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Technician pay plan calculator
A pay plan is a pricing decision. Get the split wrong and you either cannot recruit or cannot make money, and you usually find out several months in.
Method reviewed by Darren Lim, US CPALicence CPA.74253602Free · No email required · Nothing leaves your browser
Your numbers
Labour cost as a share of what they produce
25% – 50%
A -24 point swing between a slow month and a strong one. In the slow month this technician costs more than they contribute — you are carrying the risk, which may be exactly what you intended.
Strong month
Average month
Slow month
The three shapes, and what each one does to behaviour
Straight hourly is predictable for both sides and rewards hours rather than results. It is simple to administer and it makes a slow month expensive for you rather than for them.
Straight commission or a percentage of revenue aligns you perfectly and transfers risk to the technician. It also creates pressure to sell, which is fine when the work genuinely needs doing and corrosive when it does not.
A hybrid — a base plus a percentage above a threshold — is what most successful service operations settle on. It gives a floor people can live on and an upside that rewards production, and the threshold is where the whole design lives.
Overtime is the part that gets missed
Non-exempt employees are entitled to overtime, and where a pay plan includes commissions or non-discretionary bonuses those amounts generally have to be included when calculating the regular rate for overtime purposes. A plan designed only around the base rate can therefore cost noticeably more than modelled.
The rules here are specific and there are federal and state layers. Design the plan for the economics, then have an employment attorney or your payroll provider check the mechanics before it goes live — retrofitting a non-compliant plan across a team is expensive and unpleasant.
Test it at three levels, not one
Model it at a strong month, an average month and a bad month. A plan that works beautifully at full production and bankrupts you in February is a plan you will abandon in February, which costs you trust as well as money.
Look at labour cost as a percentage of the revenue produced across all three. If that percentage swings wildly, the plan is transferring risk in a direction you may not have intended.
And check what the technician takes home in the bad month. If it is not a living, they will leave in the bad month, which is exactly when you can least afford it.
Common questions
- What percentage of revenue should a technician cost?
- It varies by trade, ticket size and how much material is in the job, so a single benchmark is not much use. What matters is that you know your own number and that it stays stable across good and bad months. Track it monthly per technician — the variance tells you more than the level.
- Should the percentage be on revenue or gross profit?
- Gross profit aligns better, because it stops a technician being rewarded for selling a job with heavy material content and thin margin. It is harder to explain and harder to administer, which is why revenue-based plans are more common. If you use revenue, make sure your pricing already protects the margin.
- How high should the base be?
- High enough that a good technician will accept the job and survive a slow month, low enough that production genuinely matters. If the base alone is a comfortable living, the incentive portion is decoration.
What we do about it
Revenue and gross profit tracked per technician every month, so labour cost as a share of production is a number you watch rather than something you discover at year end.