In private practice, therapist pay is not usually based on a salary. Rather, the practice collects the fees and divides them between the therapist and the practice using a formula to determine actual amounts. This is called productivity-based pay. There are several pay-related factors to consider in private practice.
Taxes: Independent contractors or employee
The Internal Revenue Service allows for two types of employees: independent contractors and regular W-2 employees. (See Independent Contracting vs Employing for more on this topic.) This decision determines how taxes are handled, i.e. who is responsible for which taxes. The IRS requires independent contractors to pay 100 percent of their Social Security and Medicare taxes. This adds 7.65 percent to the independent contractor’s tax bill over a regular W-2 employee’s tax liability. But if the employer decides to pay the therapist as a regular W-2 employee, then the company, rather than the individual, pays that 50% of the employee’s Social Security and Medicare taxes.
This becomes important when comparing offers from different employers or when competing for employees.
A simple example
Let’s compare two separate compensation plans. One clinician is paid as an independent contractor and the other as a W-2 employee. How do we make them equal?
- If the Independent contractor’s arrangement is for 58 percent of the collections to come to the therapist, this plan equals
- A W-2 employee’s arrangement for 50 percent of the collections
Tax wise, these are roughly equal deals.
Recognizing how taxes are handled allows us to compare independent contractors and employees.
And of course the actual percentages vary. In most areas of the country employee percentages range from 40/60 to 60/40 split for W-2 employees. In other words, 40 to 60 percent of the collections is paid to the therapist. The organization gets the remainder. The exact split may have to do with regional differences as well as various incentives that employers build into their formulas. In the practice I owned, we had a set of graduating percentages that gave busier and more experienced clinicians a great percentage of collections.
When the owners of a practice are in a partnership, there may also be a partnership profit-sharing disbursement toward the end of the year, assuming there was profit.
The last set of factors to consider is harder to quantify. Yet these factors can make a difference in the experience and income employees end up with. Even how therapist pay is handled. For example:
- How many referrals will the employer be providing? This has major ramifications for the pace of build-up and therefore the income that you take home. (See How many referrals does it take to get 1000 sessions per year?)
- What kind of reputation does the organization have in the community?
- How will that reputation enhance your marketing efforts?
- How much is the organization providing to you for marketing, supervision, technology, and back-office support? (See Marketing favorites that are not a big stretch.)
- Are their other benefits that the organization is offering? Some make contributions or payments for retirement benefits, health insurance, continuing education contributions, licensing fees, and malpractice insurance. These do exist in some larger and more established private practices. Not in most. They certainly add value to an offer.
All these non-quantifiable factors have some monetary value. Yet it is difficult to calculate to the penny. In short, the more the organization is providing, the easier your life will be. All these factors should count for something.
The whole package
In the end, it is the whole package that should be appealing if one hopes to attract and keep quality employees. And when looking for a job, the more benefits, the better.
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