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Labor Sales and Cost Controls in Auto Repair

Labor is an area where losses can be incurred when invoices are paid in cash by the customer. Some methods of paying technicians have built in controls while there are some circumstances where shops are open to loss. The most effective control on labor sales is paying technicians based on the number of hours sold to the customer. When this is the practice – the technicians will make sure that all hours are accounted for. Some of the methods of payments and their impact on control of labor sales are:

  1. Flag Hours – Often master technicians pay is based on hours charged to the customer (flag hours). This results in a natural control on the sales part of the transaction. Employees that take the money will remove tasks from a repair order when paid cash then pocket the money. If the technician is paid by flag hours – they’ll be looking for the work they completed in their pay.
  2. Clock Hours – When technicians are paid for actual hours worked controls must be applied in specific areas. Since many software systems operate in the cloud it’s possible that a technician can clock into a job without being at the shop. The auto repair shop software in use should prevent this. If the technician is paid by clock hours this will prevent the person handling the money from removing tasks when paid in cash similar to the flag hour example above.
  3. Salaried Technicians – Paying technicians by salary can have a positive impact on employee retention as talented employees are rewarded with security and will tend to stay at a company. However, this leaves no natural control on the customer invoicing process. There is no check and balance on what happens with cash sales. One possible way to address this is to pay the technician a bonus for hours billed. This will create a control similar to paying by flag hours.

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