Attracting and retaining quality team members is the top concern for most practices these days. With inflation rising, and job resignations at an all-time high, you’ll need to change your compensation strategy for 2022. 

There’s an unprecedented staffing shortage in the U.S., with over 10 million jobs available as the unemployment rate has dropped from 6.7% a year ago to only 4.2% now. Most practices have already felt the pain, having to work hard to recruit new employees. Even if your practice hasn’t yet been affected, you can’t afford to do nothing, since many of your current team members may already be considering a job change.

While there are many non-financial incentives that can promote loyalty to your practice, higher compensation is the primary driver during this Great Resignation. However, before making any changes to your current compensation package, you need to make sure your employees understand the total compensation you’re currently providing for them.

Use Our Total Pay Statement to Communicate Total Compensation 

Your practice provides a much greater economic benefit to your employees than just the wages shown on their W-2. Accordingly, you need to communicate the total value of wages, bonuses, fringe benefits, retirement plan contributions, COVID-19 reimbursements, and payroll taxes paid for each team member using our Total Pay Statement. Be sure to distribute this statement to each team member, along with their W-2, on or before the January 31, 2022 deadline.

Motivating Employees for Growth in 2022

Next, you’ll need to review your current pay and benefit structure to make sure they’re competitive with other practices in your area. If they’re below average, you’ll need to provide the necessary increases to bring your pay and benefits up to local standards. Then make a further adjustment to the extent necessary to increase wages by 3-4% on average above your 2021 wages paid. This will help conform your practice with the national pay increase averages for 2022. 

Since you’re paying more, you should expect more and reward greater productivity in exchange. Accordingly, we recommend offering a bonus plan to motivate your team for growth as explained below. This strategy recognizes that it takes everyone working together as a team to bring about growth through increased new patient calls, converting those calls into exams, and having those patients accept treatment. Our recommended bonus plan is simple, but highly effective. If the practice grows, the doctor and team will make even more. If not, they don’t.

Specifically, we recommend that your practice collections for the first six months of 2022 (through June 30) be multiplied by the industry average salary percentage for your segment of dentistry as follows: general dentistry 25%; pediatric dentistry 22%; orthodontics 20%; periodontics 20%; oral surgery 16%; and endodontics 16%. From the industry average salary amount that’s determined, subtract out the actual salaries and wages paid for the first six months of 2022. The excess represents the bonus pool available to the team, from which bonus amounts should be paid in July of 2022. Then simply repeat the process in December of 2022, using the year-to-date collections and employee salaries paid, including previous bonuses. 

For example, if your general dental practice collects $1,000,000 during the first six months of 2022, the industry average salary amount would be $250,000 ($1,000,000 x .25). If employee salaries actually paid during the six-month period were $225,000, there would be $25,000 available for bonuses.

Allocate Bonuses Based on Merit 

We recommend against distributing the bonus pool in equal amounts to all team members. This rewards mediocre and poorly performing employees, while penalizing your star performers. If you follow this misguided approach, over time your star performers will likely leave for higher paying jobs elsewhere.

Rather, the total bonus amount should be allocated unequally, based upon each team member’s relative contribution to your practice’s success (merit). Establish individual performance goals for each employee and tie their bonus to their success in reaching those goals.

Customize Bonus Payouts to Maximize Value 

To create the highest perceived value for their bonus, ask your employees in what form they would like to receive it. Some may elect to defer all or part of it into their 401(k) as a tax-deductible salary deferral, while others may have part of it paid as a tax-deductible contribution into their Health Savings Account (HSA). If your practice does not provide health insurance coverage, you can offer medical reimbursement through a Health Reimbursement Account (HRA) and use their bonus to fund it. 

Or your employees may elect to receive their bonus in the form of tax-free benefits such as child care reimbursement, uniform allowance, auto allowance, or home rental. This approach provides an added advantage to the practice since there are no matching payroll taxes or retirement plan contributions on these payments. Meanwhile, the employee avoids income and payroll taxes on bonus amounts paid in the form of benefits.

Finding out what your employees value and providing their bonus in that form will help motivate them to help your practice grow. And that’s the fundamental purpose for maintaining a bonus program!