Article Posted on Ratchet + Wrench
This statement may or may not be too surprising, for the proof is in the industry’s staggering technician shortage, with some reports showing that, by 2026, the industry will be over 46,000 technicians short. But, there is one element that the former statistic proves: the shortage isn’t entirely due to lack of interest.
“I feel like, for every person that wants to go out and write code or be a doctor, there’s an actual person out there that wants to work with their hands to build and accomplish things at the end of the day,” says Chris Cotton, industry coach and consultant.
The technician shortage is an extremely complex and layered issue, but working toward keeping the technicians that do join the industry from jumping ship is a vital step to closing the gap.
That leaves the question: How?
“Young people aren't being pulled away from the industry as much as they are being pushed,” says Cotton. “We’re an industry that’s been operating the same way the past 50 years, technology has changed but the way we treat our employees hasn't.”
He explains that the industry is at a crossroads right now, and although there are a lot of incredible advancements and great shops out there, changes with how technicians, and other shop employees, get paid needs to be examined.
Below are the four key compensation areas, and how independent shops can compete with other industries and careers.
"The median annual wage for all occupations that typically require a bachelor's degree for entry, as determined by the U.S. Bureau of Labor Statistics, was $72,830 in 2017," explains Elka Torpey, economist at the U.S. Bureau of Labor Statistics.
According to the same report, the median annual wage for automotive service technicians and mechanics in 2017 was $36,950. Other trades that require an associate degree make a median annual wage of $43,472.
In order to keep technicians from leaving the industry—or to get more young people to join the industry—pay should be more competitive to other outside trades and careers.
Considering a shop's labor rate is key to how much money is brought in, the first step to competitively paying technicians is to charge and collect a proper labor rate, says Cotton.
"That means charging enough of a labor rate that sets up the business for success," he explains.
Follow a formula.
Finding a successful labor rate can be done by using a working formula. Cotton explains that most shops do this by following the “Oreo method,” which entails the owner calling up five or six of their competitors and asking what their labor rates are. They then take the most and the least expensive rate that they have collected and throw those figure out, lastly, they choose a rate that lands somewhere in the middle of the remaining numbers.
However, Cotton warns this method might not be the most accurate way to determine a working rate, considering the overhead of every business is unique. A shop with a lower labor rate may not include any benefits for their employees, and a shop with a higher labor rate may include large benefit packages.
Instead, Cotton advises shops to look at how much their technicians actually cost, along with their tax and benefit load to accurately decipher what the shop’s rate should be.
Cotton says the first step to finalizing a figure is to determine exactly what goes into paying each technician. Those things include:
Actual hourly wage
Worker’s comp insurance
Taxes, FICA, FUTA, SUTA
Miscellaneous items given to techs that fall in company perks, etc.
The tax and benefit load is comprised of the last seven items on the list, explains Cotton. To calculate the labor rate, break down the tax and benefit load by hour and add the figure to the technician’s hourly wage, then multiply that number by 3.5 (the margin multiplier). This is because if you take any number and multiply it by 3.5, you will get a gross margin of roughly 71 percent.
Cotton says most coaches try for a 60 percent margin, but he believes that is too low. In addition to figuring and using the 71 percent labor margin, he then suggests using a labor grid to make up the other 4 percent, resulting in a total labor margin of 75 percent.
(Technician’s hourly wage + tax and benefit load by hour) x 3.5 = labor rate + labor grid
Create individual plans.
“Every technician has different needs, just like every shop does,” says Cotton.
Shop owners should develop a pay plan for what fits each individual technician, depending on what the tech is looking for, how much the shop can afford to pay, and the technician’s level of productivity.
At Roy 66 Service in Roy, Utah, Jason Ohlin pays the technicians at his $925,000 shop with an average monthly car count of 245, individualized salaries, year-end bonuses, as well as a variety of benefits. Ohlin says that each technician at his shop has a personalized salary depending on what he or she needs. One of his technicians currently needs health insurance so Ohlin includes that in the plan, while another doesn’t, and thus, has a different salary figure. Ohlin has found that salary works best at Roy 66 Service because he has seen flat rate pay structures result in hurried and inconsistent work.
Like Ohlin, Cotton recommends shops use a type of hybrid pay plan. He suggests that shops pay their technicians an hourly minimum wage as well as further incentives for both individual and team productivity. To incentivise quality work is also important, says Cotton. He gives the idea of pooling together money as a group and then giving it out depending on number of comebacks.
Another way to ensure quality technician pay is by avoiding over-hiring, or having more technicians than needed, which results in overall less productivity. Instead, keep fewer technicians on hand and keep them busier by making sure everyone is being productive. Over-hiring may result in technicians leaving and going elsewhere, says Cotton.
According to the U.S. Bureau of Labor Statistics' "2018 Employee Benefits in the United States" study, 87 percent of individuals in management, professional and related occupations have access to medical benefits.
According to the same study, 78 percent of individuals in installation, maintenance, and repair occupations have access to medical care benefits.
Employee benefits go much further than medical care, but this study highlights the difference between what the repair industry is offering comparatively to professions in business and management. Although not far behind, this statistic gives an idea to what the repair industry should strive toward in order to compete.
Discover their needs.
The best way to discover what benefits each technician needs and desires is to simply ask them, says Cotton. Some employees may be money-motivated, while others may be motivated by time off, he says. Or, some technicians, like Ohlin’s, might not need insurance (because they are able to be under their spouses’), while others may need medical, dental and visual. Cotton advises owners to sit down with each technician to find out what benefits he or she needs, and try and find a way to provide that to him or her.
“There’s so much you can do with benefits,” says Cotton. “All those people (your employees) have certain goals and dreams, and if you figure what they are you can use them to help the shop.”
On top of year-end bonuses, Ohlin offers his employees health insurance (if they need it) and he also contributes to their retirement.
An advantage to being an independent business owner is the flexibility and creativity that can be incorporated into employees’ benefits. Cotton has seen owners provide technicians with gym memberships, monthly car detailing and gas tank fills.
“I’ve heard of a situation where a guy wanted a four wheeler to drive around on the weekends, so the shop owner went out and bought a four wheeler, kept it himself and then let the employee have it every weekend,” Cotton explains.
He encourages owners to discuss desires and dreams with employees, to discover what will work for them.
“If your employee wants to go on a hunting trip, you can include it in part of their pay plan and part of their benefits,” says Cotton.
Regardless of the benefits package that is designed for each employee, the most important thing is to do is follow through with what is promised.
“The worst thing you can do is have a goal or something, not report back with how you’re doing, and then on the last day say, ‘Oh, if you guys would have done better, we would have met our goa,l so I’m not gonna give it to you’,” says Cotton. “That’s the worst thing for group morale.”
“As owners, we need to do what we say we are going to do,” he adds. “We can’t make empty promises we aren't going to keep.”
Emphasize work-life balance.
Unfortunately, small independent shops do not have the ability to be as flexible with hours and time off as bigger companies. Most large businesses could lose 20 percent of their people and still be fine, but in a small shop, one person can make a huge dent, says Cotton. He says that owners have to be prepared to work around that to help create successful work-life and home-life balance for their employees.
Ask the technicians if they are married or if they have kids, because each one of those different people are going to have different needs for how much they want to work, says Cotton. The single person may want to work all the time and might be money-motivated, but the person with kids or a spouse may want to spend time with their spouse or family more.
Once owners get the answer to the above questions, they can then create ideal schedules for each technician, whether that includes a more flexible schedule or strict 40-hour workweeks. Shop owners should ask themselves, “How can I add value to their lives by giving them a schedule that they can live with?”
Provide a future.
“I don't think we do a good enough job telling young adults what the industry can provide,” says Cotton.
Part of the issue of keeping young technicians in the industry is the lack of direction that is presented to them. Young adults want a career path; they want to advance and grow and feel like they are contributing to something, or like they belong and contribute to a team, says Cotton. But when techs get brought in on their first day, they unpack their tools, they meet everyone and then are given a ticket and off to work. They are presented with no advancement opportunities at the shop.
“We all want to work and grow and move towards something,” says Cotton. “But we don’t make a good enough effort of helping young techs try to get to their next step.”