Are You Paying Your Drivers Right?

Are you paying your drivers right? Do you know how to pay your drivers right? With multiple computations of driver payment systems used by various companies across the logistics industry, what is the best way to pay your drivers? The main considerations are usually the volume of assignments, intended/desired level of driver motivation and working hours during which drivers are needed.

Depending on industry requirements and the priorities of the company, driver payment systems can take on different structures, especially in the last mile aspect of the supply chain. It has become a problem for some companies, figuring out which driver payment method to adopt. A suitable driver payment system should ideally be able to reward hard work while encouraging loyalty at the same time, lowering the notoriously high driver turnover rate in the industry. 

In this post, we will examine some of the more commonly used payment schemes used by logistics companies that are part of the last mile.

1. Full time 

Full-time drivers refer to those who are employed to work for a minimum number of hours, on a fixed base salary with package benefits like annual and medical leave entitlements.  Hiring full-time drivers at fixed base salary is a much commonly used practice by moving services or manufacturing companies. With greater inconsistencies and relatively smaller volume of jobs on a daily basis, this structure works because employers are paying a fixed amount, independent of the number of jobs. As a result, there is an inherent sense of security for both the driver and the employer. For the employer, they can be assured that the manpower is readily available for utilisation, when needed. To the driver, the presence of a fixed and stable source of income is guaranteed, the greater job security gives the drivers a greater peace of mind and can focus on performing well. The bundled job benefits, such as paid medical leave that come with a salaried position, encourage employee loyalty by creating an opportunity for the establishment of a good long-term working relationship between the employee and the company. In other words, the company is building a team, not simply a group of individuals. However, this system does not necessarily recognize and reward hard work, giving the drivers little incentive to go the extra mile, to do better or provide higher quality service.

Employers may then find it difficult to increase or even maintain the quality of their drivers. In an attempt to address the problem of the lack of driver motivation, another computation of a full-time payment system utilised by some companies includes providing drivers with a base salary and an incentive scheme. For example: A driver of a courier company gets a base salary of $1500, earns $500 more with a minimum of 400 deliveries a month and an additional $2-$3 for every subsequent drop.

In a hybrid payment method like this, good work performance is rewarded while offering the desired job security that comes with a fixed salary. This type of payment scheme aligns with Herzberg’s Model of Motivation, in which work benefits like paid leave and job security are like hygiene factors, the job factors that are present to avoid dissatisfaction, whereas performance targets and incentive schemes are present to increase motivation. Tracking delivery completions, collation of delivery orders or tracking are usually done through manual recording though this can be simplified via the use of a mobile application. It is generally advisable to avoid a penalty system as it breeds resent and feelings of distrust towards the company.

2. Part-time

Part-time drivers refer to those whose contract of service stipulates employment for fewer hours than that of full-time employees.

  • Hourly-basis
    Companies on 24-hours operations are more inclined to choose an hourly-basis payment system, due to the presence of shift work. Some of which, would include business-to-business (B2B) or long haul companies, as well as medical courier services. Having graveyard shifts from midnight to dawn and low volume of jobs renders it more viable to hire the drivers on an hourly-basis. This arrangement gives the driver flexibility in their work scheduling, empowering them to strike a better work-life balance and therefore improved job satisfaction levels.  
  • Per-job basis
    Paid by the number of jobs completed, e-commerce delivery services, courier and food delivery services tend to be the main adopters of this payment system, due to the large volume of deliveries involved. In this scenario, the amount of effort put in by the driver is directly proportional to the remuneration amount, this being one of the most direct ways to encourage drivers to work hard. Since good customer service and efficiency are key considerations of the clients and their customers, this method allows the drivers to get paid in proportion to his/her efforts. With the drivers constantly striving to deliver the goods faster and better, it creates a win-win situation for both the company and their drivers, goods get delivered on time while drivers get what they deserve in a highly meritocratic fashion. At the end of the day, the team works together to make customers happy and happy customers are good for all parties. 

There are certainly downsides to the adoption of such a payment structure, such as drivers not being always available, since they are not full-time employees. As a result, companies risk not completing the jobs due to the lack of guaranteed availability of the necessary manpower. Also, there is also a need to ensure equal distribution of jobs among the many part-time drivers. This is needed to ensure fairness, prevent dissent and maintain positive driver satisfaction levels. One main drawback of being a part-time driver is the potential salary inconsistency and lack of job security. If the driver is unable to work for a period of time, he/she loses the source of income, which would not be as great a concern for regular salaried drivers. For the company, a working relationship built solely on money could bring about low employee loyalty and high driver turnover rates. 

3. Contract

Contract drivers refer to those who are employed on a contract basis, usually for a specific project or to tide over a transient shortage of manpower.  Drivers hired on a contract basis differ from the part-time drivers in terms of the period of time signed or promised a minimum number of jobs. The fixed-term job enables companies to increase manpower supply for specific periods of time, to engage more manpower to deal with individual projects. This gives the company the possibility of aligning the manpower hired according to demand, to save costs and have greater assurance of driver quality. Drivers are more likely to strive to perform consistently well for future re-contracting opportunities. This payment format may not be applicable to certain industries, in which there are few fixed clients.

However, due to financial constraints and a multitude of other factors involved, companies may choose to motivate and compensate their drivers differently. Across the various industries, companies could choose to compensate drivers in other ways, outside of the usual salary or pay per job methods.These different ways usually revolve around proficency/skills payment or compensation. This kind of payment is offered to encourage positive driver performance. The more common payments  include labour compensation, public holiday remuneration and value-added payments for specialised skill-sets like assembling furniture, setting up a catering service or even operating a forklift. For example, for jobs that require physical labour like manual moving, like those in moving companies, employees could be offered labour compensation. Provision of labour compensation helps to increase the take-up rate of such physically demanding jobs. On the other hand, offering public holiday remuneration serves as a form of acknowledgment of driver’s effort of working beyond what he/she had to as well as compensates them for their precious personal or rest time. This encourages the drivers that can and want to work extra hours, to work during public holidays, helping to relieve the manpower shortages during that period. On top of that, drivers can be also incentivised to undergo skills upgrade, for example skills in, skills in assembling furniture, catering table set up, operating a forklift and training courses like license upgrading programmes. This could possibly be a form of long-term investment to the company, saving more manpower costs from a long-term perspective.

Ultimately, it is imperative to have a payment system for your drivers, where both parties are reasonably satisfied, to go a long way in this highly competitive and labour-starved industry.

Having covered some of the common driver payment structures currently used by most companies, these payment methods are not exhaustive. Companies are actively coming up with new payment schemes to attract more drivers to join this chronically manpower-starved industry. Increasing emphasis on driver motivation and benefits reflect the greater recognition of the key role drivers play in the last mile fulfilment of the supply chain. Companies are now channelling resources into reducing driver turnover rate, which may be a more sustainable method on maintaining their manpower supply over the long run. This is certainly a positive change for both the companies and the drivers, even for the industry as a whole.

Which methods work for you and which don’t? What are your experiences with driver payment methods like? Share your experience with us by commenting below!