate structures, Bennett says he advises shops to extend that testing to individual and team-based systems—give both scenarios a trial period and see how they affect culture and KPIs.

Individual structure

In an individual plan, technicians are paid for whatever labor hours they produce on their own, which Bennett says is fairly easy to track on estimates. So, simply put, if your shop’s labor rate is $10 per hour, and a job has 10 body labor hours attached to it, your body technician would be paid $100, no matter how long the job takes to complete.

The advantage to that is your labor costs are directly variable with your sales. As sales go up, you can predict what the labor costs will be.
“People would argue that it motivates techs, that they work faster in that kind of environment,” Bennett says.

One potential headache of an individual structure is ensuring the individual hours add up to the estimated hours. Bennett says that the division of hours can cause arguments between co-workers.

“One guy says he did six of those hours on a 10-hour job, and then another guy says he did six hours,” he says. “Then you have to go through, line by line, and add up the hours.”

Team-based structure

When it comes down to it, Bennett says that a shop’s unified culture could very well be thanks to a team-based payment plan. This system, essentially, creates a shop full of subcontractors.

It can be very difficult to accomplish teamwork in individual flat-rate environment, he says. But in the team-based flat rate environment, it doesn’t matter what one individual technician produces on his or her own. Instead, it’s about what the entire team produces. If you have 10 technicians in the shop, and the entire shop produces 1,000 hours, everybody splits that 1,000-hour pool and gets 100 hours. Then technicians are then paid separately by their rates.

Bennett also says that instead of pooling together the hours and giving individual technicians their own rates, you just gather the money together and divide the pot based on skill and experience. This makes it more transparent for what everybody is earning.

Build bonuses into the pay plan.

Once you’ve decided on the outline for your technicians’ pay plan, Bennett says you should work to nail down what bonuses will incentivize them to be more efficient and productive. Your bonus plan should motivate technicians to do quality work day in and day out and create lasting change over time.

To accomplish that, here are the weekly and yearly bonuses to consider with your team:

Weekly bonuses

Adding a bonus program on top of individual hourly rates is a pretty simple procedure, Bennett says. It would involve a combination of hourly pay plus an incentive on hours billed.

“So, they'll get 40 hours per week regardless, but then take how many hours they bill and base their pay on that,” he says. “If someone gets $20 per hour for 40 hours per week, but they bill out 50 hours, then they get a two-hour bonus for every hour they bill out.”

For flat-rate systems, motivating technicians will come down to them hitting set benchmarks. While their pay is determined entirely by their own individual performances, by setting benchmarks for efficiency and productivity, you can guide them toward a larger paycheck.

Yearly bonuses

Bennett says to sit down with your team and discuss the company’s greatest weaknesses and how to improve them. Then, decide on the metrics and KPIs that will reverse the trend, set benchmarks for those metrics, and then track them diligently throughout the year.

Create quarterly incentives so your technicians are motivated to hit those KPIs year round. If your team is helping improve those numbers, then they’re earning more money on top of their improved pay plans—and earning you more money as well.

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