NEW Commission Plans in 2024 & What You Need to Know (Roofing Sales)

Everything you need to know about roofing sales commissions in 2024. Because things have changed. Yes, they have. And in this video I'm going to break down why they changed. Because there was a law that went into effect, the tax and cost implications for you whether you're an employer or you're a sales rep or employee. And then three, I'm going to break down the three common ways that pay plans are presented now, moving forward. Now, how do I know all this stuff? Because inside the Roofing and Solar Reform Alliance, I'm working in the trenches alongside hundreds of roofing companies, many of which operated on the new way before the law and many of which have made or are making the transition from the old model to the new model, from companies that are very small to companies with over 50 sales reps. And I've watched this transformation unfold. We've run leadership roundtables talking about the topic, breaking down and sharing pay plans. And in this video, I'm going to give you the highlights of of everything you need to know. So whether you're a sales rep who's weighing one company against the other or your company is making this change, this video is going to help you figure out exactly what you need to do and what you need to know. Now let's get started. Roofing sales is personal development in disguise and the reward for growth is life changing. I hope my content helps you create a richer life and bank account. Hey, welcome or welcome back. Adam Bensman here and I'm so excited to dive into this because everything that I do on my channel is designed around this one mission and that is to help you and your team outsell, outgrow and out compete the rest so we can stomp the scum out. And if you want to learn more about how I do that inside the Roofing and Solar Reform alliance where we help great roofing companies make an even bigger impact together. Then click the link in the description to learn more. Now let's jump into these changes. First, what I want to highlight is the old plans versus the new plans. Okay. And I'm going to dive into a lot of details here. So again what you're going to see is a breakdown of what's changed, the tax implications and then those three comp plans. The old way of doing things was 1099 people were being hired as an independent contractor. This essentially means you're self employed, you're on your own for taxes and everything. The new way is W2, which means that you're an employee status and paper and there's different regulations for the company that is supporting the employee. Now why did this change? This changed because of the FLSA Act. Now, the FLSA stands for the Fair Labor Standards Act. It's been in place for many years, but there were changes that were made effective March 11, 2024. Now, I've done quite a few videos about this, including bringing on an attorney and high level details. And by the way, I'm not a lawyer. This is not legal advice as any law. It is up to interpretation and you have to do your due diligence and how this law affects you and your state, federal law, federally and locally. But the way that I've read this law is that there's no way to legally operate as 1099 Salesforce versus now having to be a W2 Salesforce. Okay, so again, I break all that down. I'll put a link up to this video up here. You can learn more about that law, the update and the implications. But that's why it changed. So now let's go back into the old versus the new. So the old model model very frequently paid commissions off the profit and they paid, in my opinion, too much money. And when the reason I say too much is not to take away from the salespeople, it's that I've seen the financial health of organizations and for many people this is just an unsustainable pay plan. So what happens is the pay plans, again, there's virtually zero risk to the employer, the roofing company. It's like, hey, you bring in what you bring in. We're not paying you until you make sales and we're going to pay off the profits. They're going to pay all this, this money where the new plan visually seems like you're paying less, but there is far more than meets the eye. And that's why we're going to jump into the tax implications in a minute. So we see this bad advice in the Facebook groups like, hey, the company said they'd pay this. And then these guys chime in, well, I'm getting 45 or I'm getting 50% or 43% or 35% of the profit and you're getting taken advantage of. But the truth is they don't even remotely have the facts. They're sharing information without asking questions. And that's why I'm so passionate about doing this video and updating some historical videos I did on the old way because things have changed. So let's turn our attention to the tax implications. Okay? And I'm just going to label this taxes and costs because they're two of the same thing. So taxes and costs. All right, and we're going to take a look again at 1099 and W2. Now, 1099, you're self employed. What that means is you are going to be paying 15.3% in taxes for Social Security and Medicare. I blurred those two together. Social Security, Medicare. Okay, now how do I know this? I'm going to turn our attention, by the way, directly over to the Social Security Administration's information article from 2024. It says in here you must pay 15.3 in Social Security Medicare taxes. Now, there are limits. You can turn your attention. This limit says Social Security tax up to 168,600. And then Medicare is on your first, I believe at 68. Let's get off that 68. 6. So there are some limits, but I don't want to get stuck in the weeds. The main point is that if you're self employed, you're paying with 1099, 15.3% in taxes. Now, as a W2 or employee, you're only paying 7.65%. Why? Because the employer and the employee split it. So it's 7.65% each. This is the company and this is the rep. Okay. So you can't obviously compare these two because the employee is having half the taxes paid for them. In other words, they'd be paying them no matter what. So it's either coming out of your paycheck that you're like, oh, I got all this money. It's like, yeah, but an extra 7.65% is going to the government no matter what. Okay. The other thing that we need to factor in on the costs is workers comp. Worker's comp. This is my guess that less than 1% of independent sales reps have short term disability insurance or disability insurance at all. Or workers comp for themselves. But if you're an employee, if you get injured on the job, you got workers comp, which means for the company it will cost roughly 17.5% more. Okay, roughly. Now, there are other considerations for this. So there is sui, which calls for state unemployment insurance. These are additional taxes that you pay on an employee. They vary by state. In some states have additional things that they do. Colorado is one of those. I forget all the names. But my point is. So you got your additional 7.65% on Social Security and Medicare. The company is now paying that plus the workers comp, plus state unemployment insurance. So Overall, it's about 17.5%, plus or minus. But the other thing that's going to add to that is whether or not there are benefits. Now stick around to the end because I'll talk through benefits in a bit more details. Okay, so now we see out of the gate why there's already a difference. Because the W2 employee costs 17.5% more than 1099. Okay. But there's some perks, by the way. So for those salespeople out there, if you are 1099 and you're new at being 1099 and you want to buy your first house, or any house for that matter, and you're going to get a mortgage, you are generally required two years of tax history to even get qualified for getting a loan. If you're W2, they see that for some reason as being more stable. You show your pay stubs and you can fast track that without needing two years. That's my understanding. Alright, so now as promised, we're going to get into the three most popular pay plans. Okay, three most popular. First is commission only. And the next question I'm sure, hey, can I hire commission only or can I get paid commission only if I'm a W2 employee? And the answer is sometimes. I'm going to turn our attention to the fact sheet. This again is from the Department of Labor. And this says the fact sheet exemption for outside sales employees under the Fair Labor Standards act, the flsa. And if we scroll down, this right here is the outside sales exemptions. I'll let you go through this website and read this. But the point is, if their actual role and their description matches the outside sales exemption, then they could be paid commission only because there's an exemption according to the FLSA fact sheet. And please consult with an employment attorney on this. For paying minimum wage and overtime, that's an exemption. However, there are a few states that are different, so their laws override federal law. States like Illinois and I don't know all the others off the top of my head that require minimum wage and overtime no matter what. So you do need to double check based on the state that you operate, but that commission only. What most people don't talk about, and it drives me nuts, is they compare money to money. They're like, oh, you know, this company is paying this much and that company's paying that much. I'm going to work for their. More is not always better because you need to understand the details that will go into the commission tier and I'll share how much that'll look like In a minute. So number one on commission only is leads. Are leads provided or are they self generated? There are companies inside RSRA that they're retail. The only thing salespeople do is sit and run appointments. They're booked for them and they're doing three to five per day. That's a very different animal than if you are in the storm restoration industry and you're out knocking doors and generating your own leads. The next one is your responsibilities. When you talk to top performers, you will find out that the number one limiting factor on your income is not your ability to sell. Shockingly, it's your ability to produce what you sell. So from everything from generating a lead and closing a deal to running production, this is a lot of work. So some companies will put the salesperson to only cover the front end. Like all you got to do is go out, run appointments that we set for you. They might even get an inside sales or support person or admin who's inside the office, literally on the phone with the rep as they leave the house, doing all the updates of the CRM and managing the follow up and all the details. So the more that you do, generally the more you get paid, the more you do, the more you get paid. However, that doesn't necessarily mean it's a good thing because the stuff that makes you money is only this part of the process. And then the remaining 75, 80% is simply processing the sale that you already made. So even though it might look like they're paying more money, it's like, yeah, but you're not going to be able to sell as much, which is why they pay you more. Which is why some of the people that are the highest earners, they actually have the lowest responsibility in lower pay plans than some of the guys that are gals that you know, are advertising these big commission checks because they have the ability to produce more. Okay, then the next thing is benefits. And again, stick around to the end. I'm going to break down what those benefits look like. So these are the factors that are going to vary how much the commission will get paid. Generally speaking, now commissions are paid off the gross sale. Now what does that mean? Okay, gross. Gross is, for example, if you sell a $10,000 project, you get a percentage of the gross sale. That number now is ranging on average from about 4 to 10%. Yes, that's a huge range. However, this is a lot. And the amount of benefits and what's provided, whether leads are provided, will dictate where in this spectrum people land. I have Seen some bonus tiers that will bring people up higher than 10%. But as a general rule of thumb, there's outliers with all of this. I'm just giving you a range to start with is 4 to 10%. Okay, now let's get into plan number two. And that is a salary. That's a draw against commission salary, which is a draw against commission. Now this is becoming a more common path. And the reason is as employees, people want stability and security. So for example, and by the way, salaries are generally lower and the reason is earning potential is really high. So let's just say for this, it's $500 a week. Now, for example, let's say I sell three jobs and it's $60,000. I got three big roof sales in. So if you sold $60,000 in a week, which is very doable, that's 60,000 in sales. If you're on, let's just for easy Math, call it 10% commission. You just made $6,000. Okay, so it's $6,000 in commission. And of that, let's assume that you got your $500 a week draw already paid. So we're going to minus the draw because you already were paid your $500, which means your remaining commission would be 5,500 bucks because the 500 was already paid. So this plan, and by the way, this is just a simple math estimate. So you get the concept down, you might not be paying 10%, you might not be doing 60,000 in sales per week. 60,000 in sales in a week would be pretty sweet, by the way. Like really sweet. This would put you in the range of, you know, Depending on the consistency, 2, $3 million per year in sales. By the way, I do have a client of mine in the retail space. Their average sales per person is 2.6 million. They're working to get that up to about 3 million. So that's why some people see this number. That's insane. That's imposs. We also have another member, his name's Nate. I interviewed him recently. He sold over 700,000 in a single month. So again, these sales numbers are doable. Are they going to be the standard for everyone? No, but I just wanted you to understand the concept of how this works. On the commission, then you eliminate a salary which is then paid in advance. Make sense? Got it. There's the high level concept. Now let's take a look at the third model. And that third model is a salary, which is not a draw plus commission. Now I have to give a Word of warning. Okay. This is far, far, far less common. Why? Because when a company is paying a salary, and by the way, those salary ranges, generally speaking, are not huge. I'm going to call it 30,000 to about 45,000. Why? Because their company is investing a ton of money no matter what happens with that salesperson. So if they underperform, they've paid out all of the salary and they have zero to show for it. No new leads, no prospects in the pipeline, there's no collateral. Right? Like I hired you and trained you, you got paid but you didn't produce. And no one wants to be in that environment. And as an owner or manager, our job is to make sure the people on our team succeed so we don't run them broke. And at the same time we can't run the company broke. So ideally we say, hey, you will earn. By the way, shout out to Jonathan Wissman with a great company called whohire. If you're interested in learning more, go to their website whohire.com they use AI to help train folks. I brought Jonathan into RSRA. He's been presenting to our community, breaking down hiring ads and doing some really awesome recruiting roundtables. Breaking down what he calls the human code and analyzing the characteristics of a top performing salesperson in ways I've never seen done yet due to technology. But as Jonathan says, you must earn X or you won't work for us. You must earn $100,000 a year. You don't work for us. Maybe it's 75,000, whatever that benchmark is because anyone who's performing less, it's not healthy for them, it's not healthy for the company. So one other word of caution to the owners and managers. I have watched companies switch to a salary plus commission. Hiring becomes so much easier. They're like, this is the best. Fast forward two years. We had a member call, excuse me, a year, and he's like, hey dude, you know, yeah, it made it easier to sell, but I lost a whole bunch of money. We were nowhere near as profitable as we should have been because of the high turnover and how much it cost us. So the companies that offer salary plus commission are generally speaking very, very well established. They know exactly who to hire. They have a great training plan in place and they're providing benefits and they set people up for succeed and then they're very quick to fire if they're not fitting the bill. Okay, then the commission tier is going to be not on the higher end, it's going to be way on the lower end of that 4% to 10%. Why? Because you get a guaranteed base. Okay, so this is the salary plus commission. So again, then you'd get your percentage of your gross sales. So those are the three most common plans. Again, shifting to the gross. Now, I have some bonuses for you before you leave, before I get to them. If you are an owner manager trying to figure out how to pay. Inside my free training bundle is a pay plan checklist. I break down a lot of this criteria in a really easy to follow checklist to help you figure out how much you need to pay. It's available for free and it's@adamsfreestuff.com and there's a link in the description. Okay, now let's get into the bonuses. I got some bonuses for you. Some other considerations as you compare these bonus number one, as benefits go up, pay plans go down. Why? Because there's a higher burden on the company. And what we're exchanging is stability versus earning potential. Usually the lower pay, the higher the earning potential, the more stable, the lower the earning potential. So this is like a little inverse relationship. So what do those benefits look like? They could be a company truck. This is becoming a more common thing, but it's not everywhere. And that means you're not running your own vehicle and putting miles on it in the wear and tear. And this will change based on where you operate. And I was COO of a company that operated in five states and six cities. I floated in the entire state of Wisconsin and then our offices in other states, which was at that time Montana, Illinois and Ohio, plus Wisconsin. I was putting on about 30,000 miles a year. So you can imagine you're going through vehicles pretty quickly. By the way, pro tip, I bought them high mileage when they like depreciated a bunch. And then I'd run them for a year and then just sell them and I'd pretty much break even. I just kept repeating that cycle. So anyway, truck is one of those. Cell phone is common and I know you know it's a couple hundred bucks a month, but you got a company phone and it's really easy to leave that company phone at home if you want to check out. So that's another one. Next one is going to be health, healthcare, dental, that type of thing. By the way, newer companies generally aren't providing this. That's a good thing till they get the financial stability and footing to do so. And then the other things, which again, less common but is happening is 401k matching. So these are the other types of benefits. And again, as your benefits increase, so if you have a company truck, cell phone, health benefits, etc. Your pay is going to decrease. But again you're exchanging the stability for earning potential. So there you have it. I want to do a quick summary here. All right, just so we're all on the same page, old versus new, why did this change? It was because of the FLSA law that went into effect March 11. The old was 1099 often paid off the profit. They looked like big fat numbers. And by the way, in the olden days people were running everything so cradle to grave from sale to production. Which is why you hear the old 105050 splits, those were really big commissions where now W2 we're paying less. Why? Because the taxes and the costs, if you're self employed, you're paying 15.3% Social Security, Medicare. So no matter what, if you were or are 1099, every paycheck that comes in, you got to be sloshing a percentage of that into an account or saving it in some capacity, earmarking it to pay for taxes. A lot of people don't do that and then you can end up in some trouble. Whereas if you're an employee, the company's paying half of it and the company is paying the workers comp and state unemployment. And again, if you're a company owner, it's going to cost you about 17.5%, roughly more than 1099 plus any potential benefits that you might have. Our three play pans. Again, commission only at 4 to 10% salary. That acts as a draw against commission and then our salary plus commission. Now you might be wondering, well, what is the specific and exact number that's fair for you? Here's what you want to do next. If you're an owner manager, jump into my free training center right now and you can get access to the pay plan checklist. If you're a sales rep, jump into this very next video. Because it's not only the money, it's choosing the right company to work for. And when you do that, you're going to be set up for success and this video is going to show you exactly how to do it. Thanks for joining me and I'll see you in the next one.