Compensation Plans for Residential Cleaning Services
One major question that comes up when residential cleaning services are hiring its employees is "How much should I pay them?" Many factors are involved in answering that question, taking into account such factors as geography, demographics, competition, and your marketing strategy, just to name a few. However, one question you need to think about is HOW you determine what to pay your employees.
We are all familiar with the traditional salary and "straight hourly wage" methods of determining payroll. Guaranteed salaries do not work as well as payment methods based on performance. Hourly wage payment is the easiest method for employees to understand, and the easiest method for employers to calculate. However, there are some drawbacks. The first, and most important, is that this method may lead to high labor costs. Let's face it: if an employee knows the more hours he/she works the more they get paid, there is an incentive to "slow down" and take more time to finish a job. There is no incentive to work efficiently and quickly. This leads to high and uncontrolled labor costs, which is obviously a problem in an industry in which labor is the greatest expense.
This leads us to the focus of this article, which is the pay structure known as "percentage revenue sharing plan," or more simply "percentage plan." Simply put, a percentage plan pays a certain percentage of the contract price regardless of how long it takes to do the job. For example, you determine your labor costs should be at 50% of gross revenue. If you have a 3 person crew, you might pay the team leader 20% of the revenue, and 15% to each of the other team members.
What does this do? This creates an environment where hard work and efficient cleaning methods is rewarded. If crew members know the more houses they clean the more money they get, they will develop better work habits in order to do so. Similarly, if they can clean a home in three hours rather than four hours on a straight hourly wage basis, they can not only finish earlier, but they are effectively getting a higher hourly wage rate.
So what are the pros and cons of this method? As mentioned earlier, your labor costs are fixed, so you have a much greater amount of control over this expense. Secondly, you are creating certain efficiencies in productivity, which means your employees have the opportunity to earn more money, which will attract quality people to your organization. These efficiencies also mean you will be able to clean MORE HOUSES in one day, which obviously increases your own profitability. If managed properly, this is a win/win for both you and your employees.
There are potential pitfalls to using this method however, the first being quality control. You do run the risk of employees rushing through their work in order to get done quicker, resulting in things not getting done, leading to increased customer dissatisfaction. What this means is you must have an effective quality control system in place to make sure this doesn't happen. Hopefully with your labor costs in check, you can devote more time and resources to quality control.
You also need to make sure you are offering a fair percentage to the employees. If they are not being paid adequately to do the job they need to, you may find problems with turnover and employee morale. If you currently pay a straight hourly wage, you may find reluctance in switching over, as human nature oftentimes does not like change. However, you need to take this opportunity to show your employees how it can benefit them financially, somewhat turning your employer/employee relationship into something closer to a partnership, where both parties benefit.
As with any issues involving employees, make sure the structure you have set up is legal. You must ensure your employees are making at least minimum wage and that if they go into overtime, they are compensated as such. There are variations on the percentage method which might work for you as well. Take the time to make sure you implement any changes with the least risk of impact on your organization. If you are just starting out and want to pay your employees on a percentage plan, analyze your market and your business to see if this is a good fit for your organization.
