The pros and cons of hourly vs commission, plus compensation plans in between – by Derek Christian
One of the most common questions we hear from cleaning services, especially startups, is “What is the best way to pay your employees?” There are basically two options, hourly and commission rate, with some variations of the two. Before I jump into the pros and cons of each, it is important to understand that neither choice will magically fix all of your problems. There are large and successful companies that use each model. It is important to understand the trade-offs, your client base, and your culture. Then pick the model that will work best for you.
Hourly pay is pretty easy to explain. You pay a set amount for each hour worked. Some people modify it slightly and pay two different hourly rates: one for driving to and from jobs and another rate while they actually clean. The pay rate for driving is normally lower. This encourages cleaners to minimize non-revenue producing time.
Commission is normally paid as a percentage of sales. For example, the team lead makes 23% and the assistant makes 20% of each job cleaned.
Hourly Pay Benefits
- It is easy to explain to applicants and new employees
- It is easy to give small incremental raises, $0.10, $0.15, $0.25 at a time
- Record keeping is fairly easy and straight forward
- It is easy to make sure you stay legal with minimum wage and other requirements
- Split jobs are relatively easy to pay employees. You just pay for their time.
Hourly Pay Disadvantages
- There can be a temptation to milk the clock by cleaning slowly
- Cost of Goods can get too high very easily under this model
- Can actually penalize a good employee that pays attention and cleans quickly
Commission Pay Benefits
- It is very easy to maintain Cost of Goods Sold. Your cost as a percentage will always be flat.
- Encourages Employees to keep their speed up
- Good Cleaners can make substantially above average pay
Commission Pay Disadvantages
- It can be very difficult to advertise and explain to new employees
- Calculating pay can be complicated, especially on split jobs
- It can encourage employees to rush and cut corners
- Poorly bid jobs will lower employee pay and morale. You shift the cost of mis-bidding a job from the owner to the employees.
- Can be tricky to ensure you stay on the correct side of minimum wage laws. Even if you are not paying by the hour, you still need to track hours worked to ensure everyone’s rate of pay always stays above the state mandated minimum wage at all times.
There are some hybrid models as well. Some people pay an hourly rate but each job pays a fat amount of hours regardless of how long the cleaner is actually there. For example, the team lead gets paid $12.25 an hour and the assistant $10.10 an hour. The Smith house is a 4-hour house, so they each get paid 2 hours at their assigned rate regardless of how long it takes to clean the home. This model attempts to combine some of the pluses of each model. Regardless of which way you go, the fundamental challenge will always remain the same:
- If you pay hourly, you will need to be able monitor time.
- If you pay using commission, you will need to be able to closely monitor quality.
Please understand that the above is a massive over simplification because you will always need to monitor both time and quality. However, due to the inherent incentives built into each system there will be a tendency for employees to either move too slow (hourly) or too fast (commission). You will need systems to counterbalance those incentives. Below are some examples of counter balancing systems. Some of these systems can be used in both models.
- Have your clients rate the cleaners.
- Use that quality rating to either raise or lower their commission rate to help ensure there is a monetary incentive not to cut corners.
- Build a culture that celebrates and rewards quality.
- Track product rates or dollars generated per hour and bonus cleaners based on it to encourage them to keep their times up.
- Get very good at estimating times per room and give cleaners very clear targets room by room on expected times to clean.
You will need to spend some time deciding which set of benefits and disadvantages you are best prepared to manage and then move to the system that matches you the best. I cannot give you a set answer because so much depends on your strengths, weaknesses, and culture. However hopefully now you are better informed on the trade-offs.
Derek Christian has been involved in the cleaning industry for more than 20 years and is an owner or investor in several cleaning companies including My Maid Service Dayton and Real World Services Columbus, and now he works as a sales and marketing consultant for Castle Keepers. Development & Sales for Cleaning Business Today.