Paying Therapists 101

(Updated 10/21/24)

One of the questions our team gets most often is “How should I pay my clinicians?” 

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.

Let’s dive into some of the common options when you’re hiring employees. [If you’re thinking about hiring contractors, check out this blog post instead.]

Commission or Percentage compensation is most commonly used in insurance-heavy practices. This structure allows you to pay employees based on what is collected. It’s typical 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, where the practitioner gets 50% and the group practice gets 50%. But it can vary from a 40/60 split to an 80/20 split (not that we’d ever recommend an 80/20 split). The upside is that if the practice reimbursement is low, the cost to pay the therapist is also lower. The downside? If the reimbursement or rate increases, your expenses increase proportionally, so there isn’t ever an opportunity to get ahead.

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 often a percentage increase. You can see how, over time, this might not quickly erode your profit margin.

Paying a flat fee or amount per session is most common in cash pay and private pay practices, but gaining popularity with insurance practices as well. With this structure you pay employees a flat rate for the session and its related activities like note time, scheduling and coordination of care. The benefit here is that your team always knows what to expect from their paycheck because the calculation is so simple. For example: 20 sessions at $65/session = $1300. They can count on how much money they will make based on how many clinical hours they work. On the employer end this structure is simple to manage. However, if a reimbursement is low your expense is not reduced. 

Check out our free webinar: Cracking the Clinician Compensation Code, where we share some common compensation mistakes to avoid, alongside tips for hiring profitably. 

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 most cases, you’ll offer an administrative rate to clinicians for team meetings, mandatory training, and other time commitments outside of their clinical work. This compensation model can be a little nerve-wracking if there is a big variation between insurance panel reimbursements. You’ll have to calculate a flat fee that makes sense for all of your reimbursement rates, which typically means you’ll calculate based on your average fee per session across the practice. 

Paying an hourly rate is another common way to compensate your clinical team. You’ll typically offer both a clinical rate alongside an administrative rate, and your team members will need to track all hours worked. While this method is straightforward, it does come with a few pitfalls. 1. Clinicians are rarely excited about tracking their time and 2. Even if you budget for a certain number of administrative hours for each team member, if a clinician works more than the allotted time you’ll still have to pay them. 

Last, 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 their full salary! 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 work you could get some much needed help with other administrative tasks like marketing, hiring, etc. It’s important to note that paying a salary is the compensation model that has the most risk to the practice. If your team member is not meeting their clinical expectations, your practice will likely lose money. You’ll have to be willing to coach your clinicians early and often to keep a full caseload, or paying a salary could tank your entire practice.

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. 

Pro Tip: Keep it simple. Your compensation model should make it clear to your team how and how much they will get paid, and how they can make more money. We also recommend that you consider the administrative burden of the compensation structure you are considering. Is the structure scalable? Will it take you hours or days to run payroll? If so, go back to the drawing board and simplify. 

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 is in compliance with your state and local laws.

Check out our free webinar: Cracking the Clinician Compensation Code, where we share some common compensation mistakes to avoid, alongside tips for hiring profitably. 

If you would benefit from additional support with structuring your compensation, feel free to schedule a consultation with us at GreenOak Accounting! 

---

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