Performance Pay Tips

Contractor 20/20 Shares Tips That Will Help You With Performance Pay

Performance pay tips should help shed light on how you can best compensate those employees who have earned a bonus.

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From: Mike Morosi [mailto:[email protected]]
Sent: Sunday, January 09, 2011 10:21 PM
To: QSC List
Subject: [QSCList] Performance Pay

Hi ,
I was chatting with a client last week .. he told me he pays his men “x” per hour for 40 hours plus ” x times 3 ” for billed hours based on the flat rate task allowances . then ( x plus x times 3) times 1.5 for overtime. it seems to me a perfect way to keep costs down during the slow times and stay in perfect compliance with overtime regulations and incentivize top performance .. what do you think ??

From: Rich Dessler
Sent: Thursday, March 03, 2011 4:58 PM
To: QSC List
Subject: Re: [QSCList] Performance Pay

What is the proper method to pay plumbers performance pay and stay with FSLA regulations related to minimum wage and overtime? Are hours shown on the pay stub ? Is a weekly hourly rate computed?

From: Charlie Wallace
To: QSC List
Sent: Thursday, March 03, 2011 2:42 PM
Subject: Re: [QSCList] Performance Pay

Hi Rich. Here is a post from the Q-List Archives. Hopefully others will add their 2 cents also. You will want to meet with a labor attorney to review your plan once you finalize it…just to make sure you are legal.
Hi All –
A long while back on the Q-list was talk about the labor board coming into some members offices and auditing them. So it got me thinking, is my performance base pay system up to par and if the labor board came in how would Shaffer’s fair. So I talked with Lawrence Snow and he got me thinking about the FLSA 7(i) exemption rule. So I met with a labor attorney and with a few tweaks here and there Shaffer’s is now paying our techs under the FLSA 7(i) exemption rule. It’s funny how the e-mail from the attorney read ‘Based on the information provided and our preliminary analysis it appears that your compensation plan, with a few modifications, would likely qualify for the exemption from the obligation to pay overtime provided for under section 7(i) of the FLSA.” Don’t you just love the words ‘appears’ and ‘likely’. However for an additional fee the attorney would give me an opinion letter and stand behind it. So I would like to share with you Shaffer’s new way of paying the techs under the FLSA 7(i) exemption rule. But remember this is Pennsylvania and you may want to check with a labor attorney in your state. Keep in mind $7.15 is PA’s minimum wage for 10 employees or less. So here it goes…………………this is what the labor attorney told me…………………..

First, at least 75% of your business must be generated by providing goods or services that are not for resale. This means that at least 75% of the company’s revenue must be generated by service calls, repair calls, goods sold for installation and repair work. It is important to remember that remodeling and renovation work, commercial installation (including home construction) and the like does NOT qualify as goods or services not for resale. Only goods or services provided not for resale, like repairs and maintenance services will qualify.

Second, each employee must receive at least 50% of his/her weekly salary from commission. Under your plan the commission paid to the employee is any money they receive above the number of hours worked times $7.15. For example, an employee that worked 46 hours under your payment structure might earn $1157.00 for the week. Their “base pay” for the week would be 46 x 7.15 or $328.90. Obviously their total earnings ($ 1157.00) is more than double their base pay ($ 328.90) so they are in the proper ratio. Their base pay must be LESS THAN HALF their total compensation. The total compensation number includes all bonuses and extra pay earned in a given period (spiffs, material bonus, service plans sold). It is important to note that this information must be tracked on a weekly basis and any time an employee falls below the 50% mark, an adjustment to their pay must be made.

Finally, in your plan you have a $0.00 per hour pay for call backs. This is not permitted under the FLSA. Any time an employee must be at work, they must be paid. You should modify this portion of the compensation plan so it is in accordance with the FLSA.

I have not found it hard at all to figure out the techs pay this way using our newly tweaked performance base pay system. So this is the way I am paying the tech’s and if, knock on wood it never happens, the labor board comes in I guess I will pay the extra money to have the labor attorney give me in writing the opinion letter or be here with me.


From: Mark Larkin
Sent: Friday, March 04, 2011 1:27 PM
To: QSC List
Subject: Re: [QSCList] Performance Pay

My two cents –
We use the 7(i) exemption and it has been looked at a couple of times by the Labor Commission. The key is the employer MUST keep good, consistent records of the daily activity of those being paid that way. Our plumbers, and all of our competitors balked at it at the beginning, but that was several years ago and only lasted a few months. A few things I would add to Tina’s explanation below is:

1. Keep a daily activity log showing the time they show for work, the calls they go on (10-7 & 10-8 times), lunch or personal times and when they are dismissed from work (very important). The number of hours is listed on a report each week and given only to me, and I keep it. If you are ever questioned, you will need to produce their totaled hours worked

2. We take the amount $ of labor assigned to each function, add it together for the week and times it by the employees commission % and that is what is on their paycheck. You do not want it ever referred to as split dollar, piece work, hourly, only as a commission.

3. On our pay checks, there is no mention of hours worked. Why, they don’t get paid by the hours only a percentage of labor billed or billable.

4 In the state of Nevada, and in conjunction with exemption 7(i), the employee’s total compensation for the week must be equal to OR higher than 1 1/2 times the state’s minimum wage for total hours worked for that week. If it doesn’t you must make up the difference. This requires your techs to turn in finished jobs daily and sometimes an advance on their pay check for work performed in one week and not being paid until the following week. This will require constant management by someone so this happens very rarely.

5. Never mix the two, commission and hourly with the same employee, and always pay the same to everyone in that classification, such as, all service techs are commission, all laborers are hourly and so on. I was told by one of the examiners that only the service tech (the salesman) can by 7(i) exempted.

6. Hire a good labor attorney and run your plan past him first, and then follow your plan to the letter. If you don’t know a good labor attorney, the people at SESCO (part of QSC) are familiar with 7(i). Even some attorneys don’t know what it is. I hope this helps you, Rich. I’ll be at the Power Meeting in Nashville, if you want to discuss it more.
Mark Larkin

Emily Morosi