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Employee Pay, the No Benefit Hourly Rate

By Robert Doty, D.D.S.

I am sure this has never happened to you at staff evaluation time! Just imagine this odd happening, everyone wants a pay raise! I have been through this scenario many times in my 21 years of practice and no matter how you handle this chore it is not fun for Dr. or staff. I would like to offer some tips that have made my life easier and more pleasant.

Deciding on a fair compensation package is hard enough! One of the constant problems that I had to deal with was the staff not really understanding what their compensation package was truly worth. In other words, they didn't comprehend what my actual costs were and what the benefits were worth to them. I found my self, every year, working out complex calculations quantifying how much various benefits were worth per hour and explaining this to my staff individually. As I was doing the explaining their body language told me I had lost them and their thoughts were focused on take home pay. They didn't understand before tax, after tax, etc. etc. they only understood the per hour number that was used to calculate their pay.

A recent story will illustrate my point well. I had a very good employee come to me explaining that she was going to leave our office and work for a dentist in an adjacent town. I asked her why? She told me that she was very happy in our office but couldn't pass up the increased pay she would receive in the new office. I asked her about the pay offered and benefits. I took the information home and studied the numbers. At the time we had several benefits, other than straight pay she received, bonus, profit sharing plan, vacation days, sick time, holiday pay, and dental work free minus lab bills.

I don't recall the exact numbers but her hourly rate at my office was something like $10 per hour. The rate at the new office was $11.35 per hour. What she didn't realize or consider was the difference in benefits between the two offices. At the new office they had few benefits and being a new employee she would not qualify for even these for several years. My package of benefits was actually worth $2.75 per hour so her real pay from my office was $12.75 per hour versus $11.35 per hour in the new office. WOW! She thought she was getting a pay raise when actually she was getting a demotion of $1.40 per hour. Incredible, you say? I had to spend about 1/2hour of my time explaining this to her until she understood the facts of the matter. She stayed! This experience taught me an important lesson. The average staff person doesn't really understand the true value of their benefits. In the case of retirement plans they don't even consider that as real money. In the case of bonus plans they forget the first quarter bonus of $400 when the third quarter is slow and they get $20. They don't understand participating in the risk reaps benefits and there are upside and downside risks---they only want it one way (don't we all!). They don't understand the hourly value of vacation, sick days, and dental work. They really don't have a clue about before tax benefits saving them 15-28% on the dollar.

To put it simply, I became tired of explaining these things over and over, year after year. to justify my hourly wage rates. We froze the retirement plan (with the new law changes it was not in my interest anymore anyway and they would rather have the money in their pocket). I calculated the value on an hourly basis minus the extra tax cost to me for employer payroll taxes and added this to their hourly rate. Instead of keeping track of vacation and sick days (a very complicated and burdensome chore, even with a computer-- everyone's memory is very selective and inaccurate, resulting in constant explanations and review of records. For 12 employees this becomes a real pain in the--) I calculated what these were worth and added them to their hourly rate. I calculated what holiday pay was worth hourly and added this to their base pay. We only kept the medical benefit for those few employees that needed the plan and we still provide free dentistry. We did keep the bonus plan.

The results? A lot less figuring for me and a much better understanding of their actual earnings by my staff. The simpler the system, the better! A word about the bonus: We kept that feature to move the staff's thinking away from deserved raises based on the CPI. We are trying to move their minds to an understanding of reward based on productivity, excellent care, and marketing. Take a look at the bonus article I wrote a while back for more information on our plan. The bonus plan builds in raises based on how the entire office performs. Raise discussions focus on how we can improve the office to increase productivity not on arbitrary numbers.

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