Navigating through the money minefield

May 1, 2000
Which benefits should you give and how much should you pay your staff members? It can be an explosive issue for an office, so here are four steps to help avoid potential peril in a practice.

Which benefits should you give and how much should you pay your staff members? It can be an explosive issue for an office, so here are four steps to help avoid potential peril in a practice.

Charles Blair, DDS, and

John McGill, MBA, CPA, JD

Now is the time to review staff pay and benefits, and make proper adjustments. Determining the optimum mix of pay and benefits for each staff member, and tailoring that increase to meet his or her needs, can provide increased value to your employees on a cost-effective basis to the practice. Here`s our recommended four-step process to achieve these goals.

Communicating total compensation

More than half of all practices now provide retirement-plan contributions of 6 percent or more for staff members. Worse yet, many doctors providing this above-average level of retirement benefits fail to properly communicate this fact, resulting in little or no appreciation of what`s being paid for the staff`s benefit.

That`s why we recommend giving a "Total Pay Statement" to each staff member annually, along with the W-2 form that is due on or before Jan. 31. This comprehensive statement helps to communicate to each staff member the true total-compensation package, including salaries, bonuses, fringe benefits, payroll taxes, and retirement-plan contributions paid to him or her during the year. Moreover, it provides an easy method to calculate total compensation on an hourly basis, so doctors can quickly compare pay packages between and among employees with differing work schedules. The "Total Pay Statement" also provides the basis for annual employee performance appraisals and salary reviews, which we recommend that doctors hold during the month of February for all employees.

Martin L. "Bud" Schulman, a well-respected practice-management consultant, recommends that doctors include lines for only those benefits actually provided by the practice. As a result, staff members will not be inquisitive or upset in the event the practice does not provide a certain benefit.

Pay raises for 2000

The next step in this process is to determine the appropriate percentage increase in total compensation for the staff as a whole. For 2000, we are recommending a staff increase of 4 percent on average. For example, a practice with total staff compensation costs of $200,000 in 1999 would thus budget $8,000 (4 percent of $200,000) for increases this year, to be allocated between and among all employees, based on merit. We recognize that this continues our several-year trend of recommending "above-average" (in comparison with inflation) compensation increases, yet we think there are good reasons for it.

Most practices with which we have consulted reported double-digit growth in practice gross collections and profitability in 1998. For all but a few, the expectation for 2000 is for continued growth at the same or higher rate. As a result, these rapidly growing practices need to provide above-average pay increases in order to attract and maintain the key employees necessary to maintain that growth.

Moreover, these high growth rates are being maintained in a period of unprecedented tightness in the dental labor marketplace. This tight labor market is nationwide, and most acute for hygienists and well-trained clinical assistants, while a less severe shortage exists for highly qualified front-desk personnel.

We recommend that these pay increases be made retroactive to Feb. 1, following the staff-review process. Doctors achieve much greater cost control (and less pain) by conducting staff reviews and compensation adjustments at the same time for all staff members, rather than periodically throughout the year.

Individualize pay raises

We continue to advise against giving the same percentage compensation increase to each staff member across the board. While many practices use this simplistic strategy, it can have devastating effects. Providing the same percentage pay increase for all staff members rewards mediocre and poorly performing employees, while failing to properly compensate the highly skilled employees who are providing the greatest benefit to your practice. As a result, this strategy usually results in retaining the poor performers while the practice "superstars" take higher-paying jobs elsewhere.

Our recommended strategy is to allocate the total dollar increase in staff-compensation costs for the year between and among individual staff members based on merit. While an above-average employee may receive a 6 percent increase for 2000, an average performer may receive 4 percent, and a below-average performer may receive 0-2 percent, or simply get to retain his or her job for another year.

Optimizing individual raises

The specific amount of the compensation increase should be discussed with each staff member individually, as part of his or her annual performance appraisal and review process. The doctor then should discuss with the staff member the form of the compensation increase, which will prove most beneficial to the practice and staff member alike.

For example, many staffers place a relatively low value on retirement-plan contributions made in excess of the industry average of 3-5 percent of pay. Most staffers would simply prefer to have those extra dollars paid to them as additional salary or in some other form of highly valued fringe benefit. As a result, we are seeing a significant number of doctors revising their current retirement plans in order to "free up" dollars that can be provided to staff members on a more cost-effective basis.

Once properly educated, most staff members would prefer to have their increase paid to them in the form of additional fringe benefits, rather than salary. The employee without federal or state income or payroll taxes can receive most fringe benefits (medical insurance, medical reimbursement, childcare reimbursement, etc.). This arrangement also benefits the practice, since there are no matching payroll taxes, nor matching retirement-plan contributions required, on amounts paid to staff members in the form of tax-free fringe benefits. Finally, through including staff members in these fringe-benefit programs, incorporated (regular C) doctors can also participate in these nondiscriminatory fringe-benefit programs, thereby obtaining additional tax-free income for themselves and their families.

Properly educating staff members about their current level of compensation, fringe benefits, and retirement-plan contributions is the initial step in the process. Rewarding employees on a merit basis, and making sure that the increases are provided in the most favorable manner to the employees, will assure that your employees will perceive the maximum value from this year`s increase, maintaining or improving job satisfaction on a cost-effective basis to the practice. As a result, doctors should be able to retain the high-quality staff necessary to maintain above-average growth in practice gross collections and profitability.

For more information about this article, contact the authors at (704) 424-9780. Biography of the authors appear on page 8. Dr. Blair is a member of the American Academy of Dental Practice Administration.

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