Payroll Expenses

 How much should you pay your staff? What is fair? What benefits should you offer? When should you offer benefits?

These and many more are questions we often ask ourselves. We wonder if the problem in our practice is that we are paying our staff too much or if we are not paying them enough?

Well, if I could summarize the entire issue into one word, I would say that the pay should be "fair." Unfortunately, we translate this to be fair to our staff. But the fact is, it has to be fair to your business too!

It has to be justifiable, and you should be able to explain that what you pay is fair to an unbiased person.

Think of your business as a partnership or a public company; can you honestly and economically justify what you pay your staff and be considered a smart businessman by economists? If the answer is yes, you are probably doing OK. But the majority of dentists overpay their staff and cannot reasonably explain their pay structure.

In the same manner we buy things for our office based on impulse, we quickly give raises or make decisions about benefits without going through a well thought out process. As soon as we have two $10,000 cases in a week, we decide to give everyone in the office a raise!

To be fair to everybody and to have a controlled and sensible payroll, we must have a system in place that is well planned. Of course, individual employees are different, but there are two important things that are almost always true.

1. There is no direct relation between a raise and performance improvement, if it is done in that order. In other words, if you give someone a raise expecting that her/his performance is going to improve, you can almost be sure that it won't, especially in the long run. This kind of raise structure is called bribery!
2. Now, the same thing done in reverse order (raise to praise a good staff member) is termed a reward; ask any psychologist and they will tell you that rewards and positive reinforcement always work better that bribing.
3. Don't base your staff salary on their needs; base it on their performance and their value to your office. You are not responsible for others' financial problems, which are the result of bad decision-making throughout many years! You are, on the other hand, responsible for managing a healthy business.

Payroll expenses make up to 50% of the overhead costs. This is why saving on payroll is the most important factor in overall overhead management.

In some areas of dentistry the payroll is out of control (see Hygienists). But in other areas there is a vast range, and it seems difficult to find a reasonable rate for these positions. To get a better idea what is fair and what is outrageous in this range, let's evaluate each position separately. We divide them to two main categories:

1. Management (office manager and treatment coordinator)
2. Supporting positions (assistants, front office)

1- Management

Does your office manager really do everything an office manager is supposed to do? In a lot of offices, somebody is called designated office manager only because the doctor thinks that someone has to have that title, even if he is not really managing the office! Even worse is when he/she is paid like an office manager!

You should not appoint someone as an office manager unless they are performing the management tasks. My idea has always been to share the responsibility and tell the person who wants to be the manager this: "You are going to be a manager when everyone comes to you to ask their questions; at that time everybody will respect you as the most knowledgeable person in the office and as someone who can trouble shoot. That is when you will be our office manager."

Bringing someone from outside, paying them $20 an hour and putting them in charge of everyone without first proving themselves is not only a waste of money, but is a discouragement to your loyal staff. This is often the root of office problems and animosity among the staff.

The idea of having someone to make all the decisions for us is really nice, but if your office has less than two or three staff members, I would be extremely careful before naming someone an office manager.

Even more important is their pay. I can not tell you how many people I have had in the office manager position who asked for salaries in the range of $20 to $30 an hour, then after a few weeks not only did not bring anything to the table but were a source of many problems.

The only thing most of them knew very well was 'labor laws!' And I don't mean insurance coverage or knowledge you expect them to have. The more experienced they were, the more they knew how to take control of the office to their advantage and how to rebel the staff against me.

I am not saying everyone is like this, but I believe we should be careful about a few issues. First of all, stop giving new people a title; instead, bring in people who are willing to learn, people who are there to impress and are willing to adapt themselves to your plans and systems. You don't want to hire a boss for yourself!

Second of all never, and I mean never, give up your authority. It is all too common in dentistry that office managers make all the decisions and the doctor pays all the costs! "Too" smart of an office manager can take control of your office and your staff in a way that puts you in a weak position where you can become threatened by the entire staff. So many of our "nice" doctors are in this position today and it is time that we realize who is the boss, who is the most important person in our offices, and who pays the bills. Stop being naive, and afraid of losing this person or that individual.

Whenever a staff member of my office has left, I have always ended up being better off. Yes, it is tough for a few weeks, but when the new people are in position you realize how much you have given up for such a long time!

Those of you who had those staff members who were with you for 10 to 20 years and then ended up suing you or doing worse things to your practice understand what I am talking about. Most of you have ended up with a new office manager with only a year of experience who has been much better than what you had for years, and best of all at a lower cost!

 The point is not to give up looking. Don't hire too fast. Don't commit too early.

Going back to payroll and savings, this is how I do it.

I never pay a flat, high base salary. As an example, let's say a very good office manager in a $500,000 a year office gets $20 an hour. If I want to hire an office manager for my office with that production, this would be my offer:

"I will pay you $15 an hour as base and pay you a bonus of 5% of collection after we hit $30,000 collection every month."

Your goal for a $500,000 office should be around $45,000 a month. If you reach this goal, the bonus of your office manager is going to be $750, which assuming he/she worked 160 hours (full time) is equal to $20 an hour flat salary.

Here are the main differences between paying a flat rate as opposed to a base plus bonus structure:

• He/she is going to be on their toes to get to the goal.
   
• He/she is motivated to exceed your monthly goal because as soon as you pass $30,000, he knows 5% of all the money that comes in is his.
   
• You have a wonderful control on the percentage of overhead that goes toward payroll. If you don't make your $45,000 you pay a lower rate of payroll, and if you make more than that, you pay more but it is not a permanent raise under pressure. The logic is simple and fair: "You guys get a raise when I get one!" Why should they get a raise and you get a pay cut just because they have worked for you another extra year?! They should get a raise only if they make you more money.
   
• By placing the goal low at $30,000, you keep them excited every month. An office with $45,000 monthly income should hit the $30,000 line around the 20th of the month, which gives your staff an extra boost at the end of the month.
   
• Notice I said "collection" and not "production." This has three benefits:
  1- They are more motivated to collect.
  2- They are more motivated to follow up on insurance payments and to do the insurance estimates and billing more accurately.
  3- You pay out of what is already in your bank account, not a number in your software!
  4- Most importantly, paying a percentage of production is illegal in a lot of states because it fits into the definition of "profit sharing," whereas paying out of collection can be structured to fall within legal definitions. This is because you are paying your staff more to motivate them to collect the money you have already made (going after insurance companies or collecting patients' fees) and not to sell more. (You should consult an attorney about the exact definitions and learn how to structure a base plus bonus salary system while staying within legal boundaries).

Only offer this incentive to people who understand money (See Hiring and Firing) If someone doesn't understand simple math and does not get excited by money, don't offer a base and bonus system. Such a person should not be in either of these two key positions: 1-Office manager or 2- Treatment coordinator.

Again, it is important to check state, local and federal laws about profit sharing to make sure you can structure your bonus the way I described. If you can't, you can still have a bonus system with the same idea and basis as long as you structure it to comply with the regulations and laws.

2- Supporting Positions

Payroll for other positions in your office is easier to figure out. Due to the limit of what an assistant can do for you, you must be extra careful in giving raises only based on their time spent with you.

You must have a salary cap for your back office. If you make more money with the exact same staff in a year (let's say a 5% increase) and you are 100% sure it is going to be the same next year, then you can give your staff a maximum of a 5% raise.

Any other form of raise is literally a pay cut for you! How is it that you (the owner) after working for an additional year deserve a pay cut and everyone else deserves a pay raise?!! Remember, it has to be fair to both sides.

By following the above rules you can keep your payroll under control. Keep in mind that payroll and rent make up almost half of your entire cost of running a practice. Rent does not usually increase suddenly, so payroll should not either. If you have a great system in place, you will not be worried about replacing your staff with new staff members, if necessary (see Back Office systems).

Another way to save on payroll is by controlling the number of staff members you have. A rule of thumb is that for every staff member you have in the office you should collect at least $15,000 a month. So, if you have an office with four fulltime staff members your collection should be around $60,000 a month.

If this is not the case, you have too many staff members. If you don't feel this in your office and even feel under-staffed, it means there is a problem with your Systems or with the efficiency of your staff. 

Here are few recommendations when it comes to giving raises:

• Never answer right away when a staff member asks for more; tell him/her you will let him know by a certain time, then evaluate everything about him/her and your office before answering.
   
• One important test is this; if this person who is asking for a raise leaves your office, you should ask yourself if you are better off in the long run or not. Would the practice lose someone who is difficult to replace or could anyone with a few weeks of training do his/her job?

Sometimes when a less than perfect staff member asks for a raise, it gives you a good opportunity to fire them without really firing them! You can explain how you cannot afford to keep them and you don't feel it is fair to them to stay with you when they can be paid more somewhere else!