therapist pay

Therapist pay in a private practice

Posted in Start-up

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.

The split

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.

Other factors

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.

Also read this:

Why create another mental health practice

Independent Contracting vs Employing

Types of organizations employing mental health providers

Wealth in Mental Health – Where are the good paying jobs?

Enjoying this article? Share your thoughts.

  1. Is a W-2 employee paid based on a percentage split of collections by default always going to be a non-exempt employee since they have no base salary? Since the individual employee therapist generally manage most day to day details is there a way to classify them as exempt employees?

    1. Hi Patrick. The IRS has a list of criteria used for determining if whether an employee is an independent contractor or an W-2 employee. See this page for more details: Management of day to day details is just one of the many criteria. You may want to go over it with your attorney. I talked with a couple of attorney friends and one that I hired and they all said it was safest for me to treat them as W-2 employees, especially as we got larger and therefore attracted more attention. For us the big factor was that our therapists were dropping all other work to work exclusively with us. That made it harder to claim that they were an independent contractor, especially when we had meetings together and worked together on marketing ourselves.

  2. Hello, I am working in a group private practice and my reimbursement rate is 50% of “collected revenue for services provided” (per my employee contract). I recently learned that the practice collects 100% of no-show fees ($150) and does not distribute any percentage of this revenue to the clinician. Is this typical for group private practices? It seems unusual for the practice to collect 100% and the clinician gets 0% regardless of admin tasks and time connected to these no shows. Please offer any insight you have around this issue. Thank you!

    1. Hi Katie. I agree that something is off here. We used the same percentages for any money that came in. Any fees collected from insurance, client, or occasionally another party ran through the same formula. Therapy fees, psych testing fees, no show fees all are treated the same. I’m not sure what the rationale would be for treating some fees differently. I would at least ask what the justification is. The therapist (you) were the one who scheduled the appointment only to have the client not show. Yes you could recoup some of the time by doing other things, but not other things that generated income.

  3. I’m just about to finish up my associateship from my PsyD and I’m looking for clinical job. I’ve heard most jobs pay only a percentage with no guaranteed salary. Is this so?

    1. Hi Paul. You are correct if you are looking at a private practice job. There are a few large practices who may provide a “draw against future earnings” sort of payment system that would give you a small-ish salary that would be paid back by future earnings. Otherwise private practices usually pay clinicians by a percentage of collections which means a slow build-up in salary. It takes a while, i.e. months to a couple years, depending on the practice and how many referrals they are providing to get you started. Most not-for-profit, hospital, government jobs are salaried right from the start. I have a brief discussion of this here: Types of organizations employing mental health providers

  4. Do you have an example of the graduating percentages depending on income brought in by a clinician?

    1. Hi Loryn,
      So we had 3 levels based on collections in a given month. So say you collected $XXX in a month–that would mean one percentage. If you collected $XXXX in a month that would mean the clinician would get about 5% more. Another 5% bump if one collected > $XXXXXX in a month. What this is saying is that the “more activity gets the clinician a greater percentage”. My example here is actually simpler than we actually used because we had one set of percentages for the first year one was one our staff and then once they were promoted to Senior Staff. That promotion could happen after 12 months and plus meeting several criteria, a list of about 10 items. As for where that base percentage was, that seems to be highly regional. In our area, most private practices are paying clinicians 50% of collections. We paid the clinicians higher than that but since I am no longer the owner, it not for me to say exactly what those percentages are. The goal was to stay competitive with our therapist market while being as generous as we could.

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