One of the most important provisions of your dental contract is your salary and compensation. No matter how much you love dentistry, you likely work to pay your bills: student loans, housing, cost of living, and everything else.
Dental compensation models can be very complex, as they don’t always follow a straight annual or hourly salary.
During the offer and negotiation process, it can be easy to overlook all the details about pay models, deductions and other seemingly complicated terms. Yet understanding how and how much you’ll be paid as a dentist is essential!
Both employer and employee need to be very clear about what the compensation terms are. Plus, some employers may wish to incentivize certain behaviors through compensation, such as giving you a percentage of production or collections. And these subtleties can significantly impact your take-home pay!
Many dentists are paid a salary, while many also have a commission component of their pay.
Salary is the amount an employer pays based on a fixed monetary amount. It can be paid annually, monthly, weekly or per diem.
Commission is a compensation arrangement under which the amount of compensation is based on the employee-dentist’s production. The amount of the employee-dentist’s payout can be based, for example, on his/her gross billings or net collections. The calculation might even vary by whether the patient is a pre-existing patient or a patient brought to the practice by the dentist-employee. The contract should clearly describe upon which amount commission will be based.
Methods for calculating dental pay
- Straight Commission. The employee-dentist’s pay is a flat percentage of the agreed upon revenue generated, or the number of patients treated or procedures performed, by the employee-dentist (i.e., “commission-base”).
Qwerty will pay Adam 33% of his commission-base. Adam’s commission-base is the total amount billed for his work, which in this example has amounted to $30,000. Adam receives $10,000.
- Salary Plus. The employee-dentist’s pay is a combination of a salary plus a commission.
Qwerty will pay Adam $7,000 plus 10% of his commission-base. Adam’s commission-base is $30,000. Adam receives $7,000 plus $3,000 in commission for a total of $10,000.
The commission-base may be based on:
Production. The total amount billed for the work that an employee-dentist performs in a pay period.
The amount billed to Adam’s patients for his work during the pay period is $15,000. His production is $15,000.
Collection. The gross amount collected from an employee-dentist’s patients for work he/she performed in a pay period.
The value of bills presented to Adam’s patients for the pay period is $15,000, but 10 of his patients, each with a bill of $100, have not paid yet. Adam’s commission-base is $14,000.
Net profit. The amount collected on the dentist’s billings less any delineated expenses (which may be direct (such as lab fees) or indirect (such as overhead) in performing the work. Adam performs procedures on both Betty and Charlie. He runs lab work on Betty that costs $500. Charlie receives a 10% discount. He bills them each $5,000. His gross production is $10,000, but the practice incurred $500 in costs from Betty and $500 in a discount (deduction from the billing) for Charlie, for a total deduction of $1,000. Adam’s net production is $9,000.
Calculating your dental compensation
Here’s a simple formula to determine the level of production required for a practice that pays on collection to generate a target income.
First, make sure you know the collection-to-production ratio, or CP ratio. To calculate CP ratio, divide the amount collected for a service by the fee for that service. For example, if the fee for a prophy is $10, and the practice ultimately receives $9, the CP ratio is 90%.
In this example, the associate wants to earn $84,000 (before taxes) for the year at a practice where the compensation rate is 33% and the CP radio is 98%.
Production = Desired income (Compensation rate x CP ratio)
Production = $84,000 (0.33 x 0.98)
Production = $84,000 ÷ (0.33 x 0.98)
Production = $259,740
Based on this example, the associate will need to produce $259,740 in order to earn $84,000, this associate will need to produce $259,740.
Do your homework before you join a practice and be sure to ask about patient assignment. In discussing compensation based on collections, how patients are assigned is just as important as the CP ratio for the practice. If the owner dentist treats all fee-for-service patients and you treat all the managed care patients, the owner’s CP ratio may be 98% while yours is 80%. If patients are assigned randomly, both you and the owner dentist are more likely to have the same CP ratio.
Additional considerations for dental compensation
The compensation model should be understandable.
It is strongly recommended that the employer and employee each run at least a few sample numbers through the compensation model to be certain that each can use the formula to calculate how much the employee will earn based on his/her work during a given pay period.
While pay is important, it is not the only incentive employers provide to employees. The various benefits offered should be carefully considered, as:
- An offer in which the pay elements (salary, commission, etc.) are lower, may provide a higher level of financial compensation through a superior benefits package
- An individual employee may place greater emphasis on certain benefits (such as vacation) based on his/her personal opinions about the work-life balance
Read more about the types of benefits that may be available to dental associates.
Also check out:
How are dentists compensated? Insights for dental students
Compensation for dentists: helpful facts
Reward, recognition and compensation models that work [on demand webinar]
Managing performance: staff compensation models
Learn more about negotiating and understanding dental employment agreements and contracts. Check out the full list of clauses and topics and download the ebook, which is full of sample language, examples and in-depth explanations.