A dealership or auto shop may choose to pay its auto repair technicians an hourly rate or a flat rate, depending on the work policies or circumstances. "Flat rate pay" basically means that auto mechanics and automotive technicians are paid for each job they do, which can motivate them to be more productive. However, this may also affect quality, as workers may cut corners since the amount of time needed to complete work determines their income. On the other hand, "hourly rate pay," or minimum wage, means that workers are paid by the hour, regardless of their productivity.
This article will delve into the flat-rate system, how it works, and why it’s a popular industry standard in the auto repair world today. We’ll also take a look at how it compares to hourly pay and the pros and cons of using each.
The History of the Flat Rate
The flat rate became popular due to the automotive industry and vehicle repair shop owners looking to improve their productivity. Subsequently, service writers began to monitor the amount of time it took for auto mechanics to make certain auto repairs to simplify payment processes.
With a list of vehicle repairs to be made, it made sense to bring in a flat rate to encourage workers to complete jobs quicker. If a basic vehicle service costs $200, and the pay rate per job is set at a specific amount, the auto technician or mechanic will be paid a precalculated flat rate according to work done.
Both the auto tech and customer know the job will cost $200. The flat rate worker knows what percentage of this sum they will receive, making the flat rate system predictable. The flat rate is also guaranteed whether the auto mechanic takes the stipulated one hour to complete the job or two hours due to unexpected complications. Since the auto industry has standardized the flat-rate system, it has spread to other industries, such as IT, legal, and financial.
How Does the Flat Rate Work?
Flat rates operate on the amount of work done by the auto mechanic or auto technician. In other words, the service manager in charge of the mechanic works will set rates for specific jobs. For example, brake job rates are typically set across different vehicles, depending on the complexity and time it will take to complete the job, to arrive at a flat-rate pay.
Original equipment manufacturer (OEM) parts will form part of what the customer pays in addition to labor costs, which can be billed as a separate item on Skynova’s free invoice template. Flat rate shops can choose "Product" under the "Item" drop-down menu and describe the OEM in the "Description" section. Warranty repairs can also be itemized and described on the invoice to provide customers with a detailed breakdown of the work provided. After customer invoicing has been taken care of, the service manager will calculate a percentage of the job completed, which will be paid to the flat rate worker.
Essentially, the flat rate constitutes payment per job as opposed to paying per hour. Auto shop businesses tend to prefer the flat rate system over the hourly rate because it promotes increased profits. With flat-rate pay, shop owners can charge for a portion of an hour, which doesn’t happen with the hourly rate.
Which Is Better: Flat Rate or Hourly?
Which pay plan is better will depend on the shop owner and the auto mechanics who work at the shop. Depending on the agreement, the auto technician will earn a wage proportionate to their inputs, and the shop owner will earn reasonable profits. Alternatively, a limiting agreement may favor the shop owner’s profits at the expense of the auto mechanic. Despite the popularity of the hourly and flat-rate pay, there are pros and cons to each system.
Flat Rate: Pros and Cons
Some pros of the flat-rate pay system include:
- Predictability: Knowing that the service writer creates set pay rates for auto repair jobs under warranty, vehicle services, and other auto repair jobs means that both parties can rely on the predictability of the pay system. Shop owners can project incomes based on a typical number of vehicles serviced per month. They can anticipate a certain number of warranty repairs each month and plan for a specific number of other repairs over a certain period. With these projections, the shop owner can calculate and deduct flat rate payments to arrive at their profits each month.
- Convenient budgeting: Projections of incoming work and outgoing pay based on flat pay rates enable shop owners to budget accordingly. With careful planning, budgets related to overheads and inventories become more manageable.
- Increased efficiencies: The shop owner can rely on increased efficiencies related to productivity, inventory management, and payments. Further, auto mechanics and technicians are motivated to improve their productivity because this means higher pay for them at the end of the period.
- Simplified bookkeeping: A flat rate pay system simplifies job transactions, allowing the bookkeeper to quickly capture job descriptions and amounts on the invoice. Another way to simplify the invoicing process is by utilizing Skynova’s free invoice template, which allows users to create professional invoices in a matter of minutes — completely online.
- Decrease in pay rate disputes: Because flat rates are predetermined, everyone knows what to expect, leading to fewer misunderstandings.
Some cons associated with the flat rate pay system include:
- A decline in work quality: Work quality may decline as auto mechanics rush through jobs to increase their pay. Quality checks can help prevent poor performance by flat rate workers looking to cut corners.
- Disputed payment terms: Payment terms can be disputed for flat rates when the cost of the job has been incorrectly predetermined. For example, a brake job on a small vehicle will take a lot less time and effort than for a large transport vehicle. Moreover, if flat-rate pay agreements don’t cater for increases, workers may feel they’re being exploited.
- Decreased profits for shop owners and workers: Auto mechanics and auto techs want to make good money from their labor and will work hard to generate higher income. The downside of this approach is that people are not machines and can have bad days. Overwork, personal stress, and poor health can negatively impact the shop owner’s profits when productivity decreases on the flat pay rate system.
- Warranty repairs: Warranty repairs differ from everyday vehicle repair work, as they are based on predetermined industry standards. Manufacturer warranty repair work generally provides for repairs to be done in a shorter time, which leaves auto mechanics paid short for jobs that take two hours when the vehicle manufacturer claims the work must be completed in an hour.
Hourly Pay: Pros and Cons
Dealers, like Toyota dealerships, favor the flat-rate pay system because it tends to promote productivity and increase mechanics’ wages, but this can also cause burnout. As a result, some auto repair shop owners may favor the hourly pay rate, with workers receiving a base salary.
Some pros of the hourly rate include:
- Predictability: Like the flat-rate pay system, the hourly rate also offers predictability. Auto mechanics know how much their wages will be every week, and shop owners and workers can plan for a regular fixed income. Skynova’s free invoice template allows users to bill customers at hourly or daily rates to simplify auto mechanic work.
- Constant employee income: Auto mechanics and technicians can expect the same pay rate, whether the business is slow.
- Warranty repairs: Some warranty repairs are formulated based on industry standards, while others are based on manufacturer calculations. Whereas flat-rate pay will pay for two hours of work, no matter how much time is needed to make a repair, auto mechanics who work for an hourly rate are unaffected by this condition.
Some cons of the hourly rate include:
- Lack of productivity: Because workers know they’ll receive a base salary, this system can discourage productivity. From this point of view, there is little to no motivation to complete a job based on flat-rate systems. Whether the auto mechanic does the job in one hour or three, they will still receive the same wage.
- Little potential to increase income: Auto mechanics who work on an hourly rate will benefit from a predictable income but may be unable to increase their weekly wages.
- Complex diagnostic work: Complex work cannot be estimated easily upfront, which makes this type of work a drawback for hourly pay auto mechanics and shop owners. Workers may lag in speed, causing the final repair to be prohibitively costly, which cannot always be transferred to the customer.
Pay Rates Depend on the Job
Auto mechanics and technicians will differ in terms of competency, training, education, and experience, so you may not always be able to pay a flat rate across the board. Job rates may also vary across dealerships and shop owners, making standardization of work a complex issue. On top of that, manufacturer calculations — whether for new vehicle warranties or older vehicle warranties — add another level of complexity to pay rates.
Where some auto mechanics can earn more working for dealers under a flat-rate pay system, they can also earn less working for a privately owned establishment. Multifaceted diagnostic testing can also be a time-consuming task, increasing the variability between flat and hourly rates for the same job.
However you perceive the flat rate and hourly pay systems for auto repair jobs, though, both have their advantages and disadvantages. Essentially, a hybrid system consisting of hourly and flat rates can work well for shop owners and workers.
Create a Customized Invoice With Skynova’s Sales Invoice Template
The bottom line is that flat rate and hourly pay systems depend on the work environment to be effective. As an auto repair shop owner, it’s up to you to decide what will work best for your business.
Whatever you decide, though, Skynova can help you stay on top of your billing system. Our free invoice template allows you to create professional invoices in a matter of minutes. And once finished, you can print the invoice, download it as a PDF, or send it directly to the customer online. The best part is that you’ll see when the customer opens it. Moreover, other business templates can help you attract rapid payment and aid in customer retention.
Go the extra mile by taking advantage of Skynova’s software products to make the recording, storing, and management of your financial processes as efficient as your auto repair shop.