Dental laboratory expenses can also pose a problem. Under most circumstances laboratory expenses should be considered part of overhead and thus treated the same for all doctors within the practice. That being the case, no special consideration in the agreement needs to be made. On occasion, a doctor may insist their new associate pay their own lab bills. Under this scenario, conflict as to what percentage of compensation will be fair becomes an issue for negotiation. Questions as to how the lab expense will be deducted from gross income will need to be negotiated and agreed upon as well. For example: The written agreement states the associate will receive 30% of their production and pay their own lab bill. For illustrative purposes, assume the associate’s production for the month is $50,000.00. Thirty percent of the production, $15,000.00, is paid to the associate. From that $15,000.00 the monthly lab expense of $3,500.00 is deducted, thus leaving the associate with a gross income of $11,500.00 before taxes. Another way of looking at this arrangement might be the following: Once again the associate’s production is $50,000.00. However, this time the lab bill is subtracted from the gross production. This leaves the associate with production gross of $46,500.00. From this gross production, the associate is paid 30% of the remaining gross production. In this case, $13,950.00 would be the associate’s income before taxes. As you can see, there is a substantial difference, $2000.00, in the amount the associate is paid depending upon when the lab expense is deducted. Which one is fair? Obviously, this area needs to be negotiated and clearly stated in the written agreement. Sometimes examples need to be added for clarity.
Gross Monthly Production $50,000.00
Associate Compensation Rate 30% of Gross Production
Monthly Lab Expense $3,500.00
|Scenario #1||Scenario #2|
|Less 30% Compensation Rate||Less $3,500.00|
|$15,000.00 Gross before lab expense||$46,500.00 Gross after lab expense|
|Less $3,500.00||Less 30% Compensation Rate|
|$11,500.00 income before taxes||$13,500.00 income before taxes|
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