Is the Flat Rate System Really the Best Pay Plan?
By Ted Ings, Executive Director
Flat rate – the pay scale where technicians are paid by the job – has been the industry standard for many years.
Most shops choose the system as opposed to compensating their technicians hourly. But are they making the right choice?
Flat rate: the good, the bad and the downright ugly
Although a flat rate can be beneficial, it also creates many challenges. Weighing the pros and cons might make you reconsider what’s right for your service department.
The pros of using a flat rate pay scale
• Expert techs can make a lot of money: under the flat rate system, skilled techs have the opportunity to flag well over 40 hours during a 40-hour work week. In other words, they can pocket a lot of extra dough.
• The shop only pays for hours flagged: the most appealing aspect of flat rate, at least for the dealership, is that techs only get paid for time flagged. There’s no compensation for time spent socializing or taking breaks.
• Techs are more motivated to be productive: a tech that isn’t working doesn’t get paid. Therefore, there’s a greater sense of urgency to get things done quickly and to upsell additional work.
The cons of using a flat rate pay scale
• Lower-level techs suffer: not everyone is a superstar. Less-skilled individuals often suffer under the flat rate plan and end up leaving because of it. Losing lower-level techs is extremely detrimental; these individuals play a pivotal role at any dealership.
• Uncertainty for technicians: flat rate techs never know what they’ll be paid – or if they’ll be paid at all. When there’s no work, or they’re stuck waiting on parts, they don’t get a dime. Such uncertainty can be unnerving, especially for someone with a family to support.
• High employee turnover rate: many worthwhile technicians leave because of the flat rate system. They tire of issues such as having to “beat the clock”, not having a guaranteed income and getting paid less for warranty repairs.
• Increased comebacks: working under flat rate, technicians often make mistakes while rushing to get hours. Most dealerships claim to have a quality-check system in place, but, because technicians are hard to come by these days, more and more blunders are overlooked.
• Techs avoid difficult tasks: under the flat rate system, everyone fights over gravy work. After all, why spend hours on a diagnosis that doesn’t pay, when you could score by replacing a set of easy-to-access spark plugs? Flat rate breeds this type of thinking, which leads to certain jobs being pushed down the line.
• Reduced customer satisfaction: technicians hurry to make hours, mistakes happen – and the customer suffers. In the end, instead of getting quality work and attention to detail, vehicle owners get a rush shop performed by an employee trying to flag more time.
• Techs ignore other duties: for most employees, there’s little motivation associated with unpaid work. As such, seasoned techs neglect duties like training mentees and assisting customers.
• Recruiting help is difficult: the flat rate pay scale is a primary reason employees leave the industry. Also, because of the system, many young people don't become technicians, to begin with. Remember: workers want a guaranteed income and they’ll go elsewhere to get it.
Treat your employees like people, not a commodity
The basic concept behind the flat rate system is to keep mechanics hungry, so they’ll push themselves to the limit to flag hours. If these employees don’t work themselves to the bone, their families won’t eat. The entire concept is morally questionable when you think about it.
Flat rate is problematic and unfair on many levels. Yet, most shops cling to the aged system because, well, it’s what they’re used to. There are alternatives, however.
Alternatives to the flat rate system
Several flat rate alternatives exist that also motivate employees. For example, some shops use a base-pay-plus-bonus system to compensate technicians, much like they would a salesperson. Techs get a guaranteed salary or hourly rate, so they don’t starve, plus additional compensation for flagging more hours than they work.
In California, where traditional flat rate is illegal, employees get flat rate plus minimum wage. Technicians there also get overtime and breaks, just like any other worker.
The auto industry is desperate for technicians, and most likely, so is your shop. It may be time to rethink the flat rate pay scale to fill those empty bays – and to improve the lives of your employees and customers.