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Hello everyone, and welcome back to the podcast. I’m glad to be here as always.
Today is a business episode day and we are talking about implementing a salary model. Oh my goodness. Y’all, this was a big transition in our practice. Something we have been working on informally for about a year and [00:01:00] formally for the last 6 to 8 months. We went live on November 1st with our salary model.
So, I am talking about the process, the twists and turns, the spreadsheets, the ups and downs. The hope is that you will have some sense of the consideration, preparation, and implementation of this compensation model. It’s gaining popularity but is still relatively unpopular. I’m curious how you might feel at the end of this episode.
Now, if you’re a practice owner in the intermediate or advanced stages of practice, that is either a solo practitioner who’s feeling pretty overwhelmed with all your referrals and trying to get your life back or a group practice owner who employs other clinicians, I would love to chat with you. There are group coaching [00:02:00] experiences for both of those levels starting in January. You can go to thetestingpsychologist.com/consulting and schedule a pre-group call.
For now, let’s get to this conversation about implementing a salary model.
All right folks, let’s jump right to it. Like I said, big transition for us to move to a salary model. This is not a hugely popular arrangement in private practice. It’s relatively unique.
I’ll be honest. Setting up this episode and preparing for this episode was quite challenging because it was really hard for me to capture everything that went into implementing the salary [00:03:00] model. And so I’ve done my best to hit the key points and hopefully give you some idea of what this might look like if you are considering implementing a salary model in your practice.
So why is this unique?
Unlike many industries, we are reliant on direct customer service to make money. We’re not producing software or widgets that can be sold at scale. Every dollar that we make generally comes from a face-to-face appointment with a client. I know that there are some practices out there that sell goods or materials or courses or training, things like that, but generally speaking, the vast majority of us are making all of our money from a face-to-face appointment.
Why is this important?
It’s important because, unlike even a lot of service industries, we have a relatively high no-show rate in mental health. I would say this is the [00:04:00] single most important thing that keeps people from doing a salary model.
Now, the numbers will vary, of course, but my cursory research found that the average no-show rate for service industries in general, this is any industry where it’s a 1:1provider, client arrangement is about 10% to 15%; healthcare and primary care more specifically is a little higher, maybe around 20% to 30% depending on the locale; and mental health or behavioral health can be as high as 50% or 60%.
Now, those are entities like community mental health, hospitals, and primary care clinics. So we’re not typically dealing with that high of a rate in private practice, but no-shows are a threat to many of us. The average that I’ve heard among private practices is somewhere between 10% and 20%. If you don’t know your no-show rate, [00:05:00] as an aside, that’s a great thing to calculate because that will give you some nice insight into your financial picture and budgeting.
In the context of salaries, no-shows are huge. It’s the single biggest risk factor for moving to a salary model, like I said. Simply put, clinicians on salary are getting paid for no-shows, but revenue is not coming into the practice unless, of course, you’re charging a no-show fee, but that is hit or miss in my experience, and you don’t want to rely on that to cover all of your no-shows.
This is why the vast majority of practices use an hourly compensation model or a percentage of collections model, also called a commission model. These models provide protection against no-shows and the resulting loss of profit where you are paying a clinician for time that you’re not collecting money for.[00:06:00]I’ve always subscribed to the idea that clinicians should get paid for their work and that it’s on the practice to collect the money. So we’ve been baby-stepping toward more accountability and responsibility for years. That’s always been our model. I don’t feel like clinicians should be punished for the practices’ difficulty collecting.
There are many practices out there, you may own one, that doesn’t pay clinicians until the practice is paid, which makes total sense. That is the best strategy from a revenue management standpoint as a business owner. I totally get that. I’ve lost money over the years from paying clinicians and not collecting from insurance or clients.
That said, I decided a long time ago that I would assume the risk of collecting and paying clinicians independent of whether we got reimbursed. Now, of course, you have to get good at collections to be able to do that. So [00:07:00] there is that caveat, of course, but that was my choice way back when. And so, like I said, we took that step a long time ago to assume some of the risk in the business management. The salary model, to me, is a big step beyond that in terms of risk because now people are guaranteed that money, whether clients show up or not.
At this point, you might be saying, why in the world did you decide to go this route given the risk? And that’s a great question. Here’s what it came down to for us in no particular order.
We found that the vast majority of our clinicians preferred the stability and predictability of a salary. They were tired of the ups and downs that came with caseload fluctuation week to week, which of course resulted in pay fluctuation for them. So clinician driven.
Many of our clinicians [00:08:00] Were asking for “paid time off’ or some way to break free of the idea that they only got paid if they were seeing clients. Even though we allowed them to maintain a flexible schedule where they could bank some clinical hours and then go on vacation or go on vacation and then make up clinical hours after they got back, they made it clear that they preferred more predictable time off and they love the idea of being paid even if they weren’t seeing clients. So getting paid during the time that they were off.
Another factor was that introducing a salary structure was way more consistent with the entities that we are competing against for jobs. At our size which is now around 35 or 40 employees, we are competing with community mental health, [00:09:00] hospitals, primary care practices, and larger practices.
So this provided a much more apples-to-apples comparison for compensation and broke us free of what I would call complete chaos- that is compensation in the mental health, private practice world. We were doing a lot of education for folks during job interviews around what is W-2 versus 1099, how benefits factor in, percentage model versus an hourly model. It was cumbersome, confusing, and challenging.
I think most folks are used to thinking of things in terms of salary. And so now it’s much easier for us. We can say this is the salary. This is the equivalent if you were working full time, like 40 hours a week. And it’s just a better one-to-one comparison. It makes it a lot cleaner and easier [00:10:00] for both sides to understand I think while hiring.
Another factor was just revenue cycle management. Maybe that’s not the right term- revenue cycle management. It is more budgeting and forecasting. So knowing our payroll expenses allows for much easier budgeting and financial projections throughout the year.
The way that our payroll was set up previously is that we would pay every two weeks, which is great. That’s pretty common, I think, but what would end up happening is we would have two months out of the year where we would have three payrolls just because of the way the payroll dates fell.
I know there’s a way around this. You can do a bi-monthly payroll and do an hourly or percentage model or whatever, but we made the simultaneous conversion from what would you call that- every other week to a [00:11:00] bimonthly? So, we converted to that and converted the salaries at the same time. It just so happened. It’s going to help with the profit and loss statements throughout the year because we’re not going to have to worry about those two months out of the year that have three payrolls and would throw the numbers off and make things weird.
So now it’s evenly distributed and it’s just more predictable. We know exactly what our payroll expenses are going to be. We aren’t guessing based on how many hours people are doing or the holidays or whatever it may be. So it just gives more stability and predictability for payroll, which helps with budgeting.
And then the last thing is just the time that we were spending running payroll was getting worse and worse and more and more. As we continued to grow, it became a true nightmare to run payroll for 40 employees who were all on an hourly model with different [00:12:00] hourly rates of compensation. It saves them from having to fill out relatively complicated timesheets. It saved our HR person the trouble of combing through and entering all of them. We’re saving a ton of time in running payroll at this point.
So those are some of the big reasons that we chose to move to a salary model. I would say the primary reasons though were revenue, budgeting, and predictability for the financial projections, but also for clinician stability and happiness.
How did we set this up or determine the salary? That’s a big question for a lot of folks.
I’m not going to get into the weeds too much, but I will say that we use the pay rate rubric that I discussed in episode 345, if you haven’t listened to that, it is linked in the show notes, that gave us the hourly rate for [00:13:00] each clinician. This is a simple pay rate rubric based on years of experience, licensure, tenure at the practice, qualifications, things like that.
Then we built a relatively simple spreadsheet that had the following key elements: clinical hours per week and the rate of pay for those hours, administrative hours per week and the rate of pay for those hours, and then supervision, leadership, et cetera, these ancillary hours per week and the rate of pay for those hours. We built the spreadsheet to have all of our clinicians included so we could calculate a salary for everyone. We took those numbers for each clinician and scaled them up from weekly to an annual basis to determine the salary. We ballparked that our employees would work 49 weeks out of the year.
Let’s take a break to hear from our featured partner.
The RIAS-2 and [00:14:00] RIST-2 are trusted gold standard tests of intelligence. For clinicians using teleassessment, PAR offers the RIAS-2 Remote, which allows you to remotely assess clients, and the RIST-2 Remote, which lets you screen clients remotely for general intelligence.
For those practicing in the office, PAR has in-person e-stimulus books for both the RIAS-2 and the RIST-2. These are electronic versions of the original paper stimulus books that are an equivalent, convenient, and more hygienic alternative when administering these tests in person. Learn more at parinc.com/rias2_remote.
All right, let’s get back to the podcast.
To determine the payroll cost for budgeting and so forth, we had to, of course, add in the cost per employee for benefits and payroll taxes. So we did that. And [00:15:00] we ultimately decided to do a base plus commission model where folks have a weekly hours requirement, but can get a quarterly bonus for any extra hours they see above that minimum. That’s super simple. That’s just how we came up with a salary number.
This gave us the basic formula, but then we had to implement it with people. And this maybe not unexpectedly was the hardest part. We met with all of our folks individually to determine their preferred work plan. I know some practices who do salary and they just say, here’s your clinical hours requirement. This is the number. There’s no flexibility with that. And this is your salary. We chose a different approach where we built individual work plans for each person.[00:16:00] We met one-on-one, and we defined how many clinical hours, how many admin hours, how many supervision hours, et cetera, that each person was going to be accountable for each week. We generally left it up to the clinician to decide. The only real structure we put in was that we said that no one can go below 15 clinical hours. We want people to be here at least 15 to 20 hours a week. The vast majority of our therapists chose 20 to 25 clinical hours and the vast majority of testing folks chose 32 to 36 clinical hours. So we determined the numbers for each person. We of course recorded those and put those into an offer letter essentially.
So again, the numbers part was pretty easy. These meetings were pretty easy. They went well. What was toughest [00:17:00] though was the, I would say, psychological transition and preparation to the salary model.
There are a few things in here. One is we had to tackle the no-show problem and this is how we did it. We did a few things. For therapists, we implemented what we call a booking plus system to account for no-shows. I did not come up with that by any means. There are plenty of other entities or practices that do this kind of thing. But in essence, we went back and calculated each clinician’s no-show rate for the past year and required that they schedule a corresponding number of extra appointments each week to account for no-shows.
For example, if a clinician’s salary dictates 20 clinical hours each week, and they have a 15% no-show rate historically, 15%x 20 =3. So they’re required to have 23 spots available. The idea being that even if they have [00:18:00] their average historical no-show rate, 3 clients don’t show up, they’re still going to hit their 20 clinical hours, which was their contract.
Another thing we did is that we started running Google Ads about a year ahead of time to make sure we have a solid referral stream of counseling clients. We just could not risk not having enough clients for folks now that we were requiring that they hit certain clinical targets.
Another component is that we trained, educated, and supported our admin staff on the transition, emphasizing the importance of making sure that appointments are filled and cancellations were addressed immediately. We also talked with them about emphasizing the no-show fees to clients to know that clients were going to get charged. Speaking of that, that was another piece is that we really tightened up our policies and went pretty hard on clinicians about charging no-show fees, which some were historically hesitant to [00:19:00] do. It was hit or miss.
Now, backing out of the no-show problem, we started communicating about the salary transition about six months before it happened. I’ll talk more about this later. We met with folks two months ahead of time before our go-live date to determine their salary and have those individual meetings that I mentioned. We sent several emails, of course, and talked about it regularly in our All-Staff meetings, and we created more office hours for the leadership team so that folks could talk through any questions that they had.
Now just so happens, we chose to move to a new payroll system. That was honestly a nightmare. We transitioned to a company called Paycor. It’s fine now, but the implementation was a little bit of a train wreck. Just a word of warning. [00:20:00] We had to get clear on the PTO policy and benefits and that sort of thing. I’m not a policy guy. This was personally very challenging for me. A simple example of one thing we had to figure out is whether to offer PTO as a lump sum or an accrual model. And there were about a thousand tiny decisions like that, that we had to make as we moved to this salary structure.
What did we learn or what would I have done differently?
I learned again, that change management is hard, especially in this case. There’s something about moving from an hourly to a salary model that was pretty tough for some of our folks psychologically and emotionally. Some people just had a really hard time going from the idea of [00:21:00] that one to one, like I see more clients, I make more money. Even though this is still true, people get bonused if they see any extra clinical hours above their minimum, it’s still the perception I think that we were asking them to work more and make less.
Another thing that we learned timing was off. I don’t know what we could have done differently exactly, but we introduced the idea of salary to folks about six months out before we had a ton of concrete details or numbers. The idea was to give people plenty of time to digest and not spring it on them with short notice. But we found that again, some folks just had a hard time knowing about it that far ahead without having the actual salary and benefits information nailed down. If I could do it differently, I would probably shoot to introduce it three to four months before the go-live date but have a lot more concrete info available.[00:22:00] Even with so much preparation and support or assurance about helping clinicians meet their hours, folks are still pretty anxious about not meeting their hours when salaries went live. This may be a it doesn’t feel real until it is real situation, kind of like having kids. People can tell you about it all they want, but you don’t get it until it’s happening.
We just may not have been able to do anything about it but it was tough. We’ve done a lot of thinking about how to communicate better. We tried logical approaches. We tried an emotional approach. In the end, it’s a reality that change is hard and folks are going to be worried about meeting their hours. It’s gotten better as time has gone on though.
Let’s see, what else have we learned?
A few people had a little bit of a leap to go from their previous clinical load up to their [00:23:00] salary requirement or their clinical requirement for salary. I think we would have helped those folks ramp up slowly with more lead time so they didn’t walk in one week and feel like they needed to increase their clients overnight.
We would have held more, probably small group info sessions instead of talking through the info and transition in our full staff meeting. I’ve just found with financial stuff, emotions tend to run high, and talking about it in the full staff meeting either resulted in people, I think, not asking questions because it felt vulnerable, understandably or a few folks would ask a lot of questions. I think the undercurrent and maybe the unconscious effect was to introduce some elevated anxiety to the group. And so I think small groups would have worked a lot better.
Related to that, we learned that [00:24:00] folks are going to talk amongst themselves one on one and in small groups without the leadership team, no matter what. There was, I think some anxiety contagion and misinformation, like games of telephone that got communicated here and there. Luckily, we have pretty open lines of communication. We’re able to connect with folks individually and clear things up, but keeping in mind any transition like this, folks are going to seek one another out for support, which totally makes sense.
All in all, the lessons, so to speak, all center around communication, definitely the theme. As always, we could do a lot better communicating and trying to anticipate folks needs. This has certainly been one of the most challenging aspects of running the practice for me. It’s always communication, right?
And so [00:25:00] it’s been a real lesson for me in terms of recognizing and working through the idea of a dialectic, that two things can be true at once. I can care deeply about my employees’ well-being and compensation, and we can set clear boundaries and guidelines for salary and productivity expectations some people may not love that, right?
Another one is our folks can be excited about salaries and they can still have lots of questions and second thoughts and want to check in with us. It’s totally okay. I tend to be a black-and-white person. And so this is just another continued or step in the journey of leadership and recognizing, Hey, there’s a lot of gray here. We can be doing our best and people can not be totally happy and vice versa.
I’m just fortunate… I want to close by saying that [00:26:00] I have an awesome leadership team to help navigate through these challenges. And I’m very grateful for that. And we have an amazing staff. We have a truly amazing staff and they are dialed in and on board with the vision and the direction of our practice. It’s just change is is tough and it’s, I think incumbent on the leadership team to communicate as well as we can and roll with anything that comes up through that process.
So if you’re considering a salary model, I would say so far so good. I would love to talk with anyone who’s considering it and talk with anyone who has implemented it. Be really curious how you’ve done and how it’s working for you.
All right, y’all. Thank you so much for tuning into this episode. Always grateful to have you here. I hope that you take away some information that you can implement in your practice and in your life.[00:27:00] Any resources that we mentioned during the episode will be listed in the show notes. So make sure to check those out.
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