Structuring The Agreement
When the time comes to hire an associate, it is very important to have a written employment contract. Terms will vary, of course, but having a written contract will protect both parties. From the practice’s perspective, it is important to consider both short-term and long-term goals. Depending on the practice owner’s goals, including equity incentives may make sense. Forming the employment relationship as an Equity Associate structure commits both the primary dentist and associate to a future transfer of partial or full ownership of the practice. That commitment requires the primary dentist and associate to have a mutual respect for one another and similar philosophy regarding patient treatment and practice management. There should be open and continuous communication. There is a number of ways to arrange the ownership transfer, but the contract must clearly define the terms and conditions of the transition, including the deferral period, which is the time between the effective date of the contract and the date of the buy-in or buy-out. The scope of responsibilities and roles of the primary dentist and associate during the deferral should be identified and the agreement should provide an exact formula for the price identified in the contract.
Compensation is another key term, one that should take into account competitive draws to qualified candidates as well as the budgetary concerns of the practice. For part-time associates, per diem rates are common; meanwhile full-time associates are compensated with a periodic salary. Compensation may be structured as a monthly draw, which is a monthly salary that is not guaranteed, but rather an advanced payment for future services rendered. The draw is then credited against a commission agreement. Compensation for “sweat equity” the associate contributes to the practice beyond production at the time of contract may also be addressed. If so, it should not be dollar for dollar because the excess production would not have been possible without the initial opportunity provided by the primary dentist. In addition, full-time associates may be compensated with fringe benefits, such as health insurance, continuing education classes, malpractice insurance coverage, dues and fees for associations and organization membership, and vacation and sick leave. It is important to note that the associate cannot take a personal deduction for the insurance, but the practice can. The contract should also include non-competition and non-solicitation clauses to protect both the practice owner and the associate.
In conclusion, there can be any number of reasons to bring on an associate. Clinical overload is certainly one of the most important. Regardless of the reason, though, a practice owner should consider his or her specific needs, goals and concerns and be sure to have a good, solid employment contract to use when the time comes. As far as clinical overload is concerned, please see our Clinical Overload Review Checklist for a helpful guide in analyzing whether your practice may need an associate doctor employee. Of course, please discuss any concerns you may have with your legal, accounting and other advisors.