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Go-to Strategies for Creating a Successful Associate Employment Agreement

The dental practice landscape continues to shift in the wake of the pandemic. Many practice owners who never considered selling their practice or retiring are rethinking their options. Others are more open to hiring associates due to health concerns about practicing or the desire for more free time. When many practices reopened in 2021, they found a pent-up demand for services – and a shortage of staff.

This may be an opportune time to explore associate opportunities. Associateships can be a fantastic means to start your dental career, enhance your clinical skills, learn how practices operate, and potentially be mentored in a real practice setting – all while being paid for performing dentistry.

Preparing for an associateship

Associate opportunities exist in all types of practices, including:

  • Individual dentists (sole proprietors)
  • Partnerships (1-3 locations)
  • Small group networks (3-20 locations)
  • Corporate-owned and operated (30-500+ locations)
  • Government-owned clinics in underserved communities (Typically, these offer employment only with no ownership opportunities but may offer desirable benefits.)

Before reaching out to practices, consider your long-term goals as well as your compensation needs. Carefully prepare a personal projected budget to determine what you’ll need for compensation. For a general ballpark, you can determine this amount by adding up your monthly personal debt payments and your anticipated monthly living expenses, once you begin working in your new position. Divide the total of your monthly expenses by 0.75 to get an estimated income before taxes. (Based on a  25% tax rate.  Change your divisor according to your personal tax rate.  If your tax rate is 30%, change the divisor to 0.70, and so on.  This number is used to determine your Federal tax only.  You need to make allowance for any state or local income tax as well.)

In addition to thinking through compensation, consider what your priorities are, so when you do reach out to practices, you can have a productive discussion about what you’re seeking. For example, are you looking to eventually purchase the practice? If not, are you looking to establish roots in the area and eventually start your own practice? If it’s the latter, consider this carefully, since most associate employment agreements contain a non-compete clause. Also, think about what you’d like out of the experience. Is mentorship important to you? Are you looking to work as an associate for a period of time before having the opportunity to buy? Often transitions like this are easier to achieve. Once you’re working in the practice, you’ll build a relationship with the staff and patients, plus you’ll understand the practice policies and the day-to-day business.

Careful planning and an early start will result in the best outcome in your search. If you’re seeking an associate position, 6-12 months before you’re available is the ideal time to start looking. If you’re interested in buying into a practice or buying a practice outright, start a year or two before.

Once you start exploring opportunities, have open discussions with the practice owner. Talk about their philosophies and their vision for the future of the practice. Ask what they’re looking to gain from the associate, what qualities they’re looking for in an associate, and what their responsibilities will be. Perhaps they wish to focus on a specific type of dentistry like placing implants or pediatric dentistry and are looking for an associate to provide the other dentistry.  . Some practice owners may want their associate to take on management responsibilities while others may want to grow the practice or reduce their own hours as a top priority.

If they’re planning to retire, discuss their timing and exit strategy. If they’re just looking to spend less time in the practice and you’re looking for someone who’ll invest time in helping you learn the practice, that’s a disconnect you need to know about.

Evaluating practices

It’s crucial to find out if the practice can support a new associate or associates. Typically, this would mean having a minimum of 1,800 active patients, with at least 25 or more new patients per month. This should be actual patients, not just patient charts.  Ideally, the practice should be grossing about a million dollars or more. If not, the owner needs a solid marketing plan to grow the practice, since adding hours to the schedule isn’t a guarantee to bring in new patients.

Considering the employment offer

Typical compensation structures are based on earning a percentage of the dollars you produce or earning a percentage of the dollars collected on the dentistry you provide. Some practices pay a draw, while others offer a guaranteed salary. The salary will vary depending on region but typically a general dentist can expect between $120,000-150,000 per year while a specialist could receive $150,000-175,000 per year. With a draw, the associate is responsible for covering their salary through production or collections. Because of this, it can take six to eight months on the job to expect to start earning additional money paid by your percentage. If the practice is new or newly purchased, it’s typical for the associate to earn a guaranteed income since there is no existing patient base.

In addition to understanding the salary, there are many other factors to consider.  . Will you earn a percentage of the dollars you produce, dollars collected on the dentistry you provide, or a percentage of the collectable production (i.e., the money the practice can actually collect as part of a PPO plan, for example)? The current range of compensation is 25-35% of the associate’s production, collectable production, or collections. Normally, a percentage of collections is paid at a little higher rate than the percentage of straight production or collectible production.

Some practices may choose to offer a tiered compensation plan. These are not as common as having a straight percentage, but they are offered occasionally. The advantage of these plans is that they give the associate an added incentive to produce more each month.

Sample Tiered Compensation Plan:

Below is an example of how tiered compensation can work:

Employee’s Collectable Production Level Compensation
$0-$30,000/month $9,000/month guaranteed salary
$30,001-$40,000/month 31% of the collectable production up to $40,000.
$40,001-$50,000/month 32% of the collectable production up to $50,000.
$50,001+/month 33% of all collectable production

Look at the full compensation package, not just your salary. For example, if it’s a new practice are you expected to establish your own patient base? Also, be sure you understand fee for service, PPO, and Medicaid programs, since reimbursement amounts can impact your earnings greatly. Are other benefits being offered? Some practices provide attractive benefits, such as student loan repayment and health insurance but look at the fine print. What is the dollar amount for loan repayment based on? For health insurance, is it paid entirely by the practice? Does it cover your entire family? Also, what deductions, such as lab fees, will come out of your compensation? Are lab fees deducted from your gross collections or production or net collections or production?

Beyond compensation, additional questions to ask include:

  • How many hygienists are in the practice and are associates expected to perform hygiene?
  • What is the duration of the contract? One to two years is typical.
  • If the practice has more than one office, are they looking for an associate to travel between offices?
  • If the owner is planning to work less, do they plan to overlap with the new associate? How will they share resources, such as operatories and equipment?
  • What are the terms of the non-compete agreement? These commonly do not begin until after six months of the associate’s employment and run for one to two years after the associate leaves the practice.
  • Will the associate be an employee or an independent contractor? As an independent contractor, it’s expected that your compensation will be somewhat higher since you’ll be responsible for additional taxes that would typically be covered by the employer.
  • If the owner is open to selling, will they offer the first right of refusal to the new associate?

Before signing any employment agreement, have it reviewed by an attorney to make sure to protect your interests. If you and the owner are signing an agreement that involves the potential sale of the practice to you in the future, work closely with a financial team, including an accountant and attorney who specialize in working with dental practices and potentially a practice management consultant. They can advise you about valuation information, terms, contracts, and financing. All are essential details to work out in conjunction with your employment agreement.

Conclusion

This is an exciting time to consider associateship as a first career move and potentially a way to transition into a business owner. Doing so is a complex decision, so build an advisory team to support you and learn everything you can about the business of dentistry beforehand. Have an open dialogue with practice owners about your needs and interests. This will help you choose the best opportunity and set the stage for your future success.