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Toolboxplaybook-back-btn Playbookplaybook-back-btn Chapter 12

CHAPTER 12

Keys to Success in the Office

The end of the month "closing of the books" can be something everyone dreads. With a solid plan for the entire process, from forecasting to reaching the bottom line — plus the help of Quickbooks’ integration with ServiceTitan — eases the burden.

SECTION 6 OF 6

Popular Ways to Structure Pay in the Trades

As a contractor, you are well aware of the multitude of ways we can pay and incentivize our employees. How contractors define our pay structures can impact the amount of work and headache involved when it comes to running payroll. We’re trying to balance two things: 1) creating a pay structure that differentiates us so we can attract and retain our talent; and, 2) leveraging the power of software to simplify, and speed up, the payroll process. 

We investigated the most popular pay structures used by ServiceTitan contractors and how they are set up in ServiceTitan to help you streamline your pay structure and management process — saving you time, increasing your efficiency, and improving your job costing.

10 Most Popular Pay Structures in ServiceTitan:

1. Hourly Pay, with Overtime

Time-based. This is one of the most common pay structures contractors use because it is typically easiest to track.

For Whom:  » All Employees » All Trades » All Job Types (residential, commercial)

Description: This structure compensates employees with additional pay for hours worked beyond a specific number of hours in a week. Overtime rules  are set at federal and state levels.

Examples:

  • An employee who works 45 hours is paid 40 hours at their regular rate and 5 hours at 1.5 times their calculated regular rate.

  • An employee who works 10 hours in a day is paid 8 hours at regular rate and 2 hours at 1.5 times their calculated regular rate (In states with daily overtime rules the employee does not need to work more than 40 hours total to get overtime).

Pay Structure Cons:

  • Performance isn’t rewarded.

  • Behaviors aren’t influenced to sell more or work faster.

  • Inefficiency could unintentionally be fostered in order to get overtime.

  • Alternatively, technicians could feel like companies are disallowing them from reaching enough hours to qualify for overtime.

2. Level Pay

Type: Performance-based and Time-based. Contractors use this pay structure to motivate technicians to continue their training in the trades. It also gives them more consistent payroll, instead of adjusting each tech’s hourly rate, contractors increase their level, which increases their hourly rate, spiffs or piece rate.

For Whom: » Service Technicians » All Trades » All Job Types (residential, commercial)

Description: Technicians are assigned levels based on skills and tenure. Based on their level, they are paid different amounts.

Example: A technician with higher skills and performance is paid at a Level 3 hourly rate of $30 an hour. A technician with lesser skills and performance may be at a Level 1 and earn $20 an hour.

Pay Structure Cons:

  • This pay structure changes based on performance. If performance is lacking, technicians may go down a level, which can have adverse technician moral impact (i.e. a hit to their pride/confidence).

  • Potentially, technicians could feel levels don’t allow for fast enough career progression if they are simply good (but don’ t have tenure).

3. Revenue Commission Structure (or Commission Based on Overall Job Total)

Type: Performance-based. Contractors use this commission structure to focus on selling more work and higher-ticket items. It rewards sales and takes the variable out of labor cost. It rewards the high performers and weeds out lower-performing techs because they can't make enough money.

Contractors also use this structure as an add-on to salary pay structures - a percentage of sales on top of a salary. In this case, the salary would guarantee a base for security of a working manager, for example.  It also allows the salary to cover the management part of a working manager, and it incentivizes the individual contributor role of a working manager with commissions.

For Whom: » Any Field Employee » All Trades » All Job Types (residential, commercial)

Description: Revenue commission structure pays field employees a set percentage on: 

  • A product (or item in your pricebook)

  • The total work sold within a month

  • The total job installed

Example: A selling / service technician sells a product for $10,000. Your company offers a 5% commission rate on the sale of that product. For each one of these products that your technician sells, they earn $500.

For installers, commission is paid on the total job installed.  For example, 7% paid on HVAC equipment installs, and split by the installing crew.

Pay Structure Cons:

  • Confirm this structure aligns with the company’s brand. For example, if you are a low-cost solution, this pay structure could conflict with that message.

  • With commission structures, technicians inadvertently get a raise when equipment prices increase and the sales prices are raised. Some contractors think: "Why should the installers get a raise because equipment went up 5%?”

  • Variability of commission pay out can make budgeting harder for the technician.

  • Additionally, there could be misalignment between revenue and compensation if a contractor pays commissions after the purchase but doesn't collect payment for a longer period of time.

4. SPIFFs / Bonuses

Type: Performance-based. SPIFFs can motivate specific behaviors or sales of specific products (such as high-margin products or older inventory). In the case of membership anniversary SPIFFs, the SPIFF motivates techs to provide high-quality service so the customer remains a member.

For Whom: » All Employees » All Trades » Residential Job Types

Description: A SPIFF (also written as SPIF or SPIV) is a short-term sales incentive for field personnel. Field employees are paid a "finder's fee," or small, discrete bonus, for closing a sale or turning leads over to the comfort advisors. Office employees can be paid for selling/renewing a membership. This is also usually a set amount / flat fee. SPIFFs, unlike traditional sales incentives, typically have cash value.

Example: A tech (or CSR) could earn $10 for selling the membership and then for fixed term (1 year, 2 years, etc.) memberships $5 for the renewal.

Pay Structure Cons:

  • Be mindful of negatively impacting technician-generated leads.

  • Ideally, contractors incentivize both to ensure equipment that should be replaced (vs. repaired) is replaced.

5. Hourly Pay, with SPIFFs or a Percentage of the Job, Plus a Percentage for System Sales 

Type: Performance-based. Contractors use this structure to incentivize technicians to sell certain items they want to focus on as a company. It's good for the tech because they can make extra money by selling specific enhancements.

For Whom: » Selling / Service Technicians (not install technicians) » HVAC Trade » Residential Job Types

Description: Field personnel receive hourly pay plus a SPIFF or commission based on the total revenue of the job (usually 3-5%), and commission on the system sold. Total labor wouldn't exceed 20% for most service business units.

Example: A technician is paid hourly plus a SPIFF for selling certain items, such as IAQ and system replacements. The tech makes $25/hour and gets a $100 SPIFF for selling an IAQ package. Tech gets $25 for turning over a lead and $200 for a system sale.

Pay Structure Con:

  • Technicians may try to sell items that aren’t needed, just to get a SPIFF; but, this is also an indication of a bigger problem / employee issue.

6. Gross Margin Commission Structure

Type: Performance-based. Contractors use this structure to ensure that  sales and the company's profitability goals are aligned, creating a win-win scenario.

For Whom: » Selling / Service Technicians (not install technicians) » HVAC Trade » All Job Types (residential, commercial)

Description: Field personnel are paid based on a percentage of the gross profit for the job.

Example: If your shop’s service costs $1,000, but accrues $500 in costs to perform the work, the field personnel would earn a percentage of the remaining $500 profit.

Pay Structure Cons:

  • Variability of commission pay out can make budgeting harder for the technician.

  • It can also cause friction between departments if more labor or materials are used than what was estimated. For example, the salesperson could be mad that their pay was less because more labor or material was used.

  • Additionally, there could be misalignment between revenue and compensation if a contractor pays commissions after the purchase but doesn't collect payment for a longer period of time.

7. Gross Margin Commission with Percentage Based on Range of Profit or Discounts Given

Type: Performance-based. Contractors use this structure to drive large gross margins and incentivize sales at book price versus with  a discount. For Whom: » Sales/Comfort Advisors » HVAC Trade » All Job Types (residential, commercial)

Description: Commission is based on net profit for the job, but with varying commission percentages based on a range. 

Example: If gross margin is 38%, commission rate is 6%; if gross margin is 42% commission rate is 8%, etc. This is sometimes also done based on the discount percentage given on the job. Example: If no discounts are given (sold at book price) commission rate is 12%; if .01 - 4.99% discount is given, commission rate is 11%; if discount is 5 - 9.99%, commission rate is 8%.

Pay Structure Cons:

  • Variability of commission pay out can make budgeting harder for the technician.

  • Additionally, there could be misalignment between revenue and compensation if a contractor pays commissions after the purchase but doesn't collect payment for a longer period of time.

8. Sold Hour / Billable Hour / Task Time / Flag Hours / Ticket Time

Type: Performance-based. Contractors use this structure to encourage techs to do the work in the allotted time, or faster, so that they can perform (and get paid for) more hours of billable work than they actually worked in clock hours. This brings higher revenue per hour to the company.

It also eliminates unproductive or non-billable time.

For Whom: » Service Technicians » All Trades » All Job Types (residential, commercial)

Description: A job or task in your pricebook has a set rate or time associated with it. The technician can take more time or less time, but they are only paid the amount set for that task/job.

Example: A condenser fan motor is assigned 2 hours in the pricebook. The technician completes the repair in 1 hour, but is paid 2 hours of task time.

Pay Structure Cons:

  • It’s important to keep an eye on call backs.

  • Efficiency is great, but not at the expense of doing the job right the  first time -- more supervision could be required.

9. Piece Work Pay

Type: Fixed-rate. Contractors use this pay structure to keep labor in check as costs go up.  With commission structures, technicians inadvertently get a raise when equipment prices increase and the sales prices are raised. Some contractors think: "Why should the installers get a raise because equipment went up 5%?” With the Piece Work Pay structure, usually hourly rates are standardized and techs make more by selling more items or performing more work. This structure also helps drive revenue because techs are incentivized to sell larger items.

For Whom: » Any Field Employee » All Trades » All Job Types (residential, commercial)l

Description: The field team is compensated a flat dollar amount for work performed. Piecework rates typically depend on the job and work completed.

Example: Managed tech makes $150 per water heater installed.

Pay Structure Cons:

  • Confirm this structure aligns with the company’s brand. For example, if you are a low-cost solution, this pay structure could conflict with that message.

  • It’s important to keep an eye on call backs.

  • Efficiency is great, but not at the expense of doing the job right the first time -- more supervision could be required.

  • It can be difficult to determine a reasonable piece cost.

10. Holiday Pay / PTO / Bereavement / Sick

Type: Non-working Pay. Contractors offer these benefits to attract and retain top employees.

For Whom: » All Employees » All Trades » All Job Types (residential, commercial)

Example: Pay for certain types of non-worked hours.

Pay Structure Cons: None.

Setting Up Popular Pay Structures in ServiceTitan

ServiceTitan supports many popular pay structures, reducing the effort it takes for us to calculate our employee pay. 

They are, however, dependent on  contractors using best-practice workflows in ServiceTitan to sell, generate leads, and book/complete jobs. Adherence to these tested procedures ensure that pay calculations are accurate, and what contractors expect. 

(Check out the Contractor Playbook, Knowledgebase and Academy for tips!) 

For more information on time-based pay structures: » Tracking Office Timesheets  » Timesheets and Performance Pay

And for more information on setting up more complex performance-based pay structures

Other Popular Pay Structures

While the 10 pay structures above are supported in ServiceTitan, there are five other popular pay structures. The first pay structure is partially supported, whereas the last four are not yet supported in ServiceTitan.

1. Salary

Type: Fixed-rate. Contractors use this pay structure because salaried employees are not compensated more for working more hours unlike time-based employees when you need to take into consideration the cost of overtime. 

For Whom: » All Employees » All Trades » All Job Types (residential, commercial)

Description: Employees receive a standard monthly or weekly payment, regardless of the number of hours

Example: Jim makes $45,000 per year and is paid bi-monthly.

ServiceTitan Setup: Salary pay can be managed via the Payroll Adjustment features, which is available for all contractors on its Essentials and Works packages. (P.S. an automated salary tracking solution is on the way!)

» Create payroll adjustments (Knowledgebase) » Create bulk payroll adjustments (Knowledgebase) » Create payroll adjustments from the Payroll Dashboard (Knowledgebase)

Pay Structure Con:

  • Employees are not paid less for working less than 40 hours.

2. Prevailing Wage

Type: Fixed-rate. Contractors use this pay structure because salaried employees are not compensated more for working more hours unlike time-based employees when you need to take into consideration the cost of overtime. 

For Whom: » Any Field Employee » All Trades » Government, Non-union Shops doing work on a Union Job Site, and Commercial Job Types

Description: This is required for a large portion of government work. Pay is broken down and fringe benefits are listed.

Example: A tech who usually makes $21 dollars per hour is working on a job that  is part of a Gov't contract or where the company has been hired as a subcontractor on a Union job site. For the work the tech performs on that job they must be paid the Prevailing Wage rate.

Pay Structure Cons:

No significant cons.

3. Efficiency Bonus

Type: Performance-based. Contractors use this pay structure to incentivize technicians to get more work completed in the same amount of time.

For Whom: » Service Technicians » All Trades » All Job Types (residential, commercial)

Description: A bonus is given if a technician completes more work or a given job faster than the billable hours established for the work.

Example: Tech works a repair job that includes 3 services, with each service including 1 billable hour of labor in the price. She gets the work done in 2 clock hours. Billable efficiency is Billable Hours/Total clock hours. In this case 3/2 giving her an efficiency of 150%. Across her entire pay period those numbers are calculated. If the tech's efficiency is > xx% (let's say 75%) she gets a bonus of some amount, if over 80% a higher bonus and so on. Total clock hours for the tech in this example are usually adjusted to EXCLUDE time they could NOT be making the company money, such as lunch or a mandatory meeting.

Pay Structure Con:

  • It’s important to keep an eye on call backs.

  • Efficiency is great, but not at the expense of doing the job right the first time -- more supervision could be required.

  • Variability of bonus pay out can make budgeting harder for the technician.

  • Additionally, there could be misalignment between revenue and compensation if a contractor pays commissions after the purchase but doesn't collect payment for a longer period of time.

4. Draw Against Commission

Type: Performance-based. Contractors use this pay structure as a way to provide weekly set payments instead of a variable amount.  This gives the sales professional the benefit of weekly income, but also allows for unlimited earning potential with commissions.  It simplifies the reconciliation process to once per month instead of having to do it weekly.

For Whom: » Comfort Advisors / Sales » HVAC Trade » All Job Types (residential, commercial)

Description: A draw is a guaranteed base amount of money that a salesperson (comfort advisor) will earn each month, regardless of their actual sales. A draw is like an advance payment -- the salesperson keeps the draw (or base amount) even if they bring in less. 

Example: A sales professional receives a $600 a week draw against the monthly commission total.  At the end of the month, a reconcile happens where any commissions over the draw amount are paid.  In the case the draw was  greater than the commissions for the month,  no commissions would be paid and no more draws until the balance is reconciled.

Pay Structure Cons:

  • There is the potential for employees to have bad commissions periods, which do not cover their draws.

  • This could create debts to contractors.

  • Variability of commission pay out can make budgeting harder for the technician.

  • Additionally, there could be misalignment. between revenue and compensation if a contractor pays commissions after the purchase but doesn't collect payment for a longer period of time.

5. On-Call/Holiday Work Pay 

Type: On-Call/Holiday Work Pay 

Contractors use this pay structure to incentivize employees to work on-call or over holidays. Employees earn higher commission or flat rates when they work on-call or during a holiday.

For Commercial shops, contractors use this pay structure to help them drive clients to try and book within normal business hours otherwise their T&M billing will include the "Overtime" rate.

For Whom: » All Employees » All Trades » All Job Types (residential, commercial)

Description: There are several types of on-call /holiday pay structures shops may use. Being on-call means an employee is available to work, but may not have to work. 

Whether an employee gets paid for being on-call, but not working and HOW they get paid, varies. Please review the Fair Labor Standards Act (FLSA) for compliance requirements.

Examples:

  • Example 1: Techs get a flat fee for being on call, plus their normal pay.

  • Example 2: A CSR gets $5-$10 per booked call if answered after hours.

  • Example 3: A Tech gets an additional amount for calls booked after normal business hours and completed. So, if normal business hours are 8am-5pm and a call is booked for 7pm at 6pm the tech would get "OT" or on-call pay.

Pay Structure Cons:

No significant cons.