THOUGHTS on PAY and RETENTION of HYGIENISTS and ASSOCIATES
Lot of offices face the difficulty of staffing to the level of previous years. Several questions should come to mind if you are truly seeking a solution to a problem that is not going away.
- Am I competitive in the dental marketplace?
- For pay: Starting pay, promotion, long-time competitive pay, benefits, continuing education?
- Culture: Are the working conditions ideal from a staff member to staff member perspective? Are your office expectations, job descriptions, and training a priority rather than an afterthought?
- Do you quickly eliminate mediocre staff?
- Are you consistently searching for and training for better performance in your team members?
- Facility: Up to date, modern, as good as, and hopefully better than, your dental competitors?
- Schedule: Do you offer full-time employment? Do you have the patients and schedule to afford the best employees?
- Overhead: Is your overhead so high as to not allow some flexibility in your pay scale, benefits, and overall employment offerings?
- Is there an E in EBITDA? The average office has little or no profit in an office with a 70% plus overhead. Taking home just 20%-30% means you are paid well but there is no real profit in the practice.
- Are you competitive on the technology, clinical excellence, and equipment?
- Is your net adjusted production per employee per month at or above $20,000-$25,000?
- Am I competitive in the “job” marketplace?
- Is there room for advancement in pay and position?
- Do you share increased profits in the form of a bonus when you have a well-run office?
- Realization that dental offices are not your only competitor in the field of employees?
- Are you as good or better than other small consumer driven businesses in your community?
- Is job security, as well as job fulfilment, a priority for your office?
- Is leadership and communication the foundation for your culture?
- Do you offer benefits as good or better than other businesses?
- Do you have the internal policies and protocols of a successful business?
- As the owner, are you still engaged and productive with consistent growth per year?
- As a small consumer business, are the number of patients increasing yearly along with a steady flow of at least a 50% direct referral rate? In other words, are you giving clients what they want with a resulting consistent growth percentage every year?
While everyone is important when we consider pay and conditions of our culture, allow me to go into more detail about associates and hygienists. How are you paying producers in your office (Associates and Hygienists)? Obviously with the decreasing number of hygienists with many leaving the profession and the decreasing enrollment in hygiene schools, this area is not a wait and see challenge. It will be here for years. What are you doing right and what could you change? Ask yourself what level of pay you can realistically afford when we look at the percentage of production that ends up in the pockets of hygienists with escalating demands? Don’t even consider this question until you take a twelve-month period and run the production by provider report and then get the pay amounts for each provider and divide their individual TOTAL pay (don’t forget to add taxes, workman’s comp, uniforms, and continuing education to the total pay) by their individual net adjusted production. This converts any measure of pay (hour, daily, etc.) into a percentage. So, tell me if you are comfortable paying a hygienist 40%, 50%, or 60% plus of their production in the form of an hourly wage? I thought not. Keep in mind that I want my hygienist to make more in my office than anywhere else they could go. They were consistently taking home over $160,000/year with some being far more than this when we include the profit sharing in the form of a bonus for each staff member (yes – hygienists were included in the bonus, even though they were paid on commission). I loved paying them this amount because they earned every penny and they were the heart and soul of our practice. This is the battle field today in hygiene. In a dental world of diminishing reimbursements from insurance companies, competitive prices from corporations and DSOs, and an entitlement mentality from your hygienists, what are you going to do? Part of the inequity is the fact that for years we gave cost of living raises and longevity-based raises because we could offset the cost by raising our fees. Today, fee raising does nothing to your bottom line if you are dealing with managed care. I feel the only answer is that all producers be paid on a percentage of collections or net adjusted production that on one hand creates a system of unlimited pay for those who engineer their schedule, add a wider range of services and products, and do all of this on a time line that creates even better results but also reflects the cost of doing business. It also introduces consequences for the producers that do not consistently “up their game” in an ever-changing economic reality. Before you begin to analyze what you are willing to pay a hygienist, you need to figure out what you are currently paying them as a percentage of net adjusted collections. I would shoot for a percentage at 27%-33% including the cost of taxes and benefits. I will discuss the fine points to consider as we look at associates.
What about associates? Bottom line is that any pay in any fashion and at any level should be formulated by including the specifics of your real, actual office overhead. That means pay is a function of profitability. It is an algorithm factoring in that any producers are hired with the specific intent of creating profit above and beyond the cost of their employment. This cost is also mitigated by the fixed costs of the facility along with the variable costs of supplies, lab, marketing, etc., to create at least a 5%-15% profit to the owner. If you hire and pay producers without this mindset, you are doomed to an ever-increasing overhead creep that only decreases what you take home while paying producers an amount that not only came out of your pocket or profit but rewarded them at a level they did not earn in your office. This is the reality of profitable businesses. You either make a profit and grow, or you go under.
If you accept the premise of pay by percentage of net adjusted production or collections, and you understand that anyone you hire needs to add value by increasing the profits of your business, then we need to look at pay in motion with a system of “ramping” the pay at ever increasing intervals or levels of production. In this scenario, if they produce more, they make more. If they do less, they make less. Sounds a little like what we, the owners, face every month. This ramp and percentage pay creates a system of rewarding those that are efficient and effective in what they do. It punishes the average or below average doctor or hygienist and creates consequences by linking efficiency and productivity to their pay. For probably the first time, you are partnering with your team in a fair and equitable way at levels of pay unheard of in an hourly or salaried basis. There will never be a cost of living raise or longevity-based raise in this scenario, but there is an unlimited ceiling to what they can take home in pay. They make more every year if they produce more.
Here is an example of a ramped pay schedule for an associate, and this same format with different numbers could work for a hygienist. You will see that the potential is very high, but it will only work with a doctor that has a great work ethic. Certainly, we shouldn’t hire one that doesn’t have this type of desire to produce.
Ramped Associate Pay (percentage pay is only for the dollar amount within each tier)
Net Production Pay %
$100,000 plus 40%
Ramped Associate if they did $100,000 in any particular month
$30,000 at 30% $9,900
$20,000 at 32% $6400
$25,000 at 34% $8,500
$25,000 at 36% $9,000
TOTAL $33,800/FOR THE MONTH (33.8% of overall total)
Pretty simple math. But there are very important points we need to cover. The reality of pay is that at lower production levels of say $20,000 or so, you are losing money when you consider that the cost of support staff for an underproducing doctor actually costs considerably more when compared to a good producer. The pay is the same but the cost as a percentage of their net adjusted production is way higher. The ramp not only rewards efficiency and productivity but it encourages it as a bonus for working harder and getting better results. This is a great lesson learned for a new doctor because the essence of the system is that the pressure to produce more and, by doing so driving down the overhead, is exactly what they will face in the reality of ownership. You can’t pay what you don’t have. Another point to remember is that there is nothing sacred about the percentages or the exact numbers of the ramp. It is merely a system of pay. It should be altered to fit the algorithm of your practice overhead with the addition of another doctor. If you run the numbers and you realize that to make at least a 5%-15% profit is not possible, then you are not ready for an associate and need to get your profits, number of new patients, facility, and production to least a 63% or lower overhead while still being able to at least double your monthly number of new patients. Or, if you run the numbers where you do make a profit of 5%-15%, then the actual percentage pay you could offer is too small to entice anyone to work for you. A very important point in this discussion is your collection rate. If it was 98%, then you need to take into account that you might need to alter the percentage pay you are offering to include the fact that you are never going to collect 2% of their net adjusted production. This could be huge over the long haul and is silent fuel to overhead creep.
There is one thing that I need to add for those doctors that no longer work a full schedule at a high level of productivity. If you are working a diminished schedule and bringing on associates, you need to understand that your take home will always be affected by a lack of production contribution from your side of the equation. You cannot expect to take home as much if you are not contributing as much to the monthly collections. This is fine and is always the result of cutting back. Just remember that you will need to reset your expectations on take home and overall overhead when you are a partial producer or full-time absentee owner in your practice or practices. A well-run practice with an absentee owner can take home maybe 10%-16% of the total collections without the owner actually producing dentistry.
The last thing to consider on this broad topic of “pay” for any employee is a “total compensation” approach. What is the actual complete cost to the practice versus what are you offering? Because almost every dentist working for another general dentist will always considered an employee by the IRS and not an independent provider. Doing otherwise will subject you to possible penalties, taxes, and additional costs. Please follow the suggestions from your CPA and attorney. If they insist that you can indeed pay an associate as an independent contractor, ask them to sign an agreement stating they will represent you for free when you get audited by the IRS. And that they will pay any fine you receive because of any IRS audit. You, just like any other business, should include other things that you might be wiling to include in their pay. Medical insurance, moving money to relocate near your office, continuing education stipend, paying for their malpractice, holidays, and vacations, etc. If we look at other businesses, as well as dental DSOs and corporations, they do pay for these things. So, it becomes important to consider what you are willing to do to be competitive in the marketplace when attracting good hires. Below is a copy of a total pay form that might let you analyze your offering as well as spelling out their actual pay. In its current format we use it for a “pay review” at the end of each year. But you could modify it slightly to be a compensation offer of employment added to the ramped pay example.
Name _____________________________________ Date _____________________
Salary (twelve months) $_________________________
Matching Social Security (FICA) $_________________________
Health/Medical Insurance $_________________________
Group Life and Disability Insurance $_________________________
Pension/Profit Sharing Plan $_________________________
Seminars and C.E. (tuition, travel, meals, lodging) $_________________________
Staff Incentive Program (bonus) $_________________________
Professional Dues $_________________________
Paid Holidays $_________________________
Vacation Pay $_________________________
Dental Care (self/family) $_________________________
Total Paid For You $_________________________
Recommendations: Salary _______________________ Benefits ______________________________
Doctor signature: __________________________ Employee signature: _________________________
Note: Original to be filed in Employee Personnel File; copy to be given to employee.
Along this journey, I would expect to see growth and the challenges of fending off overhead creep and maintaining a productive team while using how you reward and pay them as an incentive while raiding the bar in your practice.
Michael Abernathy, DDS