Sunday, September 19, 2010

Understanding Flat Rate

So have you ever wondered how technicians get paid?
The majority of shops work on what is called the flat rate system. There are also a handful of shops that pay an hourly wage or even a salary. Hourly and salary shops are far and few between in the retail world but are become more popular.  The flat rate system dominates the industry because it has the potential to create the most profit for the service department.

A good technician can flag up to 20 hours in a day
The flat rate pay scale is widely accepted in the industry and has been around for over 50 years.  It is pretty straight forward in how it works, let’s take a look.

Most shops use a labor time guide to determine how many hours a particular job will pay. In this case let’s say our technician has a brake job to complete which will normally pay 2 hours to complete. Let’s say for some reason it takes him 3 hours to complete the job.  Too bad, he only gets paid the 2 hours labor, his loss.  On the other hand if he does the job in 45 minutes, he will still make 2 hours of labor time.

Theoretically a good technician could “flag” anywhere between 10-20 hours, per day! (Flag time is a term used to describe hours produced) Typically technicians will try to average between 10-12 hours per day. On the flip side if a technician only flags 3 hours in a 8 day he has basically worked 5 hours for free.

What are shops comebacks? 
The flat rate system obviously rewards a technician for his ability to hustle and complete jobs quickly. The theory is that the quicker and more skilled technicians will generate more income for the shop.

The problem that is inherent with this concept is that it can cause issues with the quality of a technicians work. Good technicians will develop short cuts or just hurry to complete the work as quickly as possible. This will increase the likely hood of making mistakes.

This can create shop comebacks that can be costly to both the dealership and the technician (a shop comeback is when a vehicle returns for same issue it was in for originally or has now developed a new issue that the technician created while working on the vehicle – like not plugging something in or forgetting to tighten something down).

 In these cases the technician will recheck and do the repairs at no labor charge (this is not always true, sometimes they end up making the customer pay, blaming it on another issue when truly it was either a miss diagnosis or maybe he broke something during the initial repair – this does happen!) If a shop tries to charge you when you bring a vehicle back as a comeback you need to be cautious. Ask a lot of questions and you may even want to think about a second opinion. Many of the comebacks that I have seen, that a customer had to pay for a repair in my opinion, where questionable.

Every job has a set price
The issue with flat rate is from the customer’s perspective. Many people that realize they are paying 2 hours labor for a job that took the technician 45 minutes to complete, tend to feel like they are being taken advantage of.  This is because they do not understand the concept of the flat rate system.

The best way for people to understand the concept is to look at it like this; each job has a set labor cost that is determined from a labor time guide. The technician gets paid an hourly rate as determined from the labor time guide whether or not he completes it in this set time.

Think of it as working off a menu. Everything has a set price - Have you ever had a plumber or HVAC person come out and charged you $250 labor to replace a part that took him 45 minutes to replace??  - Think about it.

How many hours does a shop expect from their technicians to be productive?
Hourly and salaried technicians get paid the same way no matter how fast or how long it takes them to complete a job. The shop still uses a labor time guide to determine the set price of the repair. Many people may believe that either one of these pay types would be better than flat rate because the technician does not have to “rush” to complete a job. This is not necessarily true.

Retail shops that use either of these pay scales will have different ways to keep their technicians productive. So do not believe that these guys are going to take 2 hours to do your brake job. Remember when I talked about how technicians on flat rate try to average at least 10 to 12 hours a day. The shop has those same expectations of their technicians to keep productive. This is the nature of the business.

Why would they pay a technician $5.00 to sell a battery?
There are many different incentives to encourage a technician to be productive. They may use a bonus that a technician can earn for reaching certain hours by the end of each pay period. So if I technician reaches 100 hours in 2 weeks he may get an extra $200 as an example.

They could pay increasing labor rates for reaching certain hours by the end of the pay period - Say their base pay is $20 per hour up to 90 hours flagged per pay period but if they produce between 90 and 100 hours they may make $22 per hour instead, this would go up incrementally as their hours increase.

I have also seen a shop that offered bonus money for selling specific types of work – They may pay a guy an extra $5.00 for every battery he sells or $10 for every shock he upsells (this tactic can breed dishonesty because people try and sell things you may not need) If the shop does not have monetary incentives they will have certain expectations that they expect a technician to reach.

I guarantee you that any technician that does not flag at least 40 hours a week consistently will not have a job for long.

Who does quality control?
As you can see from the customers view point it really makes no difference how a technician gets paid. It truly only affects the shop.  Shops that advertise that they do not use flat rate are using this as a gimmick, plain and simple. 

Ultimately what really matters is how a shop monitors their technicians work to minimize poor quality repairs or miss diagnosis and how they handle the situations when they do arise.

I am a big believer in quality control; my belief is that someone other than the technician should double check all of the work that goes thru a shop, no matter what pay scale they use. Now a day’s most shops rely on the technician to quality control themselves, which I think is a bad move for obvious reasons. In all the shops I have ever worked in that had a quality control person had less comebacks then the ones that did not.  Unfortunately for the customer, employing another person for this job takes away from profits and car dealerships are all about maximizing profits!!

The Automotive Wise Guy

***Next time you bring your vehicle in for service; ask who does their quality control***

1 comment:

  1. This Post has a very brief and constructive information about the Flat rates of the Auto technician along with advantages and disadvantages.