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Glossary · People & pay

What is Performance pay?

Performance pay for HVAC, plumbing and electrical techs: commission, spiffs, flat rate per task and bonuses, the federal overtime math, and plan design.

Updated October 15, 2026 · 6 min read

Definition

Performance pay is any technician pay tied to results rather than hours alone, such as a commission on sold or completed revenue, a spiff per membership, a flat amount per task or a period bonus, usually on top of an hourly floor. Under federal law most of it counts toward the regular rate, so it raises what you owe for overtime.

Also called: Production pay, Incentive pay, Commission pay, Pay for performance

Formula

Regular rate = (hourly pay + commissions + promised bonuses) ÷ total hours worked

Example: $1,056 hourly + $600 commission over 48 hours → $34.50/hr; overtime premium = 8 × $17.25 = $138

Common forms
Commission, spiff, flat rate per task, period bonus
Overtime rule
1.5 × regular rate after 40 hours in a workweek (FLSA)
Regular rate includes
Commissions and promised bonuses
Tax treatment
Supplemental wages; optional 22% federal withholding rate (IRS Pub 15, 2026)
Key health metric
Performance pay as a % of revenue

Take a plumbing tech paid $22 an hour plus 5% of the revenue on jobs they complete. In a normal week they bill $12,000 and take home $880 in hourly pay plus $600 in commission. In a slow week the hourly floor protects them; in a busy week they earn more than an hourly-only peer. That's the basic bargain of performance pay: some of the upside goes to the person who created it.

What counts as performance pay?

Performance pay covers several mechanisms. Most shops combine two or three.

TypeHow it's calculatedExample (illustrative)Watch for
CommissionPercentage of revenue or gross profit5% of completed revenueDiscounting, overselling
SpiffFixed amount per item or action$25 per membership soldToo many at once dilutes focus
Flat rate per taskFixed amount per completed task$60 per water heater installTreated as piece rate in some states
Period bonusPaid when a threshold is reached$500 at $40,000 monthly revenuePromised bonuses raise the overtime rate
Hourly floor or guaranteeMinimum pay regardless of production$22 an hour, or a weekly minimumMust cover minimum wage every workweek

The commission page goes deeper on revenue vs gross-profit plans and when commission is earned.

How does performance pay change overtime?

This is where most plans go wrong. Under the Fair Labor Standards Act, overtime is at least time and one-half the regular rate for hours over 40 in a workweek, and all pay for hours worked, services or performance goes into the regular rate unless a specific exclusion applies.1 Commissions are included whatever the formula or payment schedule.2 Bonuses promised in advance, including production and quality bonuses, are included too; only a bonus whose fact and amount stay at the employer's sole discretion until near the end of the period is excluded, and the label you give it doesn't decide that.3

When commission is paid weekly, the method is straightforward: add it to the week's other earnings, divide by all hours worked, and pay an extra half of that rate for each overtime hour.4

Formula

Overtime premium = 0.5 × (straight-time pay + commission + promised bonuses) ÷ total hours × overtime hours
Example: 48-hour weekCorrect methodCommon mistake
Hourly pay, 48 h × $22$1,056$1,056
Commission$600$600
Regular rate$1,656 ÷ 48 = $34.50$22 (base only)
Overtime premium, 8 h × half rate8 × $17.25 = $1388 × $11 = $88
Total pay$1,794$1,744

The common mistake underpays by $50 in one week. Across a summer and a crew, that becomes real back pay. Monthly bonuses add a further step, because they must be spread back over the weeks they were earned. Our article on hourly, commission and hybrid pay plans runs five stress-test weeks, including the bonus month, the rainy week that dips below minimum wage, refunds after payout and California piece rate. It's general information, not legal advice; state law can be stricter.

For tax withholding, the IRS treats bonuses and commissions as supplemental wages, and its 2026 Publication 15 keeps the optional flat withholding rate at 22% (37% above $1 million in a year).5

What is a good level of performance pay?

There's no reliable public benchmark for what share of revenue should go to technician performance pay. It depends on whether you also pay hourly, your pricing, and whether installers and sellers both get credit. A more useful approach is to set your own baseline:

  1. 1

    Start from your labor budget

    Work out total technician labor cost as a share of revenue from your last 12 months, including taxes and benefits.

  2. 2

    Model the plan on real periods

    Run the proposed rules over each tech's last two or three pay periods. Note who wins, who loses, and by how much.

  3. 3

    Check the slow weeks

    Make sure the hourly floor keeps every tech above minimum wage in the weakest week of the year, measured week by week.

  4. 4

    Track performance pay % of revenue monthly

    If it climbs faster than revenue, a rule is paying for something you didn't intend.

Free calculatorLabor rate & flat-rate price calculatorFind the hourly rate you need to charge to hit your profit goal, then price any job.

What makes a performance pay plan work?

LeverWhy it worksHow to check
Pay on completed or collected workRemoves pay for jobs that cancel or never get paidCompare sold vs completed vs collected per tech
Gross-profit commission on big ticketsA discount reduces the seller's pay tooAverage discount before and after
A small number of spiffsFocus stays on what matters this seasonUnits sold per spiff per month
Time-limited clawbacks in writingRefunds are handled predictably and legallyClawbacks per period, disputes raised
Pay visible dailyTechs trust a plan they can checkNumber of pay questions per period
Quality guardrailsStops rushing and oversellingCallback rate and refunds by tech

A plan techs can check matters as much as the rate. Low pay tops the reasons workers give for quitting, and a commission plan nobody can verify invites the suspicion that pay is short; see why technicians quit.

How TradesWork handles performance pay

TradesWork performance pay supports commission, spiffs, flat rate per task and period bonuses, paid when sold, when completed or as collected, with tiers, seller and installer credit, guarantees and clawbacks inside a window you set. Each tech sees My pay in the field app, where every line explains the rule that produced it, and approved pay flows into the payroll export. Overtime regular-rate adjustments for commissions are not calculated in TradesWork; your payroll provider or accountant handles that step.

Performance pay for a pay period in TradesWork: commission, spiffs, piece rate and bonuses by tech. Demo company, fictional data. · Real product screenshot, demo company data.
Performance pay for the pay period

Footnotes

  1. Fact Sheet #56A: Overview of the Regular Rate of Pay Under the FLSA, U.S. Department of Labor, Wage and Hour Division, revised December 2019. ↩

  2. 29 CFR 778.117, Commission payments, general, Electronic Code of Federal Regulations. ↩

  3. 29 CFR 778.211, Discretionary bonuses, Electronic Code of Federal Regulations. ↩

  4. 29 CFR 778.118, Commission paid on a workweek basis, Electronic Code of Federal Regulations. ↩

  5. Publication 15 (2026), Employer's Tax Guide, Internal Revenue Service, section 7, Supplemental Wages. ↩

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Frequently asked questions

It's pay linked to what the tech produces rather than only the hours worked. Common versions are a percentage of the revenue or gross profit on their jobs, a fixed spiff per membership or add-on sold, a flat amount per task, or a bonus when the tech passes a revenue threshold. Most plans keep an hourly floor so slow weeks still pay.

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