This is a very good question that impacts your business in the early stages of your business, when you’re first starting out and you’re trying to control cost, AND also a very important concern when you’re an established business working to provide continued after hour service to hospitals, emergency rooms, dialysis patients, and more.
There are many things to first consider as follows:
1.0 . Especially when first starting your business, only paying commission makes total sense because you’re insulated from taking a loss. If there’s no work, not trips, no one gets paid and you don’t lose. If there’s a trip, everyone gets paid so everyone wins.
1.1. Paying only commission long-term is ALWAYS a losing proposition. As trip volume increases, keeping drivers steadily busy throughout the day, if you’re paying straight commission you’ll lose financially. At that point, it’s better to pay hourly wages.
1.2. The hard part with such a strategy is the transition process. If you’re paying a small number of select drivers only commission when first starting because you need to insulate your business from losing money, that’s great, but trying to get them to switch to hourly wages, an arrangement where they stand to lose in total reimbursement, won’t make them happy. Under such a “sticky” situation, you need to blame the Department of Labor and let them be the “bad guy.”
1.3. Although it makes complete financial business sense in the early stages of your business, the DOL doesn’t like it when business owners only pay drivers commission. When you’re first starting out with only a couple drivers, the DOL is much more amicable and less of a stickler on the subject, but if you have many employees and you’re still only reimbursing via commission, the DOL will become finicky and will penalize you. I’ve seen this a few times.
2.0. The ideal situation is to pay driver hourly wages during the day and pay commission in the evenings when trip volume decreases. However, by all means, if your evening and weekend trip volume remains large enough to keep staff “on the clock” and receiving hour wages, then continuing to pay hourly wages makes financial sense.
3.0. The trick is, how do you achieve financial balance where you’re paying your drivers enough money to give them financial incentive to get up off the couch, leave the coffee shop, etc., to go complete and on-call trip? What’s the magical commission rate of reimbursement that gives them enough money while not forcing you to lose money or even experience slim margins? And remember, it’s not just commission wages that increase. The more you pay in commission the more you pay in unemployment insurance, FICA, taxes, and worker’s comp insurance.
4.0. The ultimate answer is you need to “run your numbers” and be prepared to pay different rates of reimbursement based on multiple variables to include (1) seniority, (length of employment), (2) the type of service (ambulatory, wheelchair, or stretcher), (3) the day of the week (weekday versus weekend), and time of day (after hours, midnight hours, holiday hours). I know it makes things much, much easier to just pay a standard fixed rate, which is always an option, but such an option can quickly blow your budget or, as a minimum, financially de-incentivize offering after hour work.
4.1. If I had to offer a single specific number, I would suggest you do two things. First, offer a minimum value – something like $20. This would help “protect” the interest of the driver for trips of smaller value such as a short ambulatory trip. Second, I would keep the percentage hoovering around 20%, but again, I STRONGLY encouraged you to “run your numbers.” Of course, we all want our drivers earning as much money as possible, but their wages cost us, the business owners, even more when you consider all the labor-associated expenses to include worker’s compensations insurance.