Technicians have a difficult job. Every tool, every chemical, and every car they touch in a normal day can be a threat to their life and limb, adding in the backbreaking and joint kiling labor, they deserve solid compensation for their time. The main forms of compensation for technicians are flat rate (or flag), salary or hourly, commission, and team. Like anything else, all forms have advantages and disadvantages, the trick is to find the one that best suits your business and technicians. I will be discussing hourly and flag, as these are the most common.
Sometimes called flag, this form of compensation pays the technician a fixed hourly rate for the amount of labor hours they flag. The labor hours are usually pulled from a labor guide or book for each job. Oil changes typically pay .3 or .5 hours for example. The benefits and drawbacks are two sides of the same coin. If you have a large volume of customers and advanced equipment, then your technicians can flag more hours than they are physically present, but if business is slow and your technology can’t keep up, your technicians won’t be able to make enough hours for a decent paycheck.
As far as motivation goes, this will push your technicians to become quicker and more accurate, but they won’t want to do anything they aren’t getting paid for such as cleaning or shop maintenance. Technicians may also be hesitant to try performing jobs outside their current skill set as they will inevitably fall behind the hour rate of the job, and some technicians may begin to feel resentment when others in the shop appear to have more work available to them.
The bottom line is that this can be the least costly to you as an owner, as you are only paying employees for hours earned, but some technicians (myself included) are hesitant to jump into a job that pays this way.
Salary and Hourly
These are pretty basic forms of pay, the only difference between the two being that salary pays a set amount each paycheck, and hourly pays for time present. This would lead hourly employees to chase over time opportunities, and salary employees to get in and out as on time as possible, but other than that, they can be discussed as the same. The benefits for hourly include motivating employees to perform odd tasks, such as shop maintenance or customer shuttles, a consistent amount for your payroll budgeting, motivating technicians to use downtime to better the shop or experiment with new technologies, processes or jobs, and and easier way to manage payroll increases. Also, technicians will be more likely to accept job offers that pay a steady amount without knowing how busy the new shop is.
The disadvantages of hourly come in when the shop is slow and you’re still paying your employees the same amount. Also, as technicians become more efficient, they may begin to look for a shop that pays flag to boost their income.
What’s best for you?
Most shops use a combination of these two forms of pay. For example, general service technicians are usually hourly so that they can perform shop duties and still earn their rate, but higher level techs are usually flag. Some shops put all techs on flag and give a “guarantee” or sometimes do hourly plus flag rate of pay. I have been on all three forms of payment, and my favorite was flag with guarantee. I usually “busted”, or went over, my guarantee and made extra money, but was able to survive off guarantee. Find what works best for you and, more importantly, your technicians, and you can have a motivated, happy, well paid team of technicians in it for the long haul.