What should an associate make in terms of a compensation package? The simple, trite but true answer is this: whatever the associate needs to cover basic personal/family budgetary needs. The complicated variables entering into this equation are explored further in this section. This section assumes an employee relationship except for the last paragraph.
Guaranteed Flat Compensation
With rising student loan debt, having a guaranteed compensation which meets basic personal/family budgetary needs represents a secure and welcome option for many recent dental graduates. Amounts vary greatly from region-to-region but now appear to hover in a wide annual range from $90,000 to $125,000+.
Guaranteed Flat Level Percentage
A less popular method of compensation is to provide a flat level of produced or collected revenue based on the associate’s work. Ranges here vary widely from ~27% to ~34% depending on benefits provided and responsibility for the laboratory expense. Offering only a guaranteed flat level percentage for compensation makes it very difficult for an associate to make an informed financial decision. Associate candidates may not be able to answer with any certainty the fundamental question: Will the income meet basic budgetary needs?
Guaranteed Based Compensation plus Percentage
Another common and desirable compensation package consists of a base compensation with a collection or production percentage which replaces the base amount when associate-generated revenues exceed a dollar amount per month or per quarter (three months). For example, the associate is guaranteed an income of $7,750. Once monthly collections exceed $25,000 per month (realize that $25,000 x .31 = $7,750), the associate then earns 31% of all his/her generated revenue.
Roger Hill suggests an innovative twist to the “plus percentage” system.26 Namely, he suggests that associateship compensation could also be based on a tiered, stair-step system in which the associate earns a higher percentage based on higher revenue targets. Here is an example simply for illustrative purposes:
|Associate Revenue||Percentage Received by Associate|
|$0 - $25,000||31%|
|$25,000 - $30,000||33%|
|$30,000 - $35,000||35%|
|$35,000 or higher||37%|
This system recognizes that, for the most part, the owner-dentist’s fixed costs for the associate do not necessarily increase as the associate’s productivity increases, but variable costs such as supplies and laboratory do increase as the associate produces more. Nevertheless, the owner-dentist realizes a higher profit as associate-generated revenue increases, and this system allows an associate to share in some of that additional revenue.
While less common, an associate might be compensated at a flat hourly rate which often is in the range of $56+/-.27
Production or Collections?
Should an associate be paid on the basis of billable production (after any third-party adjustments such as from Medicaid or dental insurance) OR on the basis of actual collections? The correct answer is whatever is agreed upon in the contract! If the collection/production ratio is high as it will be in well-run dental offices, this question becomes much less of an issue. Associates may have little control over collection systems in a dental office, and so this may factor-in to the production vs. collections decision.
Lab Bill—Who Pays, and How Much?
Nuances of the laboratory bill are discussed in the next section on contracts.
Employee associates will obviously receive legally mandated benefits of an employer match for social security/Medicaid of ~7.65%, unemployment insurance and workers compensation. Associates in dental offices can have widely varying benefit packages beyond what is legally required. Commonly given benefits include malpractice/professional liability coverage and free dental work for self and immediate family (with patients paying for the laboratory bill). Less common but certainly negotiable benefits could include health care insurance, a continuing education allowance, moving expenses, paid time off for vacations or sickness, and retirement contributions. Some contracts even occasionally include a signing bonus. Disability insurance is usually paid with AFTER tax dollars because, should a claim become necessary, benefits will be subject to income tax if premiums are used by a business as a tax deduction. Generally speaking, benefits within a corporation tend to be applied equally to all employees; some benefits may become available after a defined length of employment such as becoming eligible for retirement benefits.
Associates working in DSO-affiliated practices and in public health clinics typically enjoy a richer benefit package compared to associates in private practices. DSOs and public health clinics more closely follow competitive “corporation” benefit packages that could include paid time off (vacation and wellness or sick leave) and health insurance. In most cases, private dental offices may elect to not offer these benefits in an effort to manage costs/overhead. Some federally mandated benefits are required when employers reach certain thresholds for the number of employees (for example, 50 or more full time employees); thus, additional benefits could be required in a DSO organization.
Independent contractors have NO benefits and thus incur a higher tax burden, having to pay approximately 15.3% of income for social security/Medicaid tax (the combined percentage owed by both the employer and employee). Plus, state and federal income taxes will still be owed. So, compensation for independent contractors will usually be proportionately higher to cover this increased tax burden with flat percentage rates probably in the mid to upper 30s range, assuming the independent contractor does NOT have to pay for any other expenses such as the laboratory bill, staff and supplies. As recommended later, an independent contractor would be wise to form a corporation to mitigate increased tax burdens.