The Private Practice Owner's Guide to Fair Compensation

As a business owner, your life would be a whole lot easier if there were set-in-stone rules for determining what’s fair when it comes to employee compensation. Unfortunately, there are not—which is why it’s so important to create compensation packages that not only fall within or exceed local averages, but also feel good for your practice and your employees. After all, everyone in your practice is working toward the same goals: a thriving business and satisfied patients. And having happy, motivated, and fairly compensated employees across your practice can have an enormous impact on your company’s success—just ask WebPT President Heidi Jannenga, who attributes much of WebPT’s prosperity to hiring great people and creating a culture that brings out their best. With that in mind, here are five things every private practice owner should consider when determining fair compensation (peppered with plenty of Jannenga’s own words of wisdom):

1. Do your research.

Use your resources.

There are plenty of places to look online as you’re investigating appropriate compensation for each role in your practice—websites such as Randstad, PayScale, and Indeed as well as our very own salary guides (the physical therapist salary guide, the occupational therapy salary guide, and the speech-language pathologist salary guide). All of these resources take both experience and geographic location into consideration when formulating average salaries. These should give you great foundational knowledge about what’s fair for each role in your location. Beyond that, Jannenga recommends querying fellow private practice owners and directors in your region to see what they’re paying. “This will help you understand competitive going rates,” she said.

Maintain detailed job descriptions.

As this American Medical Association article points out, it’s also a good idea to have a well-researched, well-written, and up-to-date job description in place for every position, as this will help you better understand the necessary qualifications, experience, and responsibilities associated with each role. Ron Seifert, executive compensation practice leader for the Hay Group healthcare practice, says that practice managers and directors "really need to think about the roles and responsibilities of the various team members. Not all jobs are designed and created equal. Not every person delivers or meets expectations in the same way.” And all this factors into determining fair compensation.

2. Consider the benefits.

Don’t leave out health insurance and PTO.

Fair compensation includes more than a good salary; it also includes benefits such as health insurance, paid time off (PTO), and continuing education opportunities. While Jannenga knows that the benefits you’re able to offer are obviously dependent on what you can afford as a company, she says health care coverage and vacation time are two “must-haves.” That’s why, from the very beginning, she made it a point to offer health insurance and three weeks of PTO to all WebPT employees. “We listened to what was important to our employees,” she said. “Benefits represent your culture; they’re a statement of how much you value your employees and what you stand for as a company.”

Add in some perks.

Offering competitive benefits is important—and according to Jannenga, that’s especially true for millennials, who often seek out employment opportunities that come with extra perks. If your practice has the financial capacity to do so, consider offering benefits that go beyond the basics. For example, WebPT has a casual work environment and ping pong tables for inter-departmental battles. The company also provides team-building opportunities, hosts company-wide social events, and offers pet insurance to go along with its dog-friendly office policy. While that may not be practical for a therapy clinic, there are other possibilities. For example, as a clinic director, Jannenga paid for her staff’s APTA dues and continuing education units—and that was in addition to providing standard health, dental, vision, life, and disability insurance. “To me, a good benefit package satisfies the needs of your employees and puts your company at a competitive advantage to other similar companies in your market,” Jannenga said.

3. Create a range.

Set levels based on experience, education, and cultural fit.

To those responsible for determining fair compensation rates, Jannenga recommends using the averages garnered from research and factoring in the value of the available benefits to create a salary range for each job role. That way, there’s consistency for everyone who’s performing a similar job function. Then, when you’re putting together an offer for a potential new hire, you can use his or her experience level, education, and cultural fit to determine an appropriate number within the range. Jannenga always factors in the growth potential for each new-hire. “It’s difficult to start someone at the top of the salary band—especially if you expect them to stay with the company for a long period of time,” she said. “That’s why it’s important to discuss career goals and growth plans prior to making an initial offer.”

Decide how you’ll handle transparency.

In recent years, there’s been a lot of buzz about salary transparency—specifically, whether it’s a good idea to make employee salary numbers transparent. While companies like Buffer have successfully made this level of transparency a part of their culture, Jannenga believes that salary ranges and bonus programs—not individual salaries—should be transparent. This ensures that everyone understands the company’s goals and values without divulging information that some employees would prefer to keep confidential.

4. Calculate an initial offer.

Screen for the basics first—then factor in emotional intelligence.

So, what factors does Jannenga use when calculating where within a salary range a particular candidate’s initial offer should fall? “It greatly depends on the position and job role,” she said. “For example, managerial and leadership roles should be vetted differently than staff roles. I like to screen first for the basics—for a physical therapist, that would include education, clinical knowledge, continuing education credits, licensure, work history, and specialization.” From there, Jannenga focuses on emotional intelligence: “How do they think? How do they go about solving problems? How well do they communicate? How well do they mesh with the current team? And how well does the team accept them?” She believes these last two questions are crucial, which is why she recommends performing team interviews. “All factors are weighed more or less equally,” Jannenga said. “However, I always push for cultural fit to be the highest priority.”

Consider sharing risks and rewards.

There also may be opportunities to share the risk and reward of the company’s success via a performance-aligned bonus structure. “When a candidate is hungry and truly wants to join you and your company, he or she usually won’t hesitate to make this work,” she said. “I believe that it also shows confidence in the candidate’s skills. Plus, it can help with budgeting and remaining within the pre-set salary range, because rewards for a job well done come in the form of bonuses.” Furthermore, if things don’t end up working out with the new hire, Jannenga says this arrangement leaves the company better off than it would have been had the employee received a higher starting salary. “We don’t make many bad hires at WebPT, but when it happens, the financial burden is big,” she said. “Bringing someone on at the top of the salary range who doesn’t work out can be very painful.” Still, in this post, compliance expert Tom Ambury urges private practice owners who are considering implementing a pay-for-performance (PFP) compensation program to do their homework: “Pay-for-performance programs can be extremely complicated, and if you offer such a program to your employees, I definitely recommend that you have the program reviewed by an experienced health law attorney,” he writes. “That said, the pay-for-performance trend is quickly catching on across the entire healthcare industry, and implementing some type of PFP structure in your practice could put you ahead of the curve.” To learn more about the legality of performance-based employee incentive programs in rehab therapy practices, read Ambury’s full article here.

5. Be ready to negotiate.

Expect a counteroffer.

Whatever number you land on for your initial offer, be ready to negotiate, because you may very well receive a counteroffer from the candidate. Jannenga believes that the objective criteria you established when creating the salary range will help you know your limits—including what you’re willing to negotiate on and what you’re not—so you can immediately identify requests that are simply unrealistic for your practice to accept.

Remember that negotiation is a good thing.

According to Jannenga, you can tell a lot about a candidate based on his or her approach to negotiation, including “how much research they’re willing to do on the market, how they approach asking for what they want, and how confident they are about what they bring to table.” And Jannenga is the first to admit that she pushes people to negotiate—especially women, who can be reticent to ask for more even when they deserve it. “And salary is not the only thing that is negotiable,” Jannenga said. “Sometimes benefits can be worth even more—things such as continuing education, licensure coverage, and extended PTO. But if you don’t ask, you’ll never know what’s possible.”

6. Ensure you’re being above board.

Know the new FLSA rules.

"According to CEDR, on November 22, 2016, a US District Court judge issued a preliminary injunction that prevents the Department of Labor from implementing this change. At least for the time being, the current minimum salary requirement for exempt employees will remain at $23,660."

Read the court's decision in full.

The Fair Labor Standards Act (FLSA) recently updated its overtime exemption rules. As of December 1, 2016, all employees who have exempt status—and therefore aren’t eligible to receive overtime pay—must make at least $47,476 a year ($913/week). That’s an increase of almost $24,000 from the current $23,660-a-year threshold. So, what does that mean for you? Before December of this year, you should take a look at your payroll and make sure that all new non-exempt positions are budgeted with this update in mind. Furthermore, you must be sure that every current employee with exempt status is earning at least this amount. If you find someone who isn’t, you have two options: you can either increase his or her pay to meet this mark or change his or her status. As a note, this number cannot be prorated. So, if you have a part-time front-office person or medical biller who you’ve deemed to be exempt, you still must pay him or her at least this amount of money, regardless of how many hours that person works for you. Or, you must to switch the person to non-exempt status, which requires hour-tracking and overtime pay when applicable.

Figure out which—if any—employee statuses you should change.

To help you determine which route will work out better for you, CEDR HR Solutions created a calculator that you can access here. However, this decision should be based on more than just the numbers. In a webinar CEDR hosted earlier this month, the company’s co-founder and CEO Paul Edwards, along with senior counsel Ali Edwards, suggested considering the practical applications of changing someone’s status. Not only will you need to communicate the change to the employee in a clear and emphatic way, but you also must ensure everything is documented (you can download CEDR’s sample status change-letter here) as well as determine how you’ll minimize the cost of overtime. According to the CEDR team, you cannot tell your employees to get the same amount of work done in less time, which means you may need to reassign responsibilities and/or hire new staff members. You also must set strict guidelines that prohibit working off-the-clock.

Beware of the DOL.

According to CEDR’s Edwards and Edwards, the Department of Labor (DOL)—which is the arm of the federal government that oversees the FLSA—is on the hunt for companies that are improperly classifying their employees, and the healthcare industry is in the DOL crosshairs. After all, healthcare providers rarely learn these rules in school—which means that as far as the DOL is concerned, it’ll be open season. That means now is the perfect time to perform an internal audit to ensure that you’re adhering to all federal and state employee regulations (in the case of conflicting regulations, employers are required to adhere to the ones that favor the employee). Remember, an internal audit will be a lot less painful than one performed by the DOL. Apparently, they can be worse than those performed by the IRS.

No matter what compensation package you land on initially, it’s important to schedule regular reviews to celebrate successes, discuss opportunities for improvement, set professional and personal goals, and recalibrate salary and benefit packages to align with employee growth and market inflation. This will ensure you’re continually compensating your team members for all of their hard work in a way that’s fair for everyone involved.

How do you calculate fair compensation in your practice? We’d love to hear your methods in the comment section below.