Part 2:
Compensating Employees
It’s not the employer who pays the wages – he only handles the money. It is the product that pays the wages.
Henry Ford
Dental practitioners compete with each other when recruiting staff for the office. Genuinely excellent dental office personnel will often have several offices to choose from when looking for a new employment opportunity. Why would they choose one office over another? One reason may be the pay and benefits package. A new practitioner probably cannot pay the top‐dollar wage and benefit package that an established colleague or other business venture can. So a starting practitioner will face a dilemma: they do not have the immediate cash flow to pay for the best employees, yet they need the best employees to become profitable.
HOW TO SET STAFF COMPENSATION LEVELS
Usually, dental offices will pay the “going rate” for comparable employees in their area. The going rate is what most employers pay for similar positions with similar job requirements. This is determined by the technical skills or knowledge required, interpersonal abilities, and availability to work at certain times. There also may be legal or licensing requirements (such as a hygiene license or assisting certification) that limit the number of potential employees, driving up their cost to the practice owner. In the end, the supply and demand of the labor pool determine what practice owners pay employees. If hygienists in the area typically earn $45 per hour, then a practice owner will pay about $45 per hour for a hygienist. (There is a range around that average figure.) Various groups do periodic staff salary surveys, including the popular dental press and organized dental groups. These are good places for a practice owner to start when looking for comparable wage levels.
When thinking of “pay,” the practice owner needs to consider the total compensation package, composed of the hourly wage, legally required benefits, and any optional benefits offered. Wages and benefits are, to a certain extent, interchangeable. A wage of $20 per hour with no benefits may be comparable to a wage of $17 per hour with a health insurance plan. Every employee is different. They will value the balance between pay and benefits differently, according to their own needs. Benefits hold tax advantages for employees over straight pay. Many dental office employees would prefer part of their total pay to be in the form of benefits. However, many others, especially low‐paid employees, do not appreciate this and would rather have cash in hand. Benefits like salary help recruit, hire, and retain employees. However, some employees have a poor understanding of benefits. Often, they do not understand benefits’ actual value and view them as employee “rights” rather than forms of additional compensation. Any paid time off (holidays, vacation) is additional compensation and comes from office profit. Unpaid time off decreases office production. To bring these confusing ideas together, many dentists compute the total compensation for employees each year at wage adjustment time. An example total compensation sheet is shown in Box 26.5. Adding a staff member is a significant investment, but if they increase office collections more than they cost, the addition is a good investment.
STAFF PAY
Equity means fairness in the reward system. There are many reasons for promoting equity besides the altruistic desire to treat employees fairly. As a business, a dental practice competes with other businesses for the pool of labor in the community. Dentists compete with other dentists for the services of assistants, hygienists, and receptionists, and with the local bank and grocery store for the general labor pool. Although people work for many different reasons, one reason certainly is pay and benefits. Therefore, dental practices must pay competitive wages and benefits to hire and retain excellent employees.
The Fair Labor Standards Act (FLSA) governs many pay issues in the dental office. This is a federal law that is carried out at the state level, so some state‐to‐state variation exists in its implementation. Practice owners must check with the state’s Bureau of Labor Standards (or similar state organization) for the exact interpretation in their state.
HOURLY WAGE
Hourly employees earn an hourly wage. Their total pay is based on the number of hours they work multiplied by their hourly wage. Most dental office employees earn an hourly wage for their work.
To figure out total pay accurately, practice owners must have accurate information describing how many hours each employee worked for each day of the week. Either a written pay record (pay sheet) or a time clock accomplishes this legally. If a dental office uses a written record, the person needs to record “time in” and “time out” for each session (morning and afternoon). Simply recording eight hours is not adequate documentation. Also, many dental offices require each person to sign the timesheet or time card. This says that they agree it accurately describes the time they worked. Most office management computer systems have built‐in time clocks to help in recording hours worked. This also makes it easier to process payroll.
SALARY
Salaried employees earn a fixed amount (salary) regardless of their work time (given some limitations). Some practice owners prefer paying a salary for several reasons. Accounting is easier to calculate. Each pay period, the owner calculates how much Social Security tax, federal, state, and local (if any) income taxes, and voluntary employee contributions to withhold from each employee’s gross pay. Salaried employees make the same gross pay and therefore have the same amount withheld each pay period, making this function easier. Some practice owners erroneously believe that any salaried employee can work for an unlimited time. (In fact, only “exempt” employees can work overtime without additional pay.) On the downside, a salaried employee is paid for a whole week’s work, even if they work fewer hours.
COMMISSION
Dentists may pay specific staff a percentage of the work that they produce. This pay mechanism works for employees who control their own production, such as an associate dentist or hygienist. Most state labor laws require the business owner to pay non‐professional staff (such as assistants or receptionists) on a salary or wage basis. The typical range dentists pay their hygienists is 30–35% of their production. The dentist is still responsible for ensuring the quality of work in the office. Associates are often paid based on a percentage of production (or collections). The specific percentage varies across the United States as supply and demand dictate.
Paying a commission to a hygienist has some inherent problems. One is to decide which procedures should be in the hygienist’s base for commission. The periodic exam, for example, can only be done (in most states) by the dentist, so it should not be included. Radiographs, although taken by the hygienist (on the dentist’s equipment), must be interpreted by the dentist. Eliminating these procedures for compensation significantly decreases the hygienist’s compensation and can lead to dissatisfaction. Money may not motivate an employee to work harder. They may be working more for personal growth or social reasons. Tying their pay to production does not motivate these employees.
EXEMPT EMPLOYEES
Exempt employees are exempt from the wage and hour (overtime) laws. This means practice owners must pay non‐exempt employees overtime (generally, at a rate equal to 1.5 times their wage for any time they work more than 40 hours per week). Dentists may pay an employee a salary with no overtime (i.e. they are exempt employees) if they meet all three of these criteria:
- They regularly supervise two or more 40‐hour employees.
- Their salary is at least at a state‐determined level.
- They spend less than 20% of their time doing the same duties as those they supervise.
Professional employees are exempt as well. An associate dentist (and, in some states, a dental hygienist) is a professional employee and therefore exempt from overtime laws.
Given these restrictions, the only people who genuinely qualify as exempt salaried employees in a dental office are a dentist associate, a true office manager, and, in some states, a dental hygienist. Dentists may pay dental auxiliaries on a salary basis. However, auxiliaries are still non‐exempt employees. Because dentists must pay them overtime, putting them on a salary does not make much sense. (The dentist loses if they work more or fewer than 40 hours per week.) Wage and hour laws vary from state to state. They are also subject to change by regulators. Therefore, the practice owner should check with their state’s labor cabinet before setting up a compensation system.
OVERTIME PAY
The FLSA requires business owners to pay overtime to employees who work more than 40 hours a week. (Four states base their overtime on 8 hours per day instead of 40 hours per week.) Overtime pay is a minimum of “time and a half,” or 1.5 times each employee’s regular hourly wage for those hours worked more than 40 per week. Each workweek stands alone regarding overtime. That says the employer cannot accumulate multiple pay periods (one week the employee worked 42 hours, the next week 38 hours) and not pay overtime. Business owners also may not legally substitute compensatory time (i.e. letting people take equivalent time off) for overtime pay, even if the employee agrees.
Determining the “base hourly wage rate” can be a bit tricky. What is (or is not) included in the regular wage is important because it determines overtime pay (Box 26.6). The regular pay includes all money received for employment, except reimbursed expenses, gifts, discretionary bonuses, and paid time off. A bonus is “discretionary” if it is not given in exchange for action by the employee. So, dentists should include a production bonus at the regular rate but not a Christmas bonus (unless it is based on production for the year). If a dentist has questions concerning overtime pay, they should check with their accountant about what they must include and exclude.
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