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I've been asked to basically create 3 options of shipping costs, the first is a flat rate if customers spend say $500 or less it costs $10 no matter what products or customer type they are.

The second is when the customer spends over $500 the shipping fee is now 2% of the subtotal.

The third is the customer receives free shipping when the order is over $2000.

I know how to work the free shipping but I believe I need a new shipping method to accommodate for the percentage shipping fee so the first flat rate can't be an option when the customer spends over $500, how do I go about this?

I also face the dilemma of creating a percentage cost of the subtotal of the cart when customers spend between $501 - $2000. I have found extensions with allow this but is there an option that magento offers?

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You can create your new shipping method by using this link : http://inchoo.net/magento/custom-shipping-method-in-magento/

After creating shipping method

protected function _getStandardRate(){

   $rate = Mage::getModel('shipping/rate_result_method');
   $subtotal = Mage::getSingleton('checkout/session')->getQuote()->getSubtotal();
   if($subtotal < 500){
      $price = 10;
   }elseif($subtotal > 500 && $subtotal < 2000){
      $price = ($subtotal * 2)/100 ;
   }elseif($subtotal > 2000){
      $price = 0;
   }

   $rate->setCarrier($this->_code);
   $rate->setCarrierTitle($this->getConfigData('title'));
   $rate->setMethod('large');
   $rate->setMethodTitle('Standard delivery');
   $rate->setPrice($price);
   $rate->setCost(0);

   return $rate;
}

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