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.
| Type | How it's calculated | Example (illustrative) | Watch for |
|---|---|---|---|
| Commission | Percentage of revenue or gross profit | 5% of completed revenue | Discounting, overselling |
| Spiff | Fixed amount per item or action | $25 per membership sold | Too many at once dilutes focus |
| Flat rate per task | Fixed amount per completed task | $60 per water heater install | Treated as piece rate in some states |
| Period bonus | Paid when a threshold is reached | $500 at $40,000 monthly revenue | Promised bonuses raise the overtime rate |
| Hourly floor or guarantee | Minimum pay regardless of production | $22 an hour, or a weekly minimum | Must 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
| Example: 48-hour week | Correct method | Common 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 rate | 8 × $17.25 = $138 | 8 × $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
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
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
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
Track performance pay % of revenue monthly
If it climbs faster than revenue, a rule is paying for something you didn't intend.
What makes a performance pay plan work?
| Lever | Why it works | How to check |
|---|---|---|
| Pay on completed or collected work | Removes pay for jobs that cancel or never get paid | Compare sold vs completed vs collected per tech |
| Gross-profit commission on big tickets | A discount reduces the seller's pay too | Average discount before and after |
| A small number of spiffs | Focus stays on what matters this season | Units sold per spiff per month |
| Time-limited clawbacks in writing | Refunds are handled predictably and legally | Clawbacks per period, disputes raised |
| Pay visible daily | Techs trust a plan they can check | Number of pay questions per period |
| Quality guardrails | Stops rushing and overselling | Callback 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.
Footnotes
-
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. ↩
-
29 CFR 778.117, Commission payments, general, Electronic Code of Federal Regulations. ↩
-
29 CFR 778.211, Discretionary bonuses, Electronic Code of Federal Regulations. ↩
-
29 CFR 778.118, Commission paid on a workweek basis, Electronic Code of Federal Regulations. ↩
-
Publication 15 (2026), Employer's Tax Guide, Internal Revenue Service, section 7, Supplemental Wages. ↩
