Small Business Tax Policy

Compensating Hygienists: Daily Rate vs Commission

The age old debate in the dental profession is how to compensate hygienist in way that promotes productivity while keeping cost in line with cash flow.

The age-old debate in the dental profession is how to compensate hygienists in a way that promotes productivity, while keeping cost in line with cash flow. Essentially, there are three ways to compensate dental hygienists: 1) hourly or daily rate, 2) purely commission, and 3) a combination of a base pay and commission. Choosing between the three can be complicated, but choosing correctly will boost productivity, reduce cost, and increase the bottom line. This article will outline the three compensation methods and the pros and cons associated with each.

1) Daily/Hourly Rate

The easiest way to compensate a dental hygienist is by paying a flat hourly or daily rate. This keeps cost consistent throughout the year, and makes paying hygienist simple and efficient. Hygienists know exactly how much they are getting paid and the practice can easily project annual payroll cost.

However, production is not always even throughout the year which causes uneven cash flow. This can cause problems when the schedule is particularly light yet payroll cost remains the same. There is also no incentive for hygienists to be productive throughout the day if their pay is not tied to key revenue metrics.

Ultimately, a flat daily or hourly rate works great for smaller practices with consistent cash inflows and outflows. This is the simplest method and keeps administrative cost low.

2) Commission Based Pay

Paying hygienist purely on commission is the most efficient and leanest way to run a practice. It matches production to payroll cost and smooths out monthly cash flow. This gives a direct incentive for hygienists to be more productive and increase the number of patients seen in a single day.

There are typically two ways to structure commission for dental hygienists: collection or production.

Collection, the most cash flow sensitive option, ties commission to actual cash collected. This means hygienists will only get paid when cash is actually received for services rendered.

This option is the most beneficial for the practice but most hygienists are hesitant because commissions are delayed and vary with actual amounts collected.¬†Collections are also out of the hygienist’s control and if the practice has poor collection rates then good hygienists will be tempted to leave.

Commission tied to production is more popular with hygienists because it matches pay ¬†directly with actual work performed. Hygienists don’t particularly care about collection rates but want to be paid based on the amount of patients they see in a particular day. This is the least beneficial option for the practice because certain accounts will be late or delinquent, yet the commission will have already been paid.

3) Combination of the Two

One of the more popular options that works great for both the practice and the hygienist is a combination of a flat daily/hourly rate and commission tied to production or collections. This ensures the practice can give incentives to hygienists while evening out cash flows.

The most efficient compensation method is a combination of everything described above. Hygienists will be paid a flat hourly or daily rate but will also be paid commission on production over a specified amount. Average commissions typically range from about 20% to 30% of production in excess of desired goals. For example, if the daily production goal is $1,000 and the hygienist manages to exceed this goal by $100, then they will be paid a commission of $20 to $30.

Payroll can be further adjusted to match collections by reflecting adjustments in production to subsequent reductions in commissions. If that additional $100 in production yields only $90 in collections then future commissions will be reduced by $2 to $3 (commission rate x uncollected production).

Summary

Changing the way hygienists get paid can have long-lasting consequences on the bottom line. Through proper structuring of compensation packages, dental hygienists will be more productive while keeping cost in line with production targets.

Proper planning with a business consultant specializing in the dental industry will ensure proper execution of compensation packages while optimizing cash flow management. For more information, contact your trusted advisor.

Jeremias Ramos is a CPA working at a nationally recognized full-service accounting, tax, and consulting firm with offices conveniently located throughout the Northeast. Jeremias specializes in tax and business consulting with focus areas in real estate, professional service providers, medical practitioners, and eCommerce businesses.

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