April 4, 2024
In preparing this column in previous issues, I’ve typically selected topics deemed relevant to our readership and enlisted subject matter experts to address pertinent questions. With recent inquiries to the journal regarding dental employment contracts, I have opted to delve into this topic myself.
As the course director for the practice management curriculum at UMKC School of Dentistry, I regularly review and advise students and recent grads on employment contracts. Having reviewed hundreds of such contracts over the past few years, I aim to offer an objective analysis of compensation packages and contractual obligations found in most dental employment contracts post-COVID.
To be clear, I’m not a legal expert and do not claim to provide legal advice or interpretation. Rather, I hope to share insights gleaned from my considerable experience reviewing employment contracts over recent years in my teaching position. My goal is to furnish relevant information for both potential dental employees and employers alike. Drawing from my familiarity with such contracts, I’ve identified seven key categories that are often paramount to both parties when seeking employment or looking to hire someone. These categories comprise the length (or term) of the contract, compensation, benefits, laboratory costs/supplies, covenant not-to-compete, mentoring/continuing education and termination.
Among the various career paths available to dentists, private practice, Dental Service Organizations (DSOs) and public/community health clinics emerge as the most common. Priorities in employment contract negotiations differ across these entities. Generally, the private sector offers the most negotiable agreements, while DSOs tend to offer less flexibility, and community health clinics fall somewhere in between. The private sector is composed of dental practices owned by a single doctor or multiple doctors, while DSOs range from major corporate entities (e.g. Pacific Dental, Aspen, Heartland, Comfort, etc.) to smaller private DSOs managed and often worked in by practicing dentists. Community health centers typically operate as public entities such as FQHCs, community health clinics or government-sponsored medical facilities.
In this analysis, I have consciously restrained my personal opinions on what constitutes fair compensation and employment terms. Instead, I aim to present factual data gathered from reviewing recent contracts. This article serves to aid both dentists seeking employment and employers seeking qualified applicants. When I choose to offer an opinion, I will clearly label it as such.
Let’s investigate each of these seven components that are commonly found in dental employment contracts providing insights into employer offerings and employee expectations in today’s changing market (click the table image below for a summary).
Contract Term
Many employment contracts are structured as at-will arrangements, allowing either party to terminate employment at any time. However, some contracts stipulate a specific term of employment which is generally followed by renewal options. Having been a dental employer for over three decades, I can certainly see the value in not having an associate leave on short notice. While longer terms may offer stability for employers, new dentists often prefer more flexibility. Contract terms have traditionally been for one year with ongoing annual renewals if both parties agreed. DSOs and public health clinics increasingly offer multi-year agreements with longer notice required prior to termination. This is driven by the difficulty in finding quality doctor replacements and the current trend for associates to move from position to position instead of staying in a practice for extended periods.
Compensation
Compensation packages typically include a combination of salary/wages and additional tangible benefits. We’ll look at these components individually. Dental associates may receive either guaranteed salaries, commission-based pay or a blend of both.
Guaranteed salaries are generally limited to the early months of employment in the private sector and DSOs (to get a new associate started) and are the standard method of paying a dentist in public health facilities. Salaries for new graduates range from about $120,000 to more than $225,000 annually to start in various health centers. If the salary is truly guaranteed and not simply a draw allowance that is later adjusted based on collections or production percentages, it is often expressed as a per diem, or daily guaranteed rate ($600 to $900 for an eight-hour day or prorated for partial days is typical). In some private practices, a daily rate is guaranteed for an initial period of 3-6 months and then transitions to the commonly used calculation of a fixed or tiered percentage of collections or production.
Compensation will always be specifically defined in the employment agreement and is usually the most problematic section for both parties. DSOs often spell out complex and difficult-to-replicate formulas to determine periodic associate payments. Such equations are not deliberate attempts to deceive anyone, but it would be notably more palatable if one’s paycheck were easier to confirm. The private sector normally provides simpler formulas based on a certain percentage of the associate’s direct production and/or eventual collections. I’d estimate that about 25 percent of offers are based on net production and the remainder on associate collections. A range of between 28-35 percent of either adjusted production or collections is what I see most often. A caveat to contracts based on collections is that the office collecting the production should be able to confirm a collection ratio of 98 percent or better. Otherwise, far too much production is left on the table, in my opinion. Another personal bias is that the agreement should specifically identify what is included in an associate’s production column. Procedures such as periodic exams done with hygiene patients and radiographs ordered by the associate that their assistant takes and the doctor interprets should also be added to the doctor’s production totals.
Benefits
Benefits are additional perks (i.e. anything of value) beyond the employee’s salary/wages. In today’s market, benefits often begin with a financial bonus at signing, often referred to as a retention bonus or moving allowance. Such sign-on bonuses are found more commonly with DSOs and public health facilities. They can range from about $5,000 to perhaps as high as $50,000 in facilities that are having a difficult time recruiting a new dentist. DSOs frequently offer periodic productivity bonuses based on overall office profitability and/or patient satisfaction scores. DSOs and many public health clinics include a full benefit package in addition to their wage/salary calculations. The most common benefits I see are health insurance, disability insurance, retirement plan, continuing education, dental license, DEA license, association dues, paid time off and/or uniforms/scrubs. In private dental practices, the number/amount of benefits is generally inversely proportional to the percentage of production/collections offered to an associate. The higher the payment percentage, the fewer the additional benefits. Few private sector practices can match the benefit packages of DSOs and public health centers. To compensate for this, the potential for future equity ownership or full buy-out of the private practice is often included in the contract.
Laboratory Costs/Supplies
DSOs and all public health clinics commonly cover the lab costs for their employees (assuming they use the preferred labs). The private sector varies in this regard. Determining what, if any, lab fees and implant/restorative parts the employee will be responsible for allows one to calculate a rough estimate of their net production/collection percentage. Because the real cost of lab fees and restorative parts frequently comprises between six to 10 percent (or more) of a GP provider’s production, any portion of that expense required of the employee will need to be deducted from their stated production/collections percentage. For example, if a contract agrees to pay an associate 33 percent of collections less their lab fees, the true net earnings would likely be reduced to around 30 percent of collections.
Covenant Not-To-Compete
Non-compete clauses are almost universal in private practices, common with DSOs, and found increasingly in public health facilities. A non-compete provision stipulates that a departing employee will agree not to practice for a certain time frame within a specified geographic area. As an aside, non-compete restrictions are frowned upon in many states and there is a sustained effort to nullify these covenants altogether nationwide. But they are still enforceable, if reasonable, in most states. My observation has been that a 5-mile radius from the primary office for two years might be considered reasonable.
As a former employer myself, I can readily see and rationalize such restrictions. But in reality, most established practices do not lose many patients when a short-tenured dental associate moves on and resumes working in the restricted area. I believe it is reasonable to allow a new associate to work in the practice for 6 months before enforcing any non-competes. This provides what amounts to a test-drive for the employee before restrictions are in place. That being said, non-competes are usually more important to employers than to employees, unless the employee desires to remain in the immediate area following termination from their existing practice.
Mentoring/Continuing Education
New dental graduates often seek mentorship and expanded continuing education opportunities to enhance their skills. Current licensing requirements, fewer patients, decreased clinical graduation requirements and unexpected events like the recent pandemic, have all contributed to new grads having less experience in a growing world of dental knowledge. Consequently, most potential associates, at least initially, are looking for hands-on mentoring by a senior dentist and expanded continuing education. There are many examples of common dental procedures in which newer graduates from most dental schools have had little practical experience performing on live patients. Procedures such as molar endo, milled crowns, implants, cosmetic procedures and clear aligners have been completed on few or no live patients prior to graduation. To compensate for this, many newer employees will require guidance and instruction on procedures that might be commonly diagnosed in the employer’s practice. Having a reliable practice mentor today is a higher priority than perhaps in previous generations. It also provides an opportunity for the practice to ensure that required protocols and office standards are being adhered to.
Most DSOs offer practice models that place a more experienced senior doctor and a newer grad together in the same facility to accomplish such mentoring requests and to ensure proficiency in modern dental procedures. Public health centers often follow a similar model. The private sector varies in its approach. Some private practices have doctors who love to teach and mentor new dentists and others place new grads in locations by themselves with little internal coaching. A balance is needed to accommodate both employee and employer needs. Most DSOs and community health clinics provide either in-house or quality external continuing education courses to fill the gaps in knowledge for new employees. The private sector is finding it necessary to provide similar ongoing training to attract the strongest applicants. Increasing an employee’s skill set often benefits employee and employer alike.
Termination
Almost all employment contracts clearly spell out how an employee can terminate or be terminated. In private sector contracts, a more frequently encountered condition is a penalty, usually described as “liquidated damages,” for an employee’s failure to provide so many days’ notice before leaving the practice. The rationale is simple: If an associate doctor elects to terminate the employment agreement, a certain number of days of advance notice is necessary to allow the practice to find a suitable associate replacement. For each day less than the agreed-upon number, the employee would agree to pay the practice a stated dollar amount to compensate them for the cost of leaving early. As an example, if the stated penalty is $800 a day and the employee terminates 60 days prior to the agreed 120-day advance notice, they would owe the practice $800 X 60, or $48,000 in liquidated damages. But because there are any number of scenarios one could imagine in which an employee would have no direct control over having to terminate early (e.g. family emergency, medical issues, pandemic), it might be reasonable to exclude these types of events from the liquidated damages provision. Another situation involves the handling of employee accounts receivable if they are paid on collections as most private practice contracts stipulate. In the most efficient private practices, most outstanding account balances are collected within 90 days of the service being rendered. If the employee fulfills the termination requirements, the practice should consider collecting any accounts receivable for at least 90 days post-termination and remitting that amount to the departed employee under the agreed-upon collection formula.
In conclusion, there is no one-size-fits-all approach to dental employment contracts. There are only choices. Both employees and employers have a wide array of individual preferences. The most successful and long-lasting dental associate hirings are generally predicated on three criteria: 1) thorough due diligence of the contract by the employee and reasonable negotiations agreed to; 2) positive interpersonal dynamics on both sides about the people involved and the overall office environment; and, 3) transparent and ongoing communication of expectations and responsibilities as the relationship matures. When both the employee and employer can articulate what is most important to them about the employment relationship, the chances of a mutually beneficial and long-lasting professional relationship are usually enhanced.
Dr. Thein is a periodontist and currently Associate Professor and course director of the dental practice management curriculum at UMKC School of Dentistry. Contact him at theind@umkc.edu.
