Today, most dental school graduates go one of two directions after graduation. Many go on to GPRs or other specialty school training. Most of the rest go on to an associateship. Upon completion of their GPR’s, most of the GPR residents also go on to associateships, as well as those graduating from specialty programs.
Why does this happen? The answers are pretty standard – “I need to make some serious income, I need to pay off my school loans, I need to continue my clinical education and I need additional clinical experience and business knowledge before looking into practice ownership.” We hear that statement – or a combination of it – a lot. To summarize, for most new graduates, the reason for the associateship falls into four categories:
- Additional Knowledge/Education
- Pre-Ownership Employment
Once the above categories are prioritized, the new graduate can more clearly identify the goals and purpose of the associateship. Different goals usually dictate where to begin the search for an associateship.
The matter of when to begin the search is dependent upon the primary goals. If the first associateship intended purpose is income, experience, or education, 6-12 months before the candidate is available for employment is the ideal time to begin the search. However, if the desired intent is to work in a practice that may be considered for future ownership as the goal, then 1-2 years in advance of the starting date, especially if a return to the new dentist’s home geographic area is the desire, is the ideal time.
Where to begin the search starts with desired geographic location. Where in the country do you want to work (and live)? This desired location dictates the target areas as various resources are consulted to search for opportunities.
Associate opportunities can be located from multiple sources. There is no one “best” source, and the following are not listed in any particular order of importance or likelihood of success. As many sources as can be possibly be found should be considered.
Associate placement companies specialize in finding jobs for new dentists. These companies are used by all levels of practice owners from sole practioners 100+ practice groups to recruit associates. For the practice owner using the associate placement company, recruiting takes a lot of time and resources that they simply do not have. The associate placement company also provides additional consulting to facilitate the process, frequently providing sample agreements and facilitating additional areas to be considered. Some employment opportunities will subsequently offer ownership, and the placement company can also assist in this area.
Many dentists post their associate opportunities at local dental schools. In addition, some will use online job boards. Local dental supply companies, dental school opportunity postings, local dental society publications, the internet and DSO Recruiters all offer additional opportunities. In large metro areas, the local newspapers should also be reviewed for help-wanted ads.
Types of Employers
The dental business model has undergone major changes over the past 10 years. Historically, about 80 percent of practicing dentists operated their practices as sole proprietorships (or, for tax and legal reasons, as one dentist professional or service corporations or limited liability company). The remaining 20 percent of dentists practiced in partnerships or small or solo group practices, with 1-3 owners and/or 1-3 practice locations under one ownership group.
Historically, these practices were the only ones offering employment to the new dentist. These practices continue to offer employment opportunities for the new graduate. For solo dentists, or partners in the group practice setting seeking retirement, the intended goal for many of these associate opportunities is the eventual transfer of ownership to the associate, either as the sole owner or as a future partner.
Today, dental service organizations (DSOs) or dental management organizations (DMOs) with 20-500-plus practices, usually corporately owned and operated, have become a major employer of new dentists. Some of these organizations may eventually offer ownership, but for others, these positions offer employment only with no future ownership available. However, for those new graduates seeking experience or additional education and training, and immediate risk-free income, these opportunities provide an excellent vehicle.
The final and newest-developing group of dental organizations are what have been called mid-level group practices By definition, these are group practices with 3-20 practices typically owned by one or more dentists, or in some instances, new corporately owned group’s still adding practices to their existing group. These practices are also frequently looking for associates, and some will also offer future ownership/partnership.
The last significant group of employers are practices operated by local or federal government organizations, including clinics in otherwise underserved areas or clinics located in prisons. These practices typically offer employment only, but no ownership.
Critical Employment Agreement Elements
Compensation is, of course, the most important element of any associate position. The current typical range of compensation is 25-35 percent of the associate’s production or collections. For most associates, some level of minimum-guaranteed annual compensation is equally important to insure that the associate will have sufficient income to meet their personal expenses. The typical guarantee for general dentists is $60,000-$100,000, with a range of $100,000-$150,000 for specialists. The contract also contains a provision that says the associate will receive the greater of their guaranteed minimum or 25-35 percent, whichever is higher.
This type of compensation arrangement provides protection for both the employer and the associate. For the employer, this allows budgeting and a known minimum cost exposure. In addition, for both the employer and the associate, this provides an incentive for the associate to produce more than the minimum. And finally, for the associate, this provides an assurance that if they work hard, they will receive additional compensation from the receipts they produce on behalf of their employer.
The issue of who should pay the lab bills is part of the compensation discussions. Normally, there is some type of split as it relates to lab expenses. One common method utilized is a concept known as “Lab Off the Top.” Under this arrangement, the employer pays the lab bill, but the compensation formula requires that this lab bill is subtracted from the total production/collections generated by the associate before the compensation percentage is applied.
The following example explains how this calculation works. The net effect of this method is that the amount of the lab bill paid by the associate is equal to their compensation percentage, paid through a compensation reduction.
Associate Production/Collections $11,000
Employer Paid Lab Bill -$1,000
=Receipts Minus Lab$10,000
Associate Compensation %X 30%
=Compensation Due Associate $3,000
As it relates to additional fringe benefits for the associate, these are negotiated prior to the drafting of the final employment agreement being offered. The principle items that need to be addressed are who pays for malpractice insurance, continuing education expenses and medical insurance coverage.
Another question that is frequently asked is whether the associate should be an employee or an independent contractor. From the associate’s perspective, either classification is acceptable. However, the compensation percentage should be increased by 3 percent of production to cover the matching FICA and Medicare tax if the classification is independent contractor However, from the practice owner’s perspective, the associate should normally be classified as an employee. If the employer is audited by the IRS, they will usually determine that any independent contractor should have been classified as an employee, and if that happens, the employer will be subject to substantial interest and penalties for the entire period of the associateship because in the IRS’ view, the associate was miss-classified, delaying the payment of taxes due the IRS.
The final important component of an employment agreement is the restrictive covenant. A practice owner cannot afford to hire an associate for a 1-2-year period of time, only to have the associate leave the practice to establish a nearby competing practice. The risk to the employer relates to employer practice patient loss as a result of the patient base seen by the associate while employed following the associate to the new location. Not only would this result in a significant drop in the value of the employers practice, but it would also prevent the employer from selling the practice in the event near future retirement was the goal. This period is at least a for two years following the termination of employment, because banks will simply not provide the subsequent buyer with the necessary financing to obtain that practice until the seller’s receipts have stabilized.
If future ownership is an option, the other needed document is some type of a letter of intent (LOI). This LOI should include the future purchase price – or in the least a formula that will be used to determine the sale value – and the proposed sale date. If the parties cannot agree on the price at the start of the relationship, experience has shown there is little chance they can reach agreement at the time of sale. This LOI is non-binding, so the employer is not required to sell, and the buyer is not required to buy. The price, however, is locked in. The price is always the stumbling block at a later date, so this must be addressed at the start.
The biggest mistake a new dentist makes is not starting the process early enough. While there are an abundance of employment opportunities available, it takes time to locate the right or best opportunity. You should give yourself at least six months of time to search.
The desired type of opportunity should be based on the reasons the associate is seeking employment, i.e., income and experience, additional education and training, or possible future ownership. Careful planning and an early start will result in the best outcome.