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How Much Should I Pay an Employee?

A lot rides on this question. You are trying to keep the compensation for all of your employees at 25%. This isn’t just what their check totals each pay period. It includes: taxes, sick days, vacations, holidays, insurance, uniforms, continuing education, and any other cost or benefit that you attribute to your staff. It does not include anything that you spend on yourself. The trouble with most of us is that we tend to pay what we “think” the going rate is or just a little more than the new hire “said” they made at the last office they worked with. We also tend to give longevity based raises so that we often find ourselves paying 30% or more above the going rate for a position. Our overhead suffers, others in our office feel emboldened to make similar requests because “if so and so makes this much, why don’t I?” Think about it like sports teams do. They have a salary cap. Yours is about 25% of your collections. If you don’t begin to run your office like a business it will result in a terrible downward spiral into overhead chaos.

What should you do? First step is make a firm stand on overhead attributed to salaries. We suggest 25%. That is the line in the sand, and that is what your salary cap should be. When hiring a new person, look at where you are currently in your overhead, and look at what a person in that position should make. Keep in mind there is a limit to what someone should make in any position in the office.
Pay that is higher than the maximum for the position should come from a bonus (profit sharing) strategy.

One neat thing about salaries is that there are online sources we can utilize for a point of reference and a reality check.

• This site is a headhunter site but also gives you lots of information about salaries. Just open it and go to the home page. Once there, don’t immediately fill in the blanks. Go to the bottom left corner of the page and click on “salaries”. When the page changes, just put in the position and the zip code. What pops up is not only the average salaries, but also the trends in the salaries for your zip code. Slide down the page and you will also see all of the actual hires they have made this year and the individual salaries. Occasionally you will see something really high or low (part time). Just take those out and do the math. You now have a way to actually benchmark what you should pay.

• This is a site where both the employer and the person looking for a job have the opportunity to shop one another. Great site, take a look. It gives you access to resumes and allows you to put your job posting out there and also review other postings for similar positions. They have other ancillary services that will help in understanding the market going rate for various positions.

Whether you are just starting out or you are a “seasoned” professional, keeping a hand on your employee salaries defines sound financial responsibility. Overpay, and you can never go back and lower it. Do it right the first time, and increase pay with profitability, and you have created a solid foundation for the maintenance and growth of your practice.

Michael Abernathy, DDS
972-523-4660 cell