Creating a Winning Compensation Program written by Jeff Russell, Author of Secrets to a Successful Practice & Executive Director of the IAPAM
You should have a budget and a clear idea of what you are going to pay for each role in your practice. It’s important that you stick to this range; you don’t want to overpay or underpay. Getting this right is important. I like to slightly overpay the current market average in my area for each role. I want to be the leading provider, not the lowest quality provider, so paying a bit more sets the tone of the quality I expect.
Remember, when you are hiring nurses, you are not competing with the local hospital; you are competing with other private practices. The benefits of working for you include no shift-work, no nights, no evenings, no Sundays, and most Saturday’s off.
If you are not sure what the local compensation rate is in your area for estheticians, you should contact a nearby esthetician school or contact other local spas. For nurses, you may contact other private practices. Also, be aware, some people are just overpaid, and regardless of their experience, they are not candidates for you based on this fact alone. I’ve had nurses that were paid hospital rates at private clinics apply for jobs at my practice. Unfortunately, they have priced themselves out of the market, and even though they had the experience I wanted, I could not afford to hire them.
It’s a good idea to understand the expectations of how estheticians and nurses in your local area expect to be paid when creating your compensation program. This does vary from city to city, and state to state.
Generally speaking, nurses are okay with an hourly rate similar to what they would get at a private clinic. Estheticians, on the other hand, usually expect to be on a base hourly rate plus commission. The base rate will vary from state to state, but the commission rate is usually 10% of what business they bring in.
Keep in mind that you don’t want to start off by overpaying anyone on your team. You are better off to pay a lower rate and give a bonus for exceptional monthly revenues than to overpay to the point they are not motivated to get more patients into the practice.
You have a couple of options when creating a bonus program in your compensation program: it can be a random on-the-spot bonus or a clearly communicated bonus that is tied to a KPI (Key Performance Indicator). You can also combine them. I started with an on-the-spot bonus for a year and then switched to a Role KPI bonus afterward. It is important that when you are creating a compensation program you make it a one-time event. This allows you to make changes if you didn’t get the behavior you wanted, which is generally more revenue for the practice.
For nurses and the receptionist (patient care coordinator) who are not used to getting paid a commission, I like to give them a slightly above average hourly salary (i.e. +10% the going rate) and give on-the-spot bonuses for great work or revenues. For example, if we make an extra $5,000 in revenues in one month, I may bring everyone together to congratulate them on the great effort and give everyone a $100 cash bonus or gift card to their favorite store. I then remind them that for the practice to be successful, we need everyone helping to generate more procedure revenue, so I can give out more bonuses.
Alternately, your bonus payout can be tied to achieving a Role KPI. In this case, make sure you only pay out a bonus if you hit a practice revenue goal. Every team is different and what bonus structure motivates one team may demotivate another.
When paying a bonus, always communicate to the team why it’s being paid out, give an example of a specific behavior or situation that created the bonus, tell them you value that behavior, and thank them all for their hard work and for hitting the goal. However, don’t make it sound as though the bonus will continue for the next month.
As a last point, please check with your accountant on how to properly handle any bonuses you pay your team so you don’t run afoul of the IRS.
Independent Contractor vs. Employee
Most full-time nurses and other office administrative team members will typically be treated as employees. However, most estheticians would prefer to be treated as contractors. You can pay them as either; however, the IRS may not agree with you, and that could be an expensive mistake.
According to the IRS, “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”1
You can read the IRS guidelines on whether a person should be treated as a contractor or employee here.
Always check with your accountant and/or attorney on the correct way to pay your team (and you). They will be aware of the current Federal regulations and regulations in your state.
Unless your team members have spouses with health benefits, this may be something you want to offer your team. The challenge with small practices is that you usually only have three or four team members, so it’s very hard to have a group plan for your practice.
If you want to offer medical benefits, you should check out the benefits that may be offered by large associations that you are a member of. These may include:
- State medical association
- AMA (American Medical Association)
- Medical association related to your Board Certification (ie AAFP, AAD, ASPS, etc.)
- Chamber of Commerce
- Faith-based insurance providers
As well, there are other options for small group insurance coverage, like Blue Cross / Blue Shield. However, these often require a minimum number of team members and may require a percentage to participate in the program.
To learn more about developing a successful practice, check out the IAPAM’s annual Practice Growth Symposium, where leaders come to learn the keys to a profitable practice. For those preparing to start their first practice, there’s IAPAM’s Practice Startup Workshop. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined