Mechanics often are paid based on flag time work. This compensation practice pays based on the number of hours it should take to complete a repair job. Flag rate pay can work out well for a skilled and quick mechanic. For the shop, using flag time pay allows the matching of mechanic pay to what the customer pays for a repair.
Pricing mechanic work by flag rate or book rate uses industry labor guides to determine the labor cost of the repair job. The shop manager or owner looks up the time required for a specific repair in an industry database that lists how long the task should take. For example, changing the radiator in a certain model may be rated as a 4.5 hour job. Thus the flag hours for the work are 4.5 and the customer will pay for 4.5 hours of labor.
The mechanic completing a repair will be paid for the number of hours set by the flag rate. The actual time to complete the work may be more or less than the hours determined as the flag rate. By this standard, a busy and skilled mechanic may complete and be paid for more than eight hours in an eight-hour workday. But if there is not enough work coming in, the mechanic may not generate enough flag hours to cover the number of hours he was actually at work. Labor laws dictate that a worker under a flag rate system will be paid at least the minimum wage.
A flag rate system offers several benefits for a repair shop. Like an individual mechanic, the shop can earn more money if flag-rated work can be completed faster than estimated. Those sales gains can be multiplied if the right work goes to the right mechanic. Paying on a flag rate system provides financial motivation for the company's top mechanics. Also, a shop will not be paying high hourly wages to the mechanics when business is slow and there is less work to do.
A flag rate compensation system can be abused by mechanics who do rushed or incomplete work to book more pay hours. The shop foreman or manager should be aware of the quality of work being performed by each of the mechanics. Advanced diagnostic equipment and additional training for mechanics can make a flag rate system more efficient, resulting in higher sales for the shop and better earnings for the mechanics.