Dentist Contract Negotiations – Compensation Considerations
W-2 or 1099?
Be sure you know the difference. Practices like to pay their associates as independent contractors in order to avoid paying employment taxes. But, in order to actually qualify as an independent contractor, you must meet several criteria. For instance, you must provide your own assistant, provide your own equipment, set your own hours and set your own fees. Filing as an independent contractor without meeting the criteria can have serious financial consequences and can get you into hot water with the IRS.
Collections vs. Production
While associates typically prefer to be paid commission based on a percentage of production, in the vast majority of the country practices still pay commission on money collected. Associates prefer production for several reasons but the two main advantages are that it allows for greater clarity and that it does not penalize the associate if the front desk does not do their job. Practice owners counter that paying on collections is better for the business and that it encourages the associate to get clear consent when presenting treatment plans. Whether or not a practice uses one system over another often has to do with the norm for the geographic area. In some cities, pay on production is more common, though it is still rarely the predominant method.
As discussed above, most practices prefer to pay their associates a percentage of collected funds from the associate’s work. The nationwide average is 32-35% of collections but the rate varies depending on location, the procedures being performed, and the method of patient payment. Under this system it is important to know when you can expect to be paid for your work. In some cases it takes months for an insurance company to compensate the doctor for services performed. In many cases a guaranteed salary or a draw should be considered, particularly during the start up phase of the associate arrangement. Another important consideration is the percentage of total office collections. An inefficient front office can cost a practice (and the associate) thousands of dollars in missed receivables.
In a draw the practice pays the associate in anticipation of future earnings. Another way to look at it would be as a forward of future income. If the associate’s earning for a pay period fall under the agreed draw amount then the practice would cover the difference in the associate’s paycheck. Whatever extra the practice paid would then be deducted from the associate’s paycheck during the next pay period in which the income generated was above the draw amount.
Guaranteed Minimum Salary
If there is a guaranteed salary then the practice will pay the associate no less than the guaranteed amount with no expectation of future reimbursement should the associate fail to produce enough to offset the salary.
Typically associates prefer to be paid on a percentage of the total billings generated by their services. They find that there are fewer headaches tracking payments and less lag time between performing the service and receiving compensation. Typically the associate receives net production which accounts for insurance discounts if applicable. The average rate nationally is 32% of production.
A guaranteed salary is the most reliable method of compensation and offers a great deal of security. On the flip side, the associate will very rarely make as much money as they would under a different payment method. Practices offer a salary based on the revenue they expect the associate to produce. Since they do not expect to receive any return on their investment should the associate not meet minimum production standards, practices will set the bar low. If the associate generates $1,000,000 in practice collections the associate cannot expect to make any more than if the y generated $500,000 for the practice.
Who pays labs?
Depending on the focus of the practice, lab fees can run into the thousands very quickly. It is important that you take this into account when considering a compensations package. The most common solution is for the associate to cover a proportion of the total lab bill equal to the percentage of collections/productions that they receive as compensation. For instance, if an associate receives 35% of collections, he or she should expect to pay 35% of the lab bill.
As insurance costs go up, the number of practices offering full health benefits has decreased significantly. Practices typically will either offer a monthly insurance stipend or will offer to cover the insurance cost for the individual associate leaving the associate responsible for covering the cost to insure any dependents as a part of the practice’s group plan.
Some practices will offer to pay for malpractice insurance. Many practices also pay membership dues to the local dental association as well as local civic organizations in order to encourage the associate to network within the community to attract patients.
Other benefits to consider:
- CE stipend
- CE time off
- Vacation and sick days
- Retirement plan
- Disability insurance
- Liability insurance
- Life insurance
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