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  4. Flat Rate vs Hourly Pay

Flat Rate vs Hourly Pay

Determining how to pay your staff is one of the hardest and most important decisions in successfully running a business. For most businesses, this decisions comes down to two options: flat rate and hourly. Let’s take a look at the strengths and weakness of each one in the automotive industry, particularly in relation to unapplied hours.

Our helpful flowchart gives a brief overview of flat rate vs hourly pay.

Flat Rate

With a flat rate compensation system, the technician is paid by the job, not the hour. This means that the efficiency of one’s work is very relative to their labor cost. Flat rates are typically used for more complex jobs like engine repairs and body work.

  • Pros
    • Mechanics have the opportunity to triple their earnings by keeping themselves busy and working efficiently.
    • When an employee outperforms standards, both the worker and business benefit by bringing in more jobs and work.
    • Mostly eliminates the problem of unapplied labor.
  • Cons
    • Technicians who tend to work slowly and methodically will struggle and not earn as well as peers.
    • High pressure environment to perform.
    • Slow periods can be especially damaging to workers on flat rate structure.

Hourly

Hourly pay is pretty self-explanatory, as the manager sets a consistent wage per hour for employees. This means that regardless of the worker’s product or efficiency, he/she will receive the same pay. This can be damaging to a company’s balance sheet when unapplied labor enters the environment.

  • Pros
    • Since hourly rates are set, they are very predictable and make resource allocation easier.
    • Team members know how much they will earn as salaried employees.
    • Better for simple jobs, like oil changes, and extremely complex jobs that do not have a standard time.
  • Cons
    • Underperformance, often via unapplied labor, means that more money will be paid for less work.
    • Lack of incentive for mechanics to work quickly and efficiently.

Final Thoughts

Both hourly and flat rate pay offer strengths and weaknesses to businesses. It is key for managers to select project management solutions that best benefit their business and their employees. With unapplied labor, payroll services that calculate Labor Cost and Billable Hours, such as Punchey, can massively help a company using hourly wage. Either way, both systems are key when making decisions on resource allocation and running payroll, thus are crucial for small and large businesses.

Updated on October 10, 2019

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