In the service plumbing industry hourly paid technicians is the norm. I will guess that 80% of the businesses pay hourly. Paying hourly a blessing and a curse. Labor is generally the largest expense of the business. When things are busy and you have good employees, the business can get a little ahead on profit. But, when things slow down all that positive profit gets wiped away. Are you going to be a good guy and pay them for doing nothing? Or send them home with no pay to save the business?
A commissioned system is a marriage between the technician and the business. The sales of the business and the payroll rise and fall together. In extremely busy times the techs who hustle make a lot more. When it is slow, just like the business, they make less. The commissioned techs have to be better money managers than hourly techs. When times are great, they save a portion to use during the slower times.
A commissioned system works best for the business in two ways. First, we can fix the percentage to sales that we will pay so the business can remain somewhat profitable and we can control the largest expense of the business. Second, if done properly, we don’t have to pay overtime. Now, some of you are scratching your head – no overtime? That is correct.
Recently a large best practices group had a session at their convention and told several hundred companies they could no longer pay commissions to technicians and installers. They had to pay overtime, whether they were hourly or not, and commission just would not work. That is a complete myth! The U.S. Wage and Hour Division, Fact Sheet #20, revised in July 2008, explains the general information concerning Section 7(i) of the Fair Labor Standards Act.
If you are a service establishment where the employee’s regular rate of pay exceeds 1-1/2 times the minimum wage for every hour worked in a workweek, and more than half the employee’s total earnings in the period consist of commissions, you are exempt from paying overtime. Every company I have been associated with who pays commissions have employees with a much higher income than an hourly shop. If you break down their effective hourly rate it is normally 3 to 4 times that of the 1-1/2 times minimum wage requirement.
I think a lot of plumbers don’t like commission because they are afraid they can’t make it. They are going to get paid what they are actually worth! I had a client who converted to commission from hourly and after three weeks called me up and said this commission thing is not working. I said, what do you mean? He said his best plumber was only making half the money he used to…. Really? Then, he is not your best plumber!
If you must pay hourly, then have a very good bonus program. Give your technicians the opportunity to give themselves a raise. Get them excited with incentives. It really works. Your customers will love it too. Most hourly workers step over repairs and only do what is on the job ticket. Commissioned techs point out areas of concern to the customer and gives them the option to repair it or not.
Now there are a few of you who will say that commissioned technicians oversell the customer by providing services they don’t need. That cannot happen if you are truly managing those techs and know what is going on. And, of course, the one’s making that statement are just scared and afraid to try.
Do you need help getting your business to the next level? That is what I do all day every day. Contact me at ThePlumbersCoach.com.
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