Salary vs. Commission - BodyShop Business

Salary vs. Commission

Each compensation method has its pros and cons. Ultimately, it comes down to choosing the one that will compensate each individual technician according to his or her ability.

Some collision repair shops debate about whether paying their technicians a salary or paying them a commission is the best compensation method. I know what we prefer to use, and it comes from a lot of hard lessons learned over the last 28 years.

We’ve used both methods of pay and have achieved an equal number of successes and failures with each one. There’s a fine line between paying a tech what he’s worth and making a profit. We all believe our techs should be paid more, but our industry dictates their pay scale, not us. Our entire goal must be to maintain a profit while continuing to keep the quality of the repair and morale of the techs at the highest level possible.

I believe a well-paid tech is a happy tech, so I try to stay as close as possible to the top of our industry’s pay scale. This doesn’t mean that my techs are paid above what our industry standard dictates. I’ve been in a position where my techs were making more money than I was. If you’ve ever found yourself in that situation, you know it isn’t a pleasant place to be. If your techs are making more than you, some serious changes need to take place immediately.

Shop Size Matters
Whether you’re a small operation or a large mega shop, either paying your techs a salary or paying them a commission can work. If you’re small and busy, I recommend paying by salary because, due to your size, you can monitor each tech closely. You don’t have to rely as much on the tech creating supplements by finding things he would usually want to get paid for.

If you’re small and not continuously busy, I recommend having commissioned employees only. I remember back when I was a small shop with 10 employees. I was paying everyone by salary when a slow period hit us that lasted a little over a month and almost broke me. We produced very little work but my payroll remained the same. When we finally became busy again, no one was motivated except me. I thought everyone would work harder to help us make up for our losses, but I was dead wrong. Somehow, the slow period caused everyone to become lazy, and when we found ourselves busy again, I couldn’t get anyone to produce even close to what they had produced before. Everyone acted like I was asking them for something extra because I expected them to work all of a sudden, and this gave my employees a bad attitude.

My next decision was a desperate one. I told everyone that I was going to either reduce their salaries by 10 percent or move them to commission. To my surprise, everyone chose commission! They all thought they were producing far above what I was paying them. And that’s one of the problems with salary – most employees will only remember the weeks when they produced, but will forget the weeks when they hardly accomplished anything at all.

When the next pay period ended, not one tech produced commissions that were equal to their previous salaries. After that payroll, every one of my employees asked me if they could take the old deal of their salary less 10 percent. When I refused, each one eventually quit. I ruined them by not forcing them to earn their pay. The huge lesson I learned was to always work from a profit-based perspective.

My company is now run with profit as the basis for everything. Employees are expected to make a profit for me; without the profit, the employee becomes a liability, not an asset. We can’t blame them if we allow them to cost us our profits.

Quality, not Quantity
After I switched to all commissioned techs, my profits returned, but a new problem arose: Our quality began to drop. How could we get our commissioned employees to do the same high-quality work as the salaried guys who weren’t chasing the clock for their paychecks? This is something that’s difficult but not impossible to accomplish.

In our case, we had to set high standards and not waiver from them. Plus, our techs had to be accountable for everything they did. We accomplished this by creating a series of inspections and certifying our vehicles before they were moved to the next department. As we grew, we hired a full-time quality control manager who did nothing but certify vehicles.

Accountability is a must if you want to keep your quality up. We’ll only allow a tech a couple of mistakes before asking him to step up, and if he doesn’t, we let him go. This sends a clear message to everyone: If you try to do a substandard repair, we’ll catch it and you’ll be gone. This policy has helped me attract and keep some of the best techs in our industry. I have techs who’ve been with me for more than 10 years. They’re proud to be part of our company and we’re proud to say we employ only the best.

Tailor Pay to Each Employee
There are two other methods we’ve used to pay our techs. One is a salary plus a small commission on hours flagged, and the other is commission with a small bonus if they flag over a certain number of hours.

Salary is a pay method that’s based on a set hourly wage with set hours. Commission is a pay scale that’s based either on a flat-rate scale or a percentage scale. Although some shops still use the percentage base to pay, most have adapted the flat-rate method. The flat rate is based on a predetermined hourly rate, and the tech multiplies the hours on the estimate by the flat-rate amount. The percentage payment is based on paying the tech a set percentage of the labor on the estimate. Salary plus commission is a set salary (or hourly wage) with a flat rate attached to it. Usually the flat rate is a much smaller dollar amount geared toward creating motivation, and the salary is normally the bulk of the pay.

A salary plus a commission for hours flagged is structured to track the hours produced by the salaried employees. They receive a substantial salary plus $1 to $2 per hour for every hour flagged. We do this for three reasons. First, we can keep track of the hours they’re producing. Second, this makes them aware that their hours are being tracked. Third, it serves as an incentive for them to make more money.

Commission plus a bonus is another compensation method. This is when you pay the tech on a flat-rate commission with a higher flat-rate bonus if he produces over a predetermined number of hours. I offer a 50-cent bonus to my commissioned employees for every hour flagged if they reach over 200 hours in a two-week pay period, and they always make their bonus money. I’ve found that if I tailor my method of pay in a way that fits a particular employee, I become more profitable.

Trial and Error
How do you figure out which way is best for your shop? This is never easy because people are so different. The only way is through trial and error.

I’ve moved a high-producing tech to salary only to watch him literally stop producing and begin talking to anyone who would listen. I’ve also moved a complaining tech to salary and watched him become a happy, helpful, high-producing employee. People are different, so it’s important to individualize your payroll methods.

What I’ve found works well is to test a person first by hiring everyone on a commission basis. Then, after a couple of pay periods, I’m able to determine what they’re worth, which gives me a benchmark to base their performance on (and the number is predetermined by them). This also makes them accountable if they quit producing for some reason.

If you want to hire someone on salary without putting them on commission first, I suggest you first come up with a number that you both can live with for the first 30 days. Then you should reevaluate his or her pay scale after that 30-day period. At that point, you can adjust his or her pay up or down to match his or her individual production.

Profit is King
Whatever compensation method you choose, you should use the one that will compensate your techs according to their ability. I’ve seen many helpers become body men and receive the exact same pay scale as the tech that trained them. You shouldn’t allow this to happen or you may lose your veteran tech and get stuck with his helper. You shouldn’t pay everyone the same whether you pay them a salary or a commission – you should pay everyone based on their individual ability. Otherwise, you’ll cause the more experienced techs to resent others with less experience and they’ll ultimately lose their incentive to produce a quality product. Also, what will motivate the less experienced tech to become better if he has already reached the top of the pay scale?

Whatever method or combination of methods you choose, the most important thing to remember is that staying profitable is as important as maintaining a happy crew. I have yet to find any employees who will stay loyal to a company without getting paid. As loyal as your best employees may be, they need to be paid on time. It won’t do any good to overpay your crew and go out of business in the process. Any of these pay methods will work as long as you make sure each employee is making your company money.

We hire employees to make us money, not to break even. We’re entitled to make a profit on their labor, and this needs to be communicated to them on a regular basis. Individual production should be monitored, and each employee should be made aware of their status. The best techs should be rewarded accordingly, and employees should be trained to believe that the profitability of the business is as much their responsibility as it is yours. Breaking even is not an option.

Writer Lee Amaradio Jr. is the president and founder of Faith Quality Auto Body Inc. in Murrieta, Calif. His 32,000-square-foot state-of-the-art facility employs 65 full-time employees, does $7 million in gross sales and has earned the I-CAR Gold Class designation and Mercedes Benz USA certification for aluminum repair. In business since 1979, Lee attributes his success to having a great team of quality people supporting him. His general manager, Steve Saunders, sits on the I-CAR National Gold Class and Platinum Individual Advisory Committee. Lee says that he “sees the handwriting on the wall” and believes that “now is the time for us to reclaim our industry, before it’s too late.” He can be reached at [email protected].

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