What Can I Expect to Earn as an Associate?
Dr. Thomas L. Snyder
As graduation nears or your residency program is ending, life after your dental education is about to begin. Most recent grads typically begin their career as an associate.
As you start searching for your first associate position, you’ll quickly learn that there are various ways that you can get paid. This article will review the most common compensation methods for general dentists.
Option 1: Guaranteed Salary
If you are risk averse and need a steady cash flow, then a guaranteed salary is what you’ll need. Sometimes guaranteed salaries do not allow for any upside potential. Unfortunately, many solo practicing dentists are not in a financial position to offer high guaranteed salaries. Therefore, if you need a starting salary in excess of $100,000, you should consider employment with a group practice or a dental management company. These organizations, obviously, have larger patient bases, greater financial strength and thus have the ability to support a guaranteed salary. Nationwide, general practice starting salaries range anywhere from $70,000 to $120,000 based on the type of practice, your experience and the range of clinical services you’ll provide. Specialty salaries are, of course, higher. If you have several years of experience, you can receive starting salaries higher than this rage. If you can show your potential employer your production history, it puts you in a better position to negotiate a higher starting salary.
If you plan to join a solo practice as its first associate, salary expectations need to be lower and the time frame that you may receive a guaranteed salary may be only six months or so. After that period, you will be paid a commission on collections or production with a monthly draw.
Option 2: Draw vs. Straight Commission:
We do not advocate a straight commission, especially at the outset of your employment. We suggest you negotiate to receive a draw against your commission arrangement. A draw is considered payment in advance for services to be provided. A draw is still paid out in most instances as salary since you will be an employee in most instances. In Option 1, a guaranteed salary is paid regardless of your clinical production performance. In the case of a draw, your performance is directly related to what you produce/collect. Most draw arrangements vary anywhere from $6,000 to $9,000 per month. If you begin your employment with a guaranteed salary for the first six months, we typically suggest the monthly salary you received still be continued but that it is now classified as a draw. Once you enter a draw arrangement, you now are accountable to generate the appropriate collections/production to sustain that draw payment.
Option 3: Commission on Production:
We typically do not recommend payment on a percentage of Gross Production but rather payment on Net Production. Net Production is defined as Gross Production less any adjustments for insurance as well as any patient discount programs. If you were employed in a practice with a good proportion of managed care and were paid on Gross Production, that will result in a significant loss to your employer, unless you were paid at a lower commission rate such as 23-25 percent. That is why we recommend payment on Net Production. Commission Rates for Net Production vary between 32-37 percent, based on locale. For Gross Production, the rates vary between 23-33 percent. Obviously, smaller towns and rural areas may have to offer a higher rate to attract candidates versus an urban area where there may be a greater supply of associate candidates.
Option 4: Lab Payments:
Some practices will pay your entire lab bill, so if this is the case, expect a slightly lower commission rate. We recommend that whatever commission rate you are being paid, the same rate should apply to the portion of lab expense that is deducted from your pay. For example, if you are being paid 33 percent of Net Production you would have 33 percent of your lab bill charged against your compensation. You may find some employers requiring you to share the lab expenses equally.
Option 5: Payment on Collections:
The best business option for your employer will be to pay you on Collections. Paying you on Gross or Net Production may put a drain on practice cash flow if the practice’s Collection policies are not as effective as they should be. So, paying on Collections is the safest approach to take for the owner. If the practice has an excellent Collection system, payment on Net Production or Collections can have the same result. It’s important for you during your interview to determine if the practice has an effective collection system. Simply ask the following: “What is the practice’s Accounts Receivable Turnover, and what is the historical Collection/Production ratio?” If the Collection/Production ratio is 97 percent or higher, that is a good sign. If Accounts Receivable Turnover is 1.5 or less, that’s a good indication of an effective Collection system. If those ratios are lower, there may be a potential problem with the collection policies and procedures thus possibly having an adverse effect on your being paid in a timely manner. Obviously, the lab deduction pertains to being paid on Collections as well.
Collection rates vary from 32-40 percent based, again, on which area of the country you practice. Just as with Production Compensation, if Lab expenses are not deducted, expect the Collection rate to be lower.
Option 6: Guarantee Plus Commission:
Some employers will offer you a lower guaranteed salary with a commission structure based on your achieving a certain Production goal. This gives you some guaranteed income with an upside to get more income if you are more productive.
Option 7: Per Diem Rate:
Per Diem rates are ideal for part-time associates. Per Diem rates will typically vary anywhere from $400 to $750 per day. Typically, no fringe benefits are provided. Sometimes, you will receive a minimum daily guarantee, such as $250, plus a commission above a certain break-even point relating to Collections or Net Production.
Option 8: Hourly Rate:
Hourly rates are ideal for, again, part-time associates and are commonly used when an associate has a varied work schedule each day. For example, you may work four hours one day and eight hours another day, so, in this case, being paid on an hourly rate would be preferable. Hourly rates vary anywhere from $50 to $100 an hour, again, based on locale.
Typical Fringe Benefits:
In addition to your salary or draw, you are entitled to some fringe benefits especially if you have full time status.
Health Insurance:
Most dental practices provide some form of healthcare coverage to their full time employees. We recommend that your premium be paid for by the practice. If you have a spouse, or have a family, the difference in premium amount between single and family premium is usually paid by the associate and can be deducted from your salary if the practice has a Section 125 plan.
Malpractice Insurance:
We find that about 50 percent of our clients pay the associate’s malpractice insurance premium since these premiums tend to be lower in the early years after graduation. If you have to pay your own premium, ask your employer to pay your premium and charge it against your compensation.
Dues/Subscriptions:
Dues/Subscriptions are usually paid for by the associate as there are many professional associations for you to join.
Continuing Education:
We believe that all associates should be offered a continuing education allowance between $1,000 to $1,500 per year. The employer should have final say over what courses the you should attend, as these programs are not only to the benefit you, but the practice’s patients as well.
Retirement Plans:
Retirement plans are based on your employment status. If, for example, the practice has a 401k Plan, chances are you are entitled to participate whether you are full time or not. If the practice has a defined contribution or defined benefit plan, you would be entitled to participate after the normal waiting period and they typically relate to a full time status in the practice.
Bonus Plan:
We have found that associates who have been employed for several years feel they are entitled to receive a higher commission rate. From our perspective, increasing the commission rate on a regular basis may be counterproductive to the long-term profitability of a dental practice. We, therefore, recommend implementing an Associate Bonus Plan allowing you to receive additional income if you achieve certain goals. First, the owner has to calculate a break-even point goal for you to meet is based on production goals and/or collection goals as well as practice profitability. When that break-even point is exceeded, you receive a percentage of that excess over the break-even point goal. We typically recommend a 20 percent bonus in the first year of its implementation with annual increases of 2 percent per year until a “cap” is reached at 30 percent. Here is an example of how this Bonus Plan would work:
This is a win/win strategy allowing the employer to keep commission rates in line, but providing you with an opportunity to earn additional income if your performance warrants it. Typically, break-even points should be modified annually as most practices typically raise their fees and staff salaries and other related expenses are increased, thus the economics have to be modified to be fair to both parties.
These are just some of the ways associates can be compensated. It is important to “do your homework” when preparing for an interview to make sure that you get the best possible deal for yourself. Also, remember that the majority of practices you’ll interview with are solo practices, so they may not be in the position to offer the “big bucks” at the outset that you may think you are entitled to. ■
Dr. Tom Snyder is managing partner of The Snyder Group LLC. A transition services consulting firm that specializes in practice valuations, practice sales as well as designing associate and partner relationships. He can be reached at (800) 988-5674 or email: tsnyder@snydergroup.net. The firms’ website is www.snydergroup.net