Happy Wife Leads to Cost Savings

Tool Allowance Increases Technician Take Home Pay

I currently have well over $10,000 worth of tools in my garage rusting away. That amount is nothing compared to what many of your technicians have invested in their tools. They easily have between $20,000 and $30,000, if not more, invested themselves. Why not take care of your existing technicians and attract new ones by offering a tool allowance? It’s an investment in both your employees and your company. The better tools your technicians have, the more efficient they will be. If you don’t believe me, just ask any MATCO or Snap-On truck salesperson. You can either pay your technicians an additional $5 an hour to keep them, try to lure a technician from a competitor for an extra $5 an hour, or simply provide them with a $10,000-a-year tool allowance.

John Dowling, Author, Speaker, Consultant, and Co-Founder of By The Boxes

The $10,000 tool allowance qualifies as a cost and thus serves as a tax deduction, as opposed to paying FICA taxes on the additional $5 an hour. If the technician works only 2,080 hours (without overtime), you will incur an extra $795 a year in taxes per technician. If your technicians, like most, work overtime—and for this example, let’s assume they work 20 hours of overtime each week—then at the $5 an hour overtime rate, you would pay them an extra $7,800 a year. The taxes on that amount would be $596, which you would add to your $795. This results in a total tax liability of $1,391 per technician, compared to a $10,000 tax write-off per technician. To estimate your potential tax savings, take your effective tax rate and apply it to the $10,000 tool allowance per technician to determine how much money you could save in taxes annually, rather than paying $1,391 in extra FICA taxes each year on just an additional $5 an hour. 

If you had given that technician a $10,000 tool allowance and he still worked 20 hours of overtime every week, you would have saved an additional $7,800 a year on payroll because the tool allowance remains the same regardless of how many hours they work. At 40 hours of regular time and 20 hours of overtime, you would have saved $18,200 in payroll plus $1,392 in FICA tax savings. That totals $19,592 in savings. Therefore, if your technicians are averaging 20 hours of overtime each week, the $10,000 tool allowance pays for itself in six months, and you will still have $9,592 in additional payroll and FICA tax savings. Additionally, your technicians will be more efficient, and they will feel more valued and empowered. One last point: your technicians’ spouses often dislike that their husbands (and wives) spend thousands of dollars on tools each year. They will always ask, “Why doesn’t the company pay for your tools?” Happy wife, happy life; happy life, happy technician; happy technician, productive technician; productive technician, higher recovery rate; higher recovery rate, higher profits.

Before I let you go, you might be thinking, "John, you just don’t want to pay the technician an extra $10,400 ($5 x 2080) a year." That is not true; I want to ensure the technician takes home as much money as possible. Their take-home pay will be affected by their tax rate, which is likely around 12% to 22%. When you consider this rate applied to the $10,400 along with their share of the FICA tax, the technician ends up taking home only between $8,357 and $7,317. By providing your technician with a $10,000 tool allowance instead of a $5 raise, you effectively put an additional $3,083 in their pocket via tax savings by the end of the year. Not to mention saves them the $10,000 they would've spent on tools as well.   

*Please consult your CPA or tax professional regarding any Tax liabilities or deductions

Service by the Boxes

You can get ahead of the competition by learning the principles of success in the heavy equipment industry from John, a USMC veteran with 30 years of experience in the heavy equipment industry. This book is based on John’s real-world experiences as an equipment technician, service and branch manager, OEM service representative, and Director of Product Support for a 10-location equipment dealer. Gain valuable insights from John’s career and apply them to your success in the industry. It is one of the best investments you will ever make in your service department. Service by the Boxes is an investment that will deliver instant ROI.