Pay Raise, Bonus, Or Benefits Some End-of-year Suggestions For Keeping Support Staff Costs in Check

A new fiscal year is upon us and doctors are facing some serious financial challenges of managing medical and dental practices. Overall cost-of-living increases of 2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} or more and unit reimbursements of 1.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} or less means practitioners need to look for increased revenue sources and opportunities for cost containment.
Support staff payroll and related benefit costs comprise the highest segment of overhead for most practices, averaging 40{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} or more of revenue. The following are some options to consider to keep these costs in check while still retaining required levels of qualified support personnel.

• Benchmark Compensation and Staffing Levels: You first need to compare your support staff numbers, compensation, and benefit levels with those of your peers. Your competitors may not be open to sharing their numbers with you, but if your practice CPA specializes in health care, he or she may be a valuable resource. Every year, surveys are published by the Medical Group Manage-ment Association (MGMA) and other organizations on both a national and regional level. These surveys should give you an indication of whether your practice support staff costs and personnel levels are generally in line or above the norm, overall. Next, list each support staff individual by job description, full-time equivalent status (FTE), and compensation expressed in terms of total annual compensation and hourly wage. Compare this with survey data to find out where each individual is within the compensation range. Highlight those individuals at or above the upper range.

• Pay Raises. Across the board pay raises are generally not a good idea. They don’t motivate staff, they send mixed messages to employees, and eventually lead to overpaid staff and disproportionate compensation levels. Pay raises should be granted on an individual level and only after a performance review. A pay raise may be given to bring compensation to a level within the market range of that position if performance is as expected and the individual has achieved a noticeable and expected improvement in professional development. A pay raise is also appropriate if an individual assumes more responsibility than originally assigned and obviously if one is promoted to a new position.
Cost-of-living increases are appropriate, but may not necessarily have to be made on top of other aforementioned increases. For example, an employee is paid $13.50 per hour and the market range for that position is $13 to $17. If a 50-cent raise is granted to bring that employee higher within the market range based on performance and development, this represents a 3.7{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} raise which exceeds the cost-of-living increase of 2.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} and therefore, no further adjustment is necessary. Once an individual’s compensation reaches the upper market range, you need to weigh carefully any pay raise beyond that upper limit because, if the individual is now above the range in the following year, the cost becomes compounded.

• Bonus or Entitlement? Bonuses are an important part of an employee compensation program when utilized appropriately. Unfortunately, they are often overused and lose their effectiveness. If a practice gives an across-the-board bonus year after year, employees see this as a part of their recurring compensation and in some cases spend more or plan in anticipation of receiving it. The ‘Clark Griswold’ syndrome comes to mind and pity the doctor who doesn’t come through with that annual Christmas bonus. He may end up at the bottom of the planned family swimming pool.
I’m not suggesting you now scrap small goodwill holiday gestures, but consider the following. A bonus program should be communicated as a not necessarily recurring, but discretionary reward for past performance. It should be based on profitability and, ideally, targeted performance goals. One practice budgets an undisclosed employee bonus pool and posts group performance goals such as collections, patient visits, overtime hours, copays and no-show rates. Actual monthly and year-to-date results are posted so employees can monitor results. This promotes individual and group effort. Part of the pool is awarded across the board and part is awarded to selective individuals based on relative work ethic, achievement and attitude. An individual that stepped up to the plate above expected levels is rewarded for that particular achievement. Employees must know that each year stands alone and there will be good years and better years — the better years count. Look closely at your bonus program and find out if it needs restructuring. It can save you wasted dollars and promote efficiency and productivity.

• Employee Benefits. Employee benefit costs have soared in recent years and, in some cases, are more important than the hourly pay rate. Some practices hand out to each employee an annual benefits value sheet that shows the dollar value of every employer-provided benefit. In doing so, employees are made aware of their total compensation package, which is important if they are comparing to employees of other practices, which they do.
Offering additional fringe benefits can actually be less costly when adding these in lieu of or in addition to a lesser pay increase. The following are employee benefits that, properly structured, can be less expensive in the long run than employee raises and yet are worth the same amount dollar wise to employees than a 2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} pay raise because they are tax free:
• Pre-tax flexible spending accounts
• Short-term disability insurance
• Group term life insurance
• Increase in employer portion of health and dental insurance premiums
• Increase in employer match on 401(k) plans
• Dependent care plan

These are less expensive than comparable pay raises for two reasons. First, they are not subject to payroll taxes and second, if the employer cost is in terms of actual dollars rather than a percent, their cost will not compound annually like a pay raise will. One medical practice whose administrator was already earning at the upper compensation range for her position was given the choice of a lesser raise or a long-term disability insurance coverage. She opted for the disability coverage.

• Reduce Staffing Through Attrition. Practices that find themselves overstaffed may find it difficult to identify certain individuals to terminate, especially if it results in retained staff picking up their less than full-time duties. This could create unwanted morale problems. However, individuals

retiring or otherwise voluntarily moving on often provide an opportunity to reorganize and reassign duties and job descriptions to save the costs of a full-time position. It may require a part-time replacement or it may require a small increase in pay for affected individuals but the savings could be substantial. Base your practice administrator’s bonus on targeted support FTEs and watch what happens.

• Control Overtime. As noted above, a practice that sets maximum overtime hours as a goal for staff bonuses. In most practices, overtime is excessive. Have your practice administrator tabulate last year’s overtime hours and related cost as a starter. In monitoring overtime, don’t forget to also monitor the hours and costs of outsourcing to temp agencies. A decrease in one may result in an increase in the other. Another cost savings could be achieved by allowing employees to take up to a week of overtime earned in additional paid vacation, but check your state labor laws first.

• Restructure Retirement Plan. The laws and regulations governing the design and coverage of employer retirement plans has changed significantly in recent years, yet many practices have the same plan structure in place. More recent safe harbor rules and discrimination restrictions have enabled some practices to change their plan design so as to enable owners to maximize their annual contributions at a lesser cost overall. This may be done without reducing the current benefit to non-owners. If your retirement plan has not changed, it may be worthwhile to have a benefit plan consultant review your current plan design and employee census to see if you could benefit from a new plan design.
Doctors and administrators should view their employee compensation and benefits as a program to promote the well-being and objectives of both the individual and the organization. Hopefully you will find one or more useful ideas in this article to make your compensation program more cost effective and motivational.v

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers Kalicka, P.C., Holyoke, MA Certified Public Accountants and Business Consultants (413) 536-8510.

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