- Continuing Education
How Partnership Pay Works
How Partnership Pay Works
There are many types of bonus formulas in dentistry and an individual practice may have to experiment with different plans before settling on a plan fitting the practice’s style and size. Additionally, bonus formulas are not static and should be evaluated and updated as the needs, size and influence on team motivation changes. The following plan was used in the first author’s practice and may be adapted to the reader’s practice. 9
All team members receive a share of net profits generated by the practice each quarter year. (New team members are not part of the bonus plan for the first 90 days of hire.) Net profit is calculated by subtracting all paid bills, including team member and dentist wages, from practice earnings. (It is assumed the dentist takes a set salary at regular pay periods). All team members, excluding the dentists, receive a share of 10%-20% of net profits each quarter. Of the 20% share of the quarterly profit, half (10%) is distributed quarterly to the team members and half (10%) is deposited into an interest-bearing account that is distributed to the team members at the end of the fiscal year. The retention of 50% of the team member’s share of net profits allows for quarters when there is a loss or negative profit. Twenty percent of negative profit is removed from the interest-bearing account, and the team members do not receive partnership pay for that quarter. A team member who leaves the practice before the end of the quarter is excluded from the profit sharing.
Net profit from the quarter = $10,000 $10,000 x 20% = $2,000 partnership pay.
Half of $2,000 ($1,000) is placed in an interest-bearing account for distribution at the end of the year.
Half of $2,000 ($1,000) is distributed at the end of the quarter.
There are four eligible team members:
Marge (receptionist) worked 468 hours during the quarter at a salary of $28/hour for a total of $13,104 wages for the quarter.
Lisa (dental assistant) worked 425 hours during the quarter at a salary of $24/hour for a total of $10,200 wages for the quarter.
Eileen (dental hygienist) worked 160 hours during the quarter at a salary of $35/hour for a total of $5,600 wages for the quarter.
Danielle (lab assistant) worked 325 hours during the quarter at a salary of $15/hour for a total of $4,875 for the quarter.
NOTE: The listed rates/hour is for illustration purposes only. They are not to be construed as recommended rates, which will vary by practice location.
Total employee wages for the quarter are $33,779.
Marge earned 39% of total wages paid.
Lisa earned 30% of total wages paid.
Eileen earned 17% of total wages paid.
Danielle earned 14% of total pages paid.
$1000 dollars is available for partnership pay.
|*Marge* receives 39% of $1,000||$390|
|*Lisa* receives 30% of $1,000||$300|
|*Eileen* receives 17% of $1,000||$170|
|*Danielle* receives 14% of $1,000||$140|
Using wages earned is a simple and fair way to determine a team member’s value to the practice. Team member wages takes into consideration the team member’s training, professional degrees, experience, and hours worked during the quarter. As illustrated, Eileen, the hygienist is paid more per hour than Marge. However, Marge works significantly more hours than Eileen and thus receives a greater share of partnership pay.
If, in a subsequent quarter, the practice shows a loss or no profit, the team members do not receive quarterly partnership pay. Twenty percent of the loss is deducted from the portion of profit deposited in the interest-bearing account that was to be distributed at the end of the year.
For example: In the first quarter the practice profit is $10,000. The team members share $2,000 (20% of $10,000). $1,000 is disbursed at the end of the quarter and $1,000 is deposited in the interest-bearing account.
In the second quarter the practice profit is $12,000. The team members share $2,400 (20% of $12,000). $1,200 is disbursed at the end of the quarter and $1,200 is deposited in the interest-bearing account.
In the third quarter, the practice experiences a $4,000 loss. The team members are subjected to an $800 loss, (20% of $4,000), that is deducted from the funds in the interest-bearing account.
In the fourth quarter, the practice profit is $10,000. The team members receive $2,000. $1,000 is disbursed at the end of the quarter. $1,000 is deposited in the interest-bearing account.
The proceeds from the four quarters are totaled:
At the end of the year (end of the fourth quarter), the team members share $3,450: $1,000 of fourth quarter profit +$2450 annual profit.
Partnership remuneration benefits everyone in the practice. The team members benefit by earning additional money beyond their regular salary. By seeing they can influence the amount of money they can earn, team members are motivated to provide superior service to patients and control costs. The employer dentist benefits by having motivated team members, satisfied patients and the freedom from the worry of providing incentives to team members the practice cannot afford.
Dr. Mark Costes from the Dental Success Institute proposes an alternative incentive pay system.10 Team members other than hygienists, office managers and dentist-associates are eligible for incentive payments only if the overhead of the practice reaches 60% or less. Once that goal is achieved, profit-sharing incentives are provided to team members when three key performance indicators are met in the practice monthly: an established dollar amount of net production (the amount that can be billed after adjusting for any reduced fees from dental insurance or government programs); a set dollar amount for actual collections; and an ongoing goal for overhead percentage at or below 60%. Team members join in sharing of practice profit similar to what was previously described ONLY if all three targets are achieved by the practice. Higher incentives are offered when overhead levels are decreased over time to 55% and 50%. In Dr. Costes' approach, hygienists are offered incentive profit-sharing when their generated revenue meets a goal of 3.3 times their monthly compensation.