How Percent Pay Works
I wanted to start off this page with a disclaimer that you should really investigate laws in your state regarding the legalities associated with paying your lawn care or landscape employees on a percentage pay, performance pay, or piecework pay system. It is legal, but there are rules to follow. Paying employees based on performance is very common in other industries such as the automotive industry and the HVAC industry among many others. It is gaining popularity in the green industry and I personally feel it will be the standard form of compensating employees in the very near future. The most important thing to know about paying your employees like this is that you will still need to track their hours. You must make sure that your employees are at a minimum earning minimum wage, and that does include time and a half for hours worked over 40 in a single week. If for any reason on a percentage-based pay system you have an employee not earn at least minimum wage in a given week, you would then need to pay that employee minimum wage multiplied by the hours worked.
- Long lunch breaks
- Snacking before starting the next job
- Playing on Facebook
- Personal phone calls
- Personal texts
- Personal emails
- Multiple stops at gas stations
- Taking inefficient routes
- Random errands ran while working
- Shooting the breeze with customers
- Getting mowers un-stuck
- And more…
Benefits of Performance Pay
Here are the benefits I have noticed since implementing this pay system into my lawn care business. My employees feel empowered! Not everyone wants to own a business nor desires all of the responsibilities that come along with it. But I think it is pretty universal that everyone wants to make as much money as they can, doing whatever they are doing. Moving my employees off the hourly rate pay system encouraged them to work harder and smarter to make more money in a shorter period of time. I no longer care if they want to come in a little later. They know all that I care about is that the work is done correctly and on schedule. If it is drizzling one day of the week, they often call me to ask if they can take it off and work on Saturday instead. They have more control and it improves morale. I no longer pay for the items noted above and don’t care if they end up wasting 20 minutes a day. Even the best employees will inevitability waste a little time here or there. I have also noticed they take better care of the equipment, as they are no longer getting paid they get a mower stuck on a property or if they have a piece of equipment fail in the field and cannot complete more jobs. What it essentially boils down to is on this pay system you are compensating your employees in direct proportion to the value they are bringing your company. I cannot think of a fairer way to compensate an employee. Oh yeah, my employees love it too!
Profit Margin Stabilization
Another reason I am a big fan of paying based on performance is that it stabilizes your profit margins. You take the variable of hours worked multiplied by hours worked out of the equation. You know your fixed overhead costs, that is very easy to determine. If you have past data to reference, you can get a good idea of variable costs associated with performing different jobs. You could also say the same about hours worked to complete tasks, but by moving to a percentage rate, this now becomes a fixed number and makes everything that much easier.
I don’t exactly know how everyone handled callbacks when paying their employees on an hourly rate based pay system. I would typically just bite the bullet and pay them like usual to go back and fix whatever issue the customer had.
On the percentage based pay system, my employees understand they have already been compensated for that job. Since the value to the company of the callback service is $0.00, their percentage of that is also $0.00. Needless to say, we do not have an issue with callbacks anymore!
Chance you will love it!
Caveats of Performance Pay
There are a couple things that get a little tricky paying this way. How do you compensate your employees for doing maintenance such as oil changes, sharpening blades, and so on? I have thought of 3 ways to do this but only recommend 2. Please note: If you are not familiar with my lawn care company, we only mow lawns and treat lawns. We have cut out all other services as my employees were best suited to perform these services and limiting our service offerings has shot our profit through the roof! My point is, I do not have to worry about variable material costs. I will cover this though at the end of this page. It should not be much of an issue if you are staying on top of your numbers!
How To Compensate Employees
#1) I simply pay my employees a percentage rate for each job they perform that includes them performing the necessary maintenance to complete the work. This is what I recommend as it keeps everything very simple. #2) Come up with a dollar amount to correlate to maintenance tasks and have your employees document who performed what task and when. For example, sharpening the blades and scraping the deck on a commercial mower pays $8 per occurrence or $15 for each time the oil is changed. #3) I don’t recommend this, but you can always agree to an hourly rate for completing these tasks. This, once again, opens you up to all of the pitfalls of paying employees by the hour!
How to determine what percentage to pay?
How did I know you would ask??? It is a great question, so I figured it was coming! My best answer for this is to work backward to find the proper percentage. Assuming you have existing data to reference, I suggest you look at several weeks throughout the season. We all know jobs go slower in the spring, and much faster in the summer, at least for lawn mowing which is probably the most common service we offer. What you want to look for is revenue produced per crew and the hours worked, and also what there pay amounted to based on their hourly wage. Let’s look at an example of a 2-man mowing crew. If you have already read the ‘Caveats of Performance Pay’ section of this page, this is why I recommend using option #1. Because when you are working backward to come to their percentage pay rate, the data you are referencing also includes hours worked performing maintenance tasks during those given weeks. I am using an actual week from my own crew to give you very realistic numbers. This crew had a crew leader and a crew member, within a couple months the crew member on this crew started running his own crew. My crew leader’s hourly rate the year prior was $15 per hour and the crew member was at $13 per hour. They completed 112 jobs this week, worked 47.35 hours each, and produced $4,724.12 in revenue.
What their pay would have been based on their hourly rate:
Crew Leader Hourly Pay = $765.38 ((40 hours x $15) + (7.35 hours x $22.50))
Crew Member Hourly Pay = $663. 33((40 hours x $13) + (7.35 hours x $19.50))
Using this hourly pay data to work backward to find a percentage you simply take their hourly pay total for the week divided by the total revenue produced by that crew for that week. In this example, the crew leader’s percentage rate would be 16.2% and the crew member’s percentage rate would be 14%.
Now, remember I suggest to pull data from different times of the year to get a more accurate percentage that fairly compensates your employees, especially on your mowing crews. Considering all of the responsibilities my employees handle, I am currently paying approximately 23% to my crew leaders and 19% to my crew members. Please do not blindly use my percentage rates! I have very low overhead as I do not rent or own space to operate my business out of and all of my trucks are paid off.
I also recommend taking into consideration the quality of the employee as in morals and ethics, their experience and aptitude, their attitude and problem-solving skills, along with other various factors. If you have had the joy of employing people yet, you know how big of an issue finding quality help is! I strongly suggest to pay your employees as much as you can while still hitting the profit margins needed to make it worth your while to continue to operate your business.
Learn More About Peformance Pay
The best book on this subject I have found is Lawn Maintenance Piecework and the Beautiful Business: Getting Your Employees to Pull with You. David Tucker wrote the book and it goes into great detail on this subject specifically for lawn care and landscaping companies.
You can also get the David Tucker’s book for FREE if you sign up for an FREE Audible Trial. You can click the link below to get your first 2 books FREE.
Handling Material Costs
If you are offering services such as hardscapes, installing mulch or plants, or anything else that has variable costs associated with each individual job, it is just going to be a matter of subtracting those costs from the revenue produced before multiplying by the employee’s percentage pay rate. If you are on top of your numbers, this is not going to be an issue at all. If you are not taking your costs as closely as you should, I seriously recommend you get with your CPA and determine a system on how to do this. Once you begin to add crews and scale your business, everything gets amplified. So, what once was not a major issue is now costing your company thousands of dollars in potential revenue every year. This is one factor that separates the companies that become big and profitable and the ones that seem to work around the clock and barely meet payroll each week.
Final Thoughts on Piece Pay
I hope you have gained a better understanding of percentage pay, performance pay, or piecework or piece pay, whatever you want to call it! At the end of the day, my employees love getting paid on this system, I can more easily predict cash flow and margins in my business, and I spend less time managing my business by empowering my employees. If you haven’t already, hop on over to LawnCrack on YouTube and click that subscribe button. I am sharing everything I have learned from starting, running, and growing my business to the point it is today. I am spending roughly 5-8 hours a week on my lawn care business and I am personally making $70k a year as the owner, no longer in the field. I see a lot of guys struggling to figure this industry out. I had mentors to help me, I would be honored to help you.