We’ve discussed hiring contractors or employees for your practice. Now we are delving into the world of how to pay them–while remembering to keep profit as the #1 priority.
How do you compensate your employees? Some employers skim over this important decision and end up paying way too much. You’d be wise to thoughtfully consider how to pay your therapists and not just default to what happens in the moment. It is worth it to “run the numbers” to see what is going to be best for the practice and the employee.
Think: What will have the least administrative burden for me?
Commission or Percentage compensation is most commonly used in insurance-heavy practices. This structure allows you to pay employees based on what is collected. A very common practice is to have a "split fee" where the group practice keeps a certain percentage of the fees collected. This arrangement can be done in a number of ways. A 50/50 split is very common (the practitioner gets 50% and the group gets 50%). But it can vary from a 40/60 split to an 80/20 split. The upside is that if the practice reimbursement is low, the therapist pay is also lower. The downside? If the reimbursement or rate increases, your expenses increase proportionally.
Here’s another drawback: If your reimbursement rate increases, your clinicians get a raise. Wait, that’s great news! Except…they don’t feel like they got a raise. To a therapist getting paid a percentage, a “true raise” is a percentage increase. You can see how, over time, this might not be to your advantage.
Flat fees are most common in direct pay/private practices. With this structure you pay employees based on their billable hours with a regular hourly pay or salary. The benefit here is that your team always knows what to expect from their paycheck. They can count on how much money they will make based on how many hours they work. On the employer end this structure is simple to manage. However, if a reimbursement is low your expense is not reduced.
A flat fee or amount per session is a straightforward way to manage payment on the employer end; however, it can mean that employees aren’t motivated to work in other capacities in the practice. In other words, you’ll need a plan for who will handle the administrative tasks.
In a less common structure, commission to practice, the practice provides new clients and administrative support but the clinician collects their own co-pays and does their own billing. Appointments are tracked through the practice EHR and the clinician is billed a fee at the end of the month to cover overhead + some profit. In this case, since the clinician is paying the practice, they would issue a 1099 to the practice at the end of the year.
Paying a salary is the simplest way to pay a therapist since you're always paying the same amount. It's the least common compensation structure because there is much more risk on the employer than the employee. If the therapist doesn't have a full schedule, you still have to pay them! Other than simplicity, the biggest advantage is that you'll usually get a set number of hours from your salaried employee. If their hours are not filled with clinical you could get some much needed help with other administrative tasks like marketing, hiring, etc.
Something else to consider: Will you pay your therapists when service is rendered or when the practice receives payment? This seemingly small decision can have a large effect on cash flow, especially when a new therapist joins the team. Create a written policy so that you can really think it through and keep expectations clear. For example, let’s say you decide to pay your clinicians every other week. If Jane (a new clinician) sees a client on the first day of the month, you may end up having to pay Jane before you even receive the insurance reimbursement. If you have plenty of reserves in the bank, there’s no need to worry–but if you don’t… gulp. You don’t want to be in a situation where Jane doesn’t know when she’ll actually get paid. Every practice is different, so don’t let what your friend/colleague/high school sweetheart does influence the way you run your practice. Trust that you know your own practice better than anyone. Consider where most of your profit comes from (private pay, insurance) as you consider how to send your money back out (to your employees). Then make sure you choose a compensation option that gives you the most freedom to spend time doing what you enjoy in your practice–whether that is administrative work, marketing, or working with clients.
Keep in mind that employment law varies from state to state. It's always a good idea to consult with a local employment attorney to make sure the structure you are considering works in your state.
If you would benefit from additional support with structuring your compensation, feel free to schedule a consultation with us at Green Oak Accounting! We would be happy to answer any of your hiring/compensation questions.
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit https://www.greenoakaccounting.com/our-specialized-services-for-therap