Whether you’re looking for your first associateship or making a career move later on, knowing how you will be compensated is crucial. Understanding the contract terms that determine your potential earnings will help you compare employment offers and negotiate with greater confidence.
Dental compensation models can be surprisingly complex, since dentists do not always receive a straight annual salary or an hourly amount for their work. As a candidate considering what an employer has to offer, you will need a solid understanding of the contract terms that govern pay, deductions and other factors that determine your total earnings.
Common compensation models for dentists
Here are examples of compensation models commonly used in the dental industry and how they determine what you will earn.
1. Straight salary. Under this arrangement, you will earn a fixed amount for your services. The amount equals your gross (before-tax) pay, which your contract may specify as an annual, monthly or per-diem (daily) amount.
2. Salary-plus. In addition to your base salary, this formula pays you a commission based on some measure of your productivity. For example, you may be offered a monthly salary of $7,000 plus 10% of your monthly commission base, which might equal an estimated $30,000 in gross billings (also known as production). With this model, you would earn $7,000 per month plus an estimated $3,000 in commissions, for a possible monthly total of $10,000.
3. Straight commission. This pay arrangement is based solely on the fees or revenues generated from your work. As such, it uses your total production, your adjusted (or billable) production or the net amount the practice actually receives from your billings (known as collections). Under this agreement, you are compensated based strictly on some percentage of the agreed upon productivity metric. See below for a detailed example of how to determine compensation under a commission-based agreement.
4. Net profit. This model compensates you on total billings for services you provide, less any expenses as specified in your contract. Expenses may be direct – for example, lab fees and provider discounts – or indirect, such as overhead.
Let’s say you perform procedures on two patients, Madison and Charles. The fees for both patients add up to $5,000, so total production equals $10,000.
Lab fees for Madison’s treatment come in at $500 while Charles receives a 10% discount of $500. In this example, $1,000 in expenses will be deducted from the $10,000 production total, and your compensation will equal $9,000.
When pay is based on productivity
For associates whose compensation will reflect production, the formula for calculating pay can be complicated. This is a common scenario for dentists working in private practice or in DSOs. Here are a few key terms you will need to know.
Total production: This is the total amount the office will bill for a procedure, as determined by their established fee schedule.
Adjusted (billable) production: The amount the office is contractually allowed to collect for the procedure, typically determined by third-party payors.
Collections: The net amount the office actually collects for the procedure.
Collection percentage: This is a formula – Collections/Production x 100. (You will need to know if the collection percentage used in your situation will be based on production or adjusted production.)
Questions that clarify how your compensation will be figured
If the practice you’re working for accepts many discounted insurance plans (for example, PPOs or DMOs), total production will probably be different from the billable production. The variance may be small, but if this difference is substantial, you will want to ask relevant questions that help you understand exactly how this will affect your paycheck. For example, you might ask:
- Will newer associates see all PPO or DMO patients, while the owner (and more senior dentists, if any) see mainly fee-for-service patients?
- What are the reimbursement rates for the different plans?
- Does the practice have difficulty collecting from any of these plans?
- Is there an opportunity to renegotiate reimbursement rates?
- Is the practice open to eliminating any lower-paying plans?
A real-life scenario shows how compensation may work
This concrete example can be helpful in seeing how the various factors might affect your take-home pay for a specific procedure. In this case, let’s say it’s a crown for a patient named Jackie.
The practice’s fee schedule for this procedure is $1,500 (production). The patient’s PPO allows a maximum of $1,000 for a crown, therefore the practice contractually cannot collect the difference from the patient, so the billable (or adjusted) production equals $1,000.
Per the plan, the payor remits $500 and the practice bills Jackie for $500, who ultimately pays $450. The practice writes off the final $50, so the total collection for this treatment was $950.
- Practice’s fee for a crown (total production)
- PPO maximum reimbursement (adjusted / billable production)
- Practice collects from insurance (collection)
- Practice collects from patient (collection)
- Practice writes off
- Total production
- Billable production
- Total collection
- Collection percentage (based on billable production)
- Collection percentage (based on total production)
In this case, your pay might be based on a percentage of total production, billable production or collection. Notice how significantly these numbers vary – and imagine how they can affect your paycheck!
Estimating your income under a commission-based agreement
Knowing the overall level of production needed to hit your target earnings is helpful in evaluating any job offer. Note that any change in the variables shown will affect your income.
Consider the above example assuming there are 3 associates in the office.
Associate #1 is paid 35% of collections: $950 * 35% = $227.50
Associate #2 is paid 35% of adjusted production: $1000* 35% = $350.00
Associate #3 is paid 30% of production: $1500 * 30% = $450.00
As you can see, understanding these terms is essential when you are evaluating employment offers. Also consider how office policies, especially collection rate and reliance on 3rd party payors, can affect your overall take-home pay.
More tips for evaluating a proposed compensation package
When you are considering joining a new employer or practice, make sure the compensation model is clear and understandable (and explained in writing). It’s a good idea for you to run a few sample scenarios with your prospective employer as a way of exploring how much you might earn, based on estimated work performed in a given pay period.
Pay is obviously very important, but keep in mind that it’s not the only incentive an employer may offer you. For example, a practice might offer:
- Total pay that is lower, but overall compensation that is more generous, based on valuable benefits such as health insurance, retirement plans and other features.
- Employment terms that support a comfortable lifestyle – for example, more vacation time, flexible work hours, a gym membership and other features that improve your quality of life.
More resources for you
Explore reward, recognition and compensation models for dentists in this on-demand webinar.
Learn more about reading and negotiating contracts in “Dentist Employment Agreements: A Guide to Key Legal Provisions,” the ADA’s definitive resource for dentists.
For more insights on dentist compensation, visit our library of ADA Career Services articles.