Jan 23, 2021

A Basic Guide to Flat vs. Hourly Rate

A Basic Guide to Flat vs. Hourly Rate

If you’re employing technicians (or thinking about employing them) certain questions inevitably come up:

  • How will you make sure they’re staying efficient?
  • Will you help them continue their education?
  • Are you going to provide snacks?
  • Should you pay your techs a flat rate or an hourly wage?

Let’s talk about that last question a little more. You see, in our modern world we have all kinds of ways you can pay a person. Flat rate vs. hourly is an age-old argument. We’re not going to take a stand and say which is better; that is up to you and your shop. But we’ll lay out the background of each in an effort to help you make the right choice.

Ready to learn all about wages? Let’s go!

What is a flat rate?

A flat rate is tied to a particular job. For example, Job X will take a good tech two hours to complete. If the tech finishes the job in one hour, they still get paid for two hours. The opposite is true, too: if the job takes four hours, the tech is still paid for two hours.

How is flat rate determined?

There are several ways to choose your flat rate, ranging from pulling numbers out of a hat to the more scientific method of studying labor guides and setting your rates based on their information.

What is an hourly wage?

Hourly pay is a wage based on how many hours you work. If you earn $35/hour and work 40 hours a week, you’re making $1400/week, $5600/month, and $67,200/year. With an hourly rate, what matters is time spent in the shop. As soon as a tech clocks in, they’re earning money. If you have a slow day and they’re mostly sipping coffee and chatting with the service manager, they’re getting paid for that coffee. If you have a busy day and they work on five vehicles, they’re paid for that, too.

What are the advantages of each pay rate?

We could probably write a series of blog posts about the pros and cons of these two types of payments. To save you time (and our sanity), though, we’re going to condense them here. This guide is intended as a primer, a way to get you thinking about how you pay your techs (or, if you’re a tech yourself, how you want to be paid).

Ready? Let’s move on.

Advantages & disadvantages of a flat rate

A flat rate can work in favor of a skilled tech. If they can complete a two-hour job in half an hour, for example, there is nothing to stop them from taking on multiple two-hour jobs per day, completing them early, and racking up the dough.

You can see where we’re going with this. A talented, motivated technician can make a lot of money under the flat rate. In a recent interview with Ray Clark, Director of Training and Development for Truck County and Stoops Freightliner, he remarked, “I like flat rate! I was mad at myself if Wednesday came and I didn’t have 40 hours in the bank already.”

Ray’s flat rate experience came in the auto world, but a lot of what he said will still apply in the heavy-duty environment. “[A flat rate] makes a tech more efficient, but it can also make some techs cut corners too much.” The allure of the flat rate can lead to problems, namely techs rushing through jobs in an effort to get to a particular number. This, of course, can lead to shoddy work and comebacks. You’ll want to track the work your techs do carefully and hold them accountable if you implement a flat rate system.

Beyond the potential for cutting corners in the name of efficiency, a flat rate also puts your techs at the mercy of their workload. An hourly tech is paid for being there, whether they’ve got a truck to work on or not. A flat rate tech needs a vehicle in the repair bay. You may shrug this off at first; after all, there’s a tech shortage, so your shop should be plenty busy, right?

If only it were that easy. Part of your job as a shop manager or owner is to ensure your techs are cared for. If you foresee giant gaps of time between busy periods, a flat rate may not be your best bet.

Advantages & disadvantages of an hourly wage

The best thing about an hourly wage is that it’s easy to calculate and somewhat predictable. So long as you’re working a set number of hours, you know exactly what you’re making (or paying).

An additional advantage of hourly pay is that you are paying your techs for all the time they work. Time is money. A basic oil change might not pad the bank account too much, but there are plenty of delicate jobs that you might pay a certain amount for under a flat rate but realistically would require more time than they’re allocated. Techs won’t feel pressured to zip through these types of jobs; they know they’ll be paid for taking the time to do it right.

The disadvantages of an hourly wage tend to impact the techs doing the most work. If you’ve got really good techs who can buzz through four jobs in eight hours, they won’t be making anything more than they would in a day where they do one job. Complicated repairs are paid out at the same rate as basic maintenance. We mentioned above that techs might end up cutting corners to stack up more flat rate jobs and boost their overall daily rate; the opposite problem is possible with an hourly rate, where a tech takes their time on a job in an effort to get as much out of that hourly rate as they can.

And as we mentioned earlier, flat rates can be hazardous during a work slowdown. If you do see a lot of slow periods in your shop, an hourly rate keeps your techs secure even if the work isn’t pouring in.

Psst…here’s a tip. If you like the stability of an hourly salary but want to give your techs some incentive to work harder, we’d like to introduce you to the efficiency bonus.

Best of both worlds: the efficiency bonus

Gosh, Fullbay, you may be saying, I wish I could give my techs the stability of an hourly wage and the extra money of a flat rate.

Get this: you totally can.

Start out with a basic hourly salary. Your techs get paid whatever per hour; so long as they’re at work, they’ll receive that rate. The efficiency bonus is the incentive for them to work smarter and faster, without leaving them fearful that a slow period will damage their overall income.

You can incentivize your techs by attaching financial rewards to various aspects of their jobs. Make these rewards publicly known and let your techs compete a little bit. You can reward them for the number of jobs completed in a day, a week, or a month; you can also attach rewards to other good work, such as a lack of comebacks. Good shop software (or spreadsheets, if that’s your jam) make it easy to track these items.

It really is the best of both worlds in the sense that techs have salary security but the ability to earn way more than their hourly rate. If they’re working harder to reach those bonuses, your shop is earning more revenue.

Dare we say it? It’s kind of a win-win.

How do customers feel?

We’d hazard a guess that your customers just want to get their vehicles back, but the wage system you choose does impact them.

Not to cast doubt on your techs – we’re sure they are awesome! – but the flat rate structure by its very nature encourages them to move faster if they want to earn more money. When you move fast, you can cut corners. When you cut corners, you can wind up with comeback repairs, or even miss a necessary fix entirely.

(A quick aside: That’s not to say you’ll face comeback repairs all the time! Quite often, comeback repairs are deducted from a tech’s pay, which encourages them to be cautious.)

With that said, if you’ve got talented techs who know their work, speed will likely come naturally in many cases. Customers like a quick turnaround; they also often appreciate having the rates laid out for them. It can be reassuring to know that if you’re coming in for a Z repair, you’ll be paying X amount of money and no more.

Which should you choose?

We’re not here to recommend one pay rate over another. The pay structure you choose, according to Fullbay COO Chris O’Brien, “depends on the shop and the environment.”

You might consider augmenting either system with the following:

Combine forces: If you anticipate slow-downs but prefer the flat rate, consider giving your techs an hourly salary that they’ll receive no matter what their workflow looks like. The idea is to keep them afloat when you do run into periods of sparse work.

Psst…Fullbay can help

It wouldn’t be a Fullbay post without telling you we can help out with this stuff. And while we can’t decide a wage system for you, we can help you make sure your technicians are working to their potential. Our FleetCross by MOTOR integration provides industry-leading labor time guides to help you set your flat rates, and we basically built our entire platform around helping techs be more efficient.

Ready to give us a try? Test out our free demo today!

Suz Baldwin