Your Practice's Largest Expense and Biggest Risk
If you are deciding the right time to add a new associate doctor into your practice, or even just gauging if you are within the average salary range of your current ones, associate salary is something every practice owner wants to get right.
The truth is, there isn’t a simple one-size fit all answer. Dental associate compensation can be a thorny issue with lots of different factors in play. According to CPA Mason Stern, the first step in the process is to understand that it is, in fact, a process.
“Where you think you should start is not always where you will finish,” says Mason. “But if you understand the variables and start with a plan, you can shape out a compensation package that will help ensure a mutually-beneficial relationship for years to come.”
DETERMINE YOUR BUDGET RANGE
The first order of business is to figure out your budget for the new associate, and that starts with determining your breakeven number. To oversimplify the concept, your breakeven number is determined by comparing the increased costs that an associate will bring, with what they need to produce to be able to cover that cost.
“In most associate situations, the associate’s compensation is the largest expense and the biggest risk to the practice,” cautioned Mason. “That is why it’s vitally important to have a solid idea of what the practice needs to do to support the new salary.”
Check out CWA’s practice transition podcast for more details on determining your breakeven number for a new associate.
KNOW YOUR MARKET
Now that you know what your practice can afford, the next step is to determine what pay expectations your market demands. Are you in an urban area? Suburban? Rural? Is your location in a desirable city or one with a high cost of living? Is your practice small, medium or large? Insurance mix is another variable that can impact salaries.
Heavy PPO, in-network practices are going to be staffed more for production, rather than collections, driving staff salaries higher. With all these variables coming into play, Mason spends time with his clients helping them to analyze the market to better understand how to be competitive in their own location.
Associate doctor compensation can vary widely. For orthodontic practices, we have seen anywhere between daily rates of $900-$1,600 and $1,000-$1,400 for pediatric practices. Other practices are typically a percent of adjusted production or collections, anywhere from 28-35% for general practices, 35-45% for endodontics and 35% and up for periodontic and oral surgery practices. Unique markets and demands can make averages impossible to pinpoint. Rather than look to benchmarks for your specialty, it is best to discuss your practice’s personal situation with your CPA.
UNDERSTAND YOUR COMPENSATION OPTIONS
As you hone in on how much to pay a new associate dentist, it’s equally important to think about how to shape the compensation plan.
There are many different methods to paying doctors. Some may be more attractive to your prospective hires than others. Knowing all your options will help you better understand your prospective associate’s motives and be more prepared to address them when sitting down at the bargaining table.
Flat Annual Salary – The simplest method of the bunch. A flat annual salary appeals to doctors interested in security, and to practice owners who are open to bringing them on as W-2 employees rather than independent contractors.
Daily Rate – This method is clean, easy and transparent. It also allows younger doctors to focus on treatment and not speed, while offering flexibility for the owner as they only have to pay for the number of days the associate is in the office. Most common for orthodontic associates since orthodontists cannot easily track individual doctor production.
Percent of Collections – This method incentivizes production and rewards associates for producing more. This is the most common type of compensation model outside of orthodontic practices. This method offers the associate the highest potential for earning, while only having the practice make large payments if there is corresponding production. Doctors looking for a higher income potential will be most interested in this structure.
Hybrid – The combination method is the best of both worlds for many doctors, as it gives a safety net of a certain level of base pay but still allows for growth and higher income. This method is typically structured as 6 to 12 months of base pay + percentage of collections, then it switches over to percent of collections only. The hybrid method is great for younger doctors joining a practice to help alleviate the pressure to produce right away.
For the Percent of Collections or Hybrid payment methods, Mason stresses the importance of being very clear and transparent about what numbers the percentage will be based on. “Is it gross production or net production? Collections? Are we throwing in X-rays, doctor checks, et cetera? All this will be important in setting the percentage.”
With an additional doctor, the practice will likely grow. Fixed costs become more efficient and profit levels increase, which can be a perfect opportunity for your associate to buy in to the practice. Our virtual and in-person Practice Transition Seminar can not only help you determine pay scale compensation but also help guide both the owner and associate through the transition process.
THE PATH TO PARTNERSHIP
Last but definitely not least, you need to determine if you’re comfortable making your new associate an eventual partner, or if you’re simply looking for a hired hand. The prospect of partnership can be very attractive to associate dentists, so you might find a better pool to choose from, especially in a tough hiring market.
Some practice owners might be inclined to offer a lower salary on the path to partnership, but Mason warns that is typically not the best strategy.
“If there is a road to partnership, we highly recommend you set up a dating phase of two years minimum,” says Mason. “Of course, two years is a long time to feel underpaid, and you don’t want to jeopardize an otherwise good partnership to save a few bucks on the front end.”
It’s important to pay these associates the fair market rate for the work they are doing and be mindful as to how a path to partnership might dictate a different pay level.
At the end of the day, associate compensation is one of the most important and financially impactful aspects of the transition process. Just remember, the agreement you make today doesn’t have to be the agreement you have a year or two from now. It can be a living, breathing document. There’s nothing wrong with making adjustments along the way if both parties find it mutually beneficial.
As always, CWA is here to help you through the process from start to finish. Contact our team to get the guidance you need to make sure you are setting yourself–and your practice–up for long term success.