Is your heavy duty repair shop bringing in the profits you want? If not, the next question is, “How productive is my team?” Many factors affect business profitability, but tech productivity can make or break your shop. If you’ve got a crew of skilled, certified technicians who aren’t performing at peak, improving your pay plan with bonuses could be the key to increasing tech productivity. Before asking, “When should you give your repair shop employee a bonus?”, there are other issues to consider first.
Incentives are effective motivators, but only when structured and put into effect properly. Bonuses should be given for solid, professional reasons rather than manipulating them for emotional reasons or as punishment. As a business owner, you should be aware of the tax issues linked to bonuses. And you also must determine whether bonuses are in your budget and how high they can and should be. Incentives don’t always have to come in the form of a monetary bonus, either. To help you navigate the detailed topic of incentive pay, we’ve put together this comprehensive guide to giving your heavy duty service techs a bonus.
Why You Should Give Bonuses
If the question of when should you give your repair shop employee a bonus isn’t on your mind, you probably don’t understand why you should be giving them. Bonus pay structured as an incentive will motivate your team. That means linking bonuses to performance instead of simply handing them out to everyone. Make sure your techs understand how you structure bonuses. Also let them know the expectations associated with it and what goals they must meet to earn their bonus. Naturally, that means keeping track of efficiency and productivity. But you should be doing that already as a way to keep your finger on the pulse of your business.
If that sounds like you’d be implementing a competition, it’s because, in a way, that’s what you’d be doing. Top-notch techs want to excel, and setting goals and keeping score is how they know they’re hitting the mark and going beyond it. A well-thought-out bonus plan ensures techs reach for high productivity and will sustain it when you really need them to.
When Should You Give Your Repair Shop Employee a Bonus?
Once you understand how bonuses can benefit your heavy duty repair shop, then it’s time to determine when you should give your repair shop employee a bonus. Many shop owners only pay bonuses at the end of the year, around Christmastime. That can be a nice sentiment during the holidays, but basing any employee pay on the emotion of the season isn’t good business. What’s more, year-end bonuses paid during the holidays can be an iffy prospect. That’s because they typically rely on how well the business did in the first 10 or 11 months of the year. Following up a generous bonus in a good year with a sparse one if you have a bad year the next can be disappointing. It’s better to host a holiday party to show your appreciation and give techs performance bonuses throughout the year.
That said, when should you give your repair shop employee a bonus? Weekly bonuses are effective because, unlike the year-end bonus, they’re immediate. They give techs a level of control over their income now. That motivates them to do their personal best and stay productive every day. On the other hand, monthly bonuses are a good way to get everyone working together as a team. They’re based on how well the shop does each month and are split among all shop employees. In the next section, we’ll take a more in-depth look at both types of incentives.
Structuring a Bonus Plan
Once you’ve decided to implement incentives and have determined when you should give your repair shop employees a bonus, it’s time to structure a plan. It doesn’t have to be overly complicated. In fact, it should be fairly simple so everyone understands how the bonuses work and what they can do to earn them. The incentives should only be tied to elements techs can control, and the bar shouldn’t be set too high or too low.
Weekly bonuses should motivate technicians to be productive every day. If you schedule techs to work 40 hours a week, they should be producing at least 40 billable hours. Therefore, set a base hourly pay rate for meeting that minimum goal. Then, the hourly rate should increase each week—by $5 to $10 per hour, for example—that they produce 45 hours. And, it increases even more when their productivity goes over 50 hours. You can also tie smaller bonuses to weekly hourly pay for things like clocking in on time ($1) and holding 4 or more ASE certifications ($2).
Alternatively, monthly bonuses are typically based on profits. After paying your fixed expenses each month, you can split a pre-determined percentage of the net profit with your employees. They should understand that the monthly incentives are based on how well the shop does and that they play a part in what that can be each month.
Things to Avoid
Some shop owners have given up on the idea after losing money and techs on ineffective bonus plans. That’s because they didn’t understand that there’s more to implementing incentives than knowing when you should give your repair shop employee a bonus. First, make the rules and stick to them. Giving out undeserved bonuses breaks down morale and prevents the system from working.
Other things that can cause a bonus plan to fail are:
- not clearly outlining goals and specific percentages or amounts they’ll earn for reaching them
- not paying what was promised
- making goals unrealistic
- not holding techs accountable
Don’t Forget to Factor in the Consequences
No matter what you decide about when you should give your repair shop employees a bonus, you need to understand how it impacts your business tax-wise. As a compensation expenditure, heavy duty repair shops can deduct bonuses paid to techs. However, the amount has to be “reasonable” and you can only take a deduction for bonuses paid in the year you claim it.
The issue of what’s reasonable is what can trip shop owners up. However, the IRS doesn’t usually dispute the reasonability of a bonus unless there is a questionable relationship between the employee and the shop. For example, if the employee is related to the owner by blood or is otherwise involved in a close personal relationship. That’s an issue that many small, family-owned repair shops face. If a bonus or overall salary comes into question, the IRS looks at things like:
- the employee’s responsibilities and qualifications
- how much he earned in previous jobs
- how much your shop pays other employees
- the size of your business
- how much similar businesses pay in compensation and bonuses
- economic conditions in your area and the country
The government will also want to know if the bonus was paid through a formal, structured plan and if the employee in question plays any part in controlling the business.
Yes, that means that shop owner’s salary and bonuses can raise a red flag with the IRS. Depending on how your business is set up, you may not be able to deduct money paid to you by the shop. It’s vital that you consult with a professional accountant to ensure you are reporting income, compensation, and employee bonuses properly.
It Doesn’t Have to be About the Money
Maybe you’d like to be asking, “When should you give your repair shop employee a bonus?” but aren’t in a position to pay bonuses. If you aren’t, or you prefer motivating employees and showing appreciation in a different way, there are loads of alternatives to incentivized pay, and just as many opportunities to bestow non-monetary bonuses. Some examples include:
- a bottle of wine and an inexpensive gift ($10 – $20)
- a bundle of gift cards to three or four neighborhood restaurants
- a food gift—like a box of steaks or a fruit and cheese gift basket
- extra paid days in addition to regular vacation time
Incentives like these can be given around the holidays, on employees’ birthdays, quarterly, or any time morale needs some boosting. Also, whether your bonuses are monetary or not, it’s important to verbally thank your techs frequently and let them know you value them and their opinions and ideas. Making them feel relevant and like an important part of your team is as essential as incentives for motivation.
Go Even Further Outside of the Box
Sometimes employees find the promise of non-monetary perks just as appealing as a bonus. That creates a new challenge for shop owners to come up with creative ideas for rewarding productive technicians. Hosting a happy hour once a month, either at your shop or a local restaurant or pub is a popular way to show appreciation to your entire team. It also gives them something to look forward to after a busy and productive month.
As for rewarding individual techs when giving bonuses, consider their personal qualities and needs. For technicians who want to advance, cover the cost of a certification or send them to a conference, for example. Or, get concert tickets for another tech’s favorite band. Find out what your employees’ interests are, and tailor bonuses based on that.
Tracking Metrics for Effective Bonus Plans
Your bonus plan can only be effective if you hold techs accountable and track their productivity. The best way to do that is by using heavy duty shop management software like Fullbay. It’s a Cloud-based end-to-end program that helps you run your business using your smartphone or tablet. That means you can check inventory, order and receive parts, assign jobs, and create service orders and invoices no matter where you are. For the purpose of administrating bonuses, you can use Fullbay to monitor tech productivity from day to day as well as tracking their progress long-term. That means always having the data that helps answer the question When should you give your repair shop employee a bonus? Fill in the form below to give Fullbay a try and see how it can help make your incentive plan successful.