How Much Should I Pay an Employee?
I would like to revisit and go into detail on how you should pay your employees and do this in a way that allows us to look at an office manager, assistants, front desk, hygienists, and associates. I was having a conversation with my business partner about some materials that needed to be ordered for a upcoming speaking engagement, when he questioned if we should adjust the numbers on overhead in one direction or another. The main topic was the percentage of overhead attributable to all employees (associate, hygienists, front desk, assistants, CPA, attorney, consultants, etc.) from an ideal of 25% to 28%. His point of view was that the overwhelming majority of doctors were not even close to these benchmarks. He went on to mention the difficulty in finding, keeping, and having competitive pay systems for each position. We both speak with offices every day and we both concurred that, truly, this was a common complaint and point of frustration for most of those offices.
While common place, it is not common sense, in my opinion, to alter ideal overhead targets just because some offices find it difficult to hit them or fail to adapt to an ever-changing economic trend in dentistry. Of course, it is difficult. These benchmarks challenge many of your basic, fundamental, foundational practice norms – and they should. If it was easy, everyone could do it. The problem is that most doctors fail to design their business strategies with profit in mind. Most just hire a hygienist, assistants, front desk, and office managers because everyone else has them. Forget about your overhead, just design your business like everyone else and figure it out as you go. Well, we all know how that works out.
The right way to do it, is to hire one person that can assist and do front desk when you start your own practice. You clean teeth, you work alone if you have to, but never ever hire that second employee unless you are doing $20,000 to $25,000 a month. When you hit $20K, you hire employee number two. A dedicated front desk, or dedicated assistant and you don’t hire the next person until you can do $40,000 a month with two employees. Yes, you are still cleaning teeth, sometimes seeing a patient by yourself while your one assistant inspires the patient in the next room until it is time to hire the next person. You are running lean and mean and learning the limits of your leadership and business culture while adapting to making your practice profitable. Is this a challenge? In a way, sure. But if you start and maintain this benchmark of $20,000 per employee, you will always have the latitude to be competitive in the “pay and benefit” market for employees. The truly great practices (profitable, unlimited new patients, little or no staff turnover, lots of 5-star reviews, consistent growth, etc.) have learned the basics. They have mastered the fundamentals and built a strong business base. They learn to lead, manage, and grow. This is just makes common sense and is the exception to the rule of common place. This doctor, this office, these teams will never struggle with profit, lack of employees, or patients. It is important to note that if you don’t do this, there is almost a 100% chance that you will not be competitive in your pay and benefits in the marketplace. You keep people that are not productive, are not committed, not engaged, and are poorly paid. Any wise person would see that this is not the formula for assembling a winning team and culture.
I had a call the other day from a doctor and his wife who works in the office, concerning staffing. It was a nice 12-year-old office, average production, slightly below average new patients, with about 3-4 employees. I had met each of the employees and interviewed them, along with allowing them to give us feedback thru a “staff quiz” form that addresses how the staff feels about their practice. This office, like so many others, had at least one employee who was marginal on several fronts. In this case it was a front desk person who, while being an “nice older person” (these are the doctor’s exact words when asked why she is still working there), was totally incompetent in her current position. She had worked there 15 years and was the oldest staff member. She was stuck back in the day when the previous doctor/owner hired her and actively resisted change while subliminally sabotaging any growth or improvements in the office. The doctor, being non-confrontational, called me about several instances of patient problems that were a direct result of actions taken or systems not followed by this one staff person. The doctor, being a great person but the soft-hearted boss, had just not found it possible to let her go because of problems he knew she was having at home concerning finances, age, and a general lack of options if he terminated her. By his own admission he felt like she was the cause of 90% of all the stress in his life, and was running off a lot of patients, yet he still couldn’t let her go. In addition, she was being paid 32% higher salary than the going rate in this area plus benefits for a job that she could not perform properly. (NOTE: this is subtle, but it needs to be said. It is fine to pay your employees 32% more than is commonplace in dentistry. The caveat is that production still must be $20,000-$25,000 per employee. The limiting belief is because you have never looked at how a team is paid in this way, you will miss the simplicity of how productivity, profit, and longevity make a difference to your bottom line. You fail to see the magic of sharing the profit in a highly motivated and inspired Staff Owned culture. Super General Dental Practices pay more than is common, but still maintain that 25% to 28% benchmark on the compensation expense line and these benchmarks include taxes, benefits, continuing education, medical, dental, retirement accounts, uniforms……everything). The worst thing was that this woefully inadequate employee was the person who answered the phone and interacted with all the patients on finances and scheduling. In this case, the most important position in the entire office was being held by someone who was crashing the office and making the doctor’s life miserable. You know the answer. It’s time to free up her future. Luckily, it’s not a family member, but he has still failed to act.
I know we are talking about how to pay employees, but I think it is important to stress how you view what you pay and how to structure your hiring policies. Whether it’s an assistant, front desk, hygienist, or any other position in the office, there will come a time when you must make the difficult decisions on hiring and firing. With that goes the business decision of what to pay and how to set up the employee/owner relationship. Let’s talk philosophically about where you should start, and how we could avoid these doctors’ current problems. Keep in mind as you read these five points that “what you allow, you encourage”. What you allow, accept, or tolerate will define what you get. It is time to take back your practice with the right strategies and a determination to do it now. The time is perfect to reset the areas of your practice that have held you back.
Are there times when a current staff person is unsalvageable? YES (this is especially true even when you are having trouble finding great team members) There are only two types of staff. The first is good staff needing some more training. The second type is those that need to have their future freed up. In my office, staff averaged over 14 years of employment during my decades of practice. I am huge fan of hiring the right people the first time, and for the right position. We spend the time to train them well, measure their results, and create consequences when they fail to perform. This is the definition of great onboarding of your employees. With this said, the timeline for this would be a matter of a few weeks, not months. As most of you know by now, in our offices we have always stressed a “Purpose Driven, Doctor Led, Staff Owned” model. This ownership mentality for my team includes having the staff involved and even having the final say on staff and doctor hiring. Hire slowly and fire quickly. Make the right decisions the first time and minimize correcting those hiring mistakes. This is a huge part of great leadership. In today’s economy, you can ill afford marginal staff. As I told the doctor over the phone: I would never keep an employee and continue to pay them to make my life miserable. Regardless of how difficult it is making the decision to terminate someone; you will never regret doing it. You will only regret taking so long to have done it.
How much should I spend on compensation for staff? Even in today’s marketplace we find that an overall expense of about 25% to 28% of your total collections should be spent towards staff compensation. The challenge is that this benchmark must be more than you paid the same team member for the same job a year ago. Sadly, fewer and fewer practices have competitive pay in a marketplace where McDonalds offers $600 signing bonuses and offers benefits and flexible hours and pay more than you do. Your practice must continue to grow and adapt in an ever-changing economy. The days of paying $16 an hour are gone. We must be competitive in the job market and thus must become more profitable in our businesses. This benchmark would include associates, as well as all other staff including any benefits, taxes, continuing education, staff meals, presents, etc. Anything other than what the owner doctor makes. I would even include the cost for coaching or a consultant. They are a part-time employee that should yield extra production and profit. You cannot manage what you do not measure. The first place to look is your P&L. Add up what your average monthly expenditures are for staff compensation. You should have already done this at the beginning of the 180 Degree Dental Journey and have had it reformatted to ensure you could scan and then use this format to make all your business decisions. This is the area that I find in most offices is holding back profitability. We will encourage our clients to push the area of production, staffing, and overhead to a point of a 50% to 63% total overhead average. It is still doable but will take engagement and consistent attention on productivity and profit. We expect a well-run general dental practice to generate about $20,000 to $25,000 of production per month per employee. That would mean that if you had 5 employees plus the owner doctor you would be producing about $100K to $125K per month. The average office will do only about $12,000 to $14,000 per employee per month. One of the scariest things I see trending in dentistry today is that most dentists do not know or even consult their numbers when making decisions on their practices. If your current percentage for staff is in excess of 28%, you need to work at utilizing your office and staff to bring this into line. Profit is everything: Only net counts. It doesn’t matter what you produce, it is all about what you take home. NOTE: I include my CPA and attorney costs under staff compensation also. If you do this, then add another 2-3% to the total bringing the target to 27% to 28% for staff compensation.
How do I know what a fair income package is for any staff position in my office? Go to www.indeed.com or www.dentalworkers.com . These are a couple of great places to look at salaries anywhere in the US. Open the site and click on salaries at the top left of the landing page. Type in the position and the zip code for your office. It will give you the average salary along with a range in your area. This gives you a starting place. Consider that the dollar amount shown includes the total pay package of taxes, pay, and benefits, not just what they take home in their paycheck. Next, call a local temp service and find out what it costs on a daily basis to hire someone for a particular position. This will be about 25% higher than a permanent employee for that position due to the fees turned over to the agency. The two worst places to get information are from another dentist (who is overpaying their staff with poor results and a marginal practice) and Facebook, the bastion of state-of-the-art practice management (not). NOTE: Both sites charge a fee for further inquiries into salaries and postings. Good odds that if you are struggling with finding and keeping employees, your pay is too low, leadership is lacking, and office culture is not what the best potential team members are looking for.
I always want to pay my staff more than they could make at any other office in town. Human resource experts will tell you that the money that is paid to employees is the last thing that is important to them. Not in my offices. Money is always important. Remember that “Staff Owned” mentality that we try to instill in our team? My staff is given a competitive salary, trained in the business of dentistry, and rewarded with a bonus (profit sharing) that makes the total compensation well above any other profession they could work in. Our bonus is the core to incentivizing your staff. We have the perfect profit-sharing plan that has worked well for over four decades without alteration. You will notice that I said profit sharing. The name “bonus system” should be changed to profit sharing system. If the office makes more and controls its overhead, the staff should share in the increase. It is like we are on a lake with each of us having a boat. Our boat is larger than the rest of the staff but when the water level rises (profit), all the boats rise. When done right, this lowers the percentage spent on staff while actually paying them more. Giving staff a way to influence and ultimately control what they take home makes everything work. The staff will force unproductive, marginal staff out. They won’t allow that type of employee to jeopardize their earning capacity. They treat the patient great no matter how the patient acts or what day or time they come in. They understand the subtle nuances of a “consumer driven business”. They know that nothing happens until the patient says yes, and in Super General Dental Practices they say yes 90% of the time.
What type of pay package should I strive for? I like to call the perfect pay package being in the “pay zone”. This is the perfect balance of financial security for the staff member (a competitive base salary) plus unlimited potential thru profit sharing. Maintaining an ideal overall overhead of 50% to 63% equates to good financial positioning for the doctor/owner. You are in the zone for profitability, overhead, and management control. This is a win/win scenario for staff, doctor, and patients. Enjoy the security of a great financial future, along with a decrease in stress, while positioning your team and practice for unlimited growth.
Michael Abernathy, DDS