Exploring Compensation Options For A New Employee
- Volume 17 - Issue 6 - June 2004
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Be Cognizant Of The Potential Employee’s Expectations
When making this decision, it is also important to be aware of the potential employee’s expectations. New employees coming out of a training program will not have a salary or health insurance but will usually have debt from school loans and need to be paid a reasonable amount for their services. They are also taking a risk. They may have moved their entire family to a new location and signed an agreement that requires them to move again if it does not work out between their employer and themselves.
A prospective hire may have the following thought process when seeking employment: “In the past year, the last year of my residency, I was paid between $35,000 to $50,000. On this salary, I was barely able to pay the rent, my car payments, take my spouse out to dinner occasionally and keep up with my loans. I have just completed a difficult surgical residency and now have good marketable skills. I should be able to find a position that will pay me a nice salary and perhaps get a bonus for hard work.”
These are reasonable expectations.
A Guide To Sample Contract Language On Compensation
As an illustrative example, the following may be written in the compensation section of the Employment Agreement.
“Employee will be paid a base salary of sixty five thousand dollars ($65,000) for the first year of the contract. In addition to the base salary, Employee will be paid a bonus based on the following formula.
“At the end of Employee’s first year (12 months), the collections of the Employee will be totaled. This total will be after patient refunds and any adjustments. This number is Total Collections.
“At the end of Employee’s first year, his or her direct expenses (salary, FICA, health insurance, malpractice, moving expense, and CME paid by the practice) will be totaled. This number is Total Expenses.
“In any contract year in which the Total Collections exceed twice the Total Expenses, Employee shall receive a bonus equal to twenty-five percent (25%) of the collections that exceed twice the Total Expenses up to three times the Total Expenses. Employee shall receive forty percent (40%) of those collections that exceed three times the Total Expenses.”
Case Example: What Do The Numbers Look Like
After The Second Year?
Due to the lag time in collecting claims submitted for the employee’s services, few if any employees reach the bonus threshold in the first contract year. In the second year, if the employee’s expenses include $80,000 for salary, $4,000 for FICA, $20,000 for health insurance and malpractice insurance and $500 for CME, then the employee’s total expenses would be $104,500. Now assume the new podiatrist’s collections are $350,000.
To see how this would be broken down in a compensation package, see the table, “Case Example: Compensation Projections For A New DPM,” below.
In this example, the employer receives $204,775 after all expenses and the employee receives $145,225 in his second year. This is a win-win situation. The employer has been paid back for his or her initial investment and for the risk he or she took in hiring the employee. The employee has received a reasonable total compensation in his or her second year and understands the connection between working hard and compensation.
Looking for the right employee is difficult and arriving at a suitable compensation package for both parties can be tough. However, it’s important to arrive at a compensation arrangement that is agreeable for both parties.
When the employer and potential employee put themselves in the other party’s shoes and there is flexibility on both sides, there is a good chance that they will be able to craft an acceptable contract.
Mr. Peltz is the president of Peltz Practice Management and Consulting Services. He can be reached at (845) 279-0226 (phone), (845) 279-4705 (fax) or via e-mail at email@example.com.
Editor’s Note: This article is designed to give educational and illustrative information only and not to give legal advice.