When Every Day is Payday
August 24, 2023
Do you have that one person in your life who has you try new foods, new methods, new experiences? I’m grateful to have had many mentors over the years who’ve helped steer me in the right direction because, for quite some time, I kept getting in my own way. There’s only so much time in life for trial and error. So take this advice that was handed down to me.
I was faced with a question when opening some of my first businesses:
“Should I pay my install staff hourly or a flat rate?”
In the HVAC business (and also with other professional service industries like plumbing, etc.), I’ve seen it done both ways. And I learned pretty quickly there’s a big difference.
Benefits of Hourly Rate
- Overhead cost is known by the manager/owner
- Salary known by employees (hourly rate times hours worked)
Concerns
- Employees are still being paid when the phone isn’t ringing
- Employees can “stretch” their working time to get paid more, making fewer installs and less money for the company
Benefits of Flat Rate
- Much higher salary ceiling for employees (earn more by installing more)
- Employees can choose to work fewer hours, or have more time off
- Employers are not overpaying employees to stretch out the day by killing time
Concerns
- It scares some employees who have never tried it
Let’s ride along on a service call with an hourly install tech and an hourly assistant and then a second team that gets paid on a flat rate.
| Hourly | Flat Rate |
| Parts – Let’s say they don’t have a part they need for a job. Are they going to get upset or rush? No. They don’t get upset because they get paid their $40 or $50/hour to drive across town to the supply house, get a cup of coffee, maybe a free soda, some popcorn, shoot the shit at the counter, find the right part and drive back to the job. They don’t care if they burn two hours. Why? They’re getting paid hourly. I’m incentivizing them to do that kind of stuff. Frankly, I’m giving them a great reason to take their sweet time. The longer it takes them, the more they’re getting paid. | Parts – Let’s say there’s a blower motor repair that translates to 300 bucks for the installer’s bottom line. If he doesn’t have that blower motor on his truck, you know what he’s going to do? He’s going to start raising hell with the service manager. “Why don’t I have the parts I need in my truck? You can’t expect me to run around town on my time.” Right? So now that puts pressure on your managers to make sure that we have well-stocked vans. The flat rate installer wants organization, he wants to get to do the job right and do it quickly so he can be ready for another install. |
| Efficiency – There’s no pressure to have the part on hand. There’s no sense of urgency for the installer’s time, and no sense of urgency to make the repair and let the homeowner go back to their business. The hourly installer does not share the same goal as the homeowner, which is a problem. | Efficiency – But if I have a system whereby my service technician is getting paid by the job, he’s going to hold the service manager and the warehouse manager and the parts manager accountable. “I need my truck stocked. I need the parts. I need to do my job without wasting time.” So, it puts pressure on the system for everybody to do the right thing, which is what they should have been doing anyway. But hourly can get away with it because there is no accountability. |
| Labor hours – An hourly system incentivizes your more experienced installers to SLOW DOWN. Let’s say an experienced installer can do the job correctly in 4 hours, and is making $50/hour in this example. They are getting paid $200 for this 4-hour job. Let’s say an inexperienced installer takes 6 hours to complete the same job and earns $40/hour, for a total of $240 for the same work. Does that make good sense? Certainly not. Why should you pay more for a 6-hour install when it can be done in 4 hours for less money? This is one reason experienced installers leave. | Labor hours – My best installers want the flat rate because they can do it in four hours and go do a second install for the day or go home and play softball with their kids. I don’t care. It’s up to them. |
| Job prep – There’s a similar story about this from an HVAC consultant, talking about two install teams. He did a ride-along with each. Day 1 was the hourly team. On the drive out to the install, they were talking about the night out before, the drinks they had, the girls they met, and so on. They were not preparing themselves for the upcoming installation when they had the drive time to do so. | Job prep – The next day, he went with the flat rate crew. On the way out to their job, they were talking about how they were gonna lay the job out. Hey, you talk with the homeowner, and I’ll lay down the floor protection. You can start examining the ductwork after I deal with the electrical and gas. It’s not about hurrying through an install and sacrificing quality on flat rate. It’s about changing the thought process, changing the behaviors, getting people focused, and getting people really prepared for what they need to be doing. Regardless of hourly or flat rate, the install teams should never be cutting corners, selling unnecessary parts or services, or lacking integrity in any way. |
| Productivity – I can remember years ago when I had crews on hourly. If they needed some parts, they’d both go to lunch, they’d go to the parts house, and it’d be two hours before they got back to the job site. It was costing me hourly for each employee to mosey on along at a snail’s pace. You put a crew on a flat rate, guess what? All of a sudden, they’re taking a 30-minute lunch, and the lead guy’s sending the assistant to go pick up parts quickly to get back to the job. It makes a difference. And not only is it a more equitable system, but dramatically increases productivity. | Productivity – Because now you’ve got guys going out that can do an install in half a day. They finish that one, and they head back to the office. And next thing you know, they’re asking for another install that afternoon. It drives different behaviors. So it’s a much better system in my eyes. |
We’ll cover this topic in more depth in the future, but suffice it to say, it makes a big difference to your bottom line and to the income your installers can make as well.
