Dr. Eric Ploumis
This issue of Legal Bites explains the compensation structures orthodontic associates are most likely to encounter, how those structures affect total value, and what both associates and practice owners should evaluate before signing.
Ours is a great profession. We love what we do. We bring smiles to our patients’ faces. But we do expect to be compensated for our efforts as both a practice owner and an associate. There are a variety of formulas for practice owners to compensate their employees but before we discuss these, let’s review the difference between an employee and independent contractor.
Employee or Independent Contractor?
Compensation starts with classification. Before evaluating any pay formula, the associate and practice owner should understand whether the associate is properly classified as an employee or, in rare circumstances, as an independent contractor (IC).
In New York State, an orthodontic associate will almost always be an employee, not an IC, and both the Department of Labor and the IRS scrutinize associates classified as independent contractors. A true IC practices with minimal oversight from the practice owner, makes their own schedule, brings their own tools and equipment, makes all treatment decisions, and receives minimal supervision from the practice. By contrast, an employer exercises significant control over an employee by setting hours, providing staff, tools, and equipment, and retaining the right to review or revise treatment plans. For more information on the difference between an IC and an employee, go to this official IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined.
In the rare case where an associate is legitimately classified as an IC, the relationship is often structured through an entity wholly owned by the associate, such as a professional corporation or professional limited liability company. The practice retains the entity as the service provider, and the associate is employed by that entity. As an IC, the associate is not entitled to practice benefits and must pay both halves of the payroll tax. By contrast, when the associate is an employee, the employer and employee each pay half of the payroll tax, or 7.65% each.
Common Compensation Models
The most common compensation formulas are full-time salary with benefits, per-diem pay, percentage-based compensation, and hybrid arrangements that combine a daily base with a percentage calculation. Each should be evaluated as part of the total compensation package, not as a stand-alone rate.
Model |
Typical structure |
Key issue to evaluate |
| Full-time employment | Annual compensation package with benefits. | Security and stability, but fewer opportunities outside larger practices or DSOs. |
| Per-diem | Daily pay, often ranging from $1,200 to $2,000 for an eight-hour day. | Benefits can materially change the value of the offer. |
| Percentage of collections | Usually 35% to 45% of collections, depending in part on benefits. | Works best when the associate’s production and collections can be clearly attributed. |
| Base plus percentage | The greater of a daily base or a percentage amount, reconciled periodically. | The base protects the associate on slow or low-collection days. |
| Draw or advance | Daily compensation advanced against future percentage compensation. | The associate may owe money back if the percentage does not exceed the draw. |
Full-Time Salary and Benefits
The gold standard is full-time employment with one practice, supported by an annual compensation package and benefits. Full-time positions provide security and stability for both the employee and employer, although these opportunities are less common unless the associate is willing to work for a DSO.
Per-Diem Compensation
Per-diem compensation pays the associate for each day worked, typically ranging from $1,200 to $2,000 for an eight-hour day. Because lunch is usually unpaid, the workday often extends to nine hours. Benefits such as health care, paid vacation, pension and 401(k) contributions, dues, and continuing education support can materially change the value of a lower per-diem and should be included when comparing offers.
Percentage of Collections or Production
Percentage-based compensation can be calculated on either collections or production, although percentage of collections is more customary. The usual range is 35% to 45% of collections, depending in part on the benefits the office provides. This model works best when the associate is the only orthodontist in the office, such as in a pediatric dental practice. It is less effective when multiple orthodontists treat the same patient pool because, unlike some other fields of dentistry, orthodontics does not have discrete procedures that can be easily attributed and quantified for compensation purposes.
Base Per-Diem Plus Percentage Compensation
Percentage-based compensation often includes a base per-diem so that, even on a slow day, the employee is compensated for their time and effort. This is usually written as “the greater of $X,XXX or X%, reconciled on a quarterly basis.” At the end of each quarter, the base compensation is compared to the percentage compensation. If the percentage exceeds the base, the associate receives the difference; if it does not, the associate does not repay the practice. The general rule is that it is the employer’s responsibility to fill the employee’s schedule. A base per-diem, often between $800 and $1,200 per day, protects the associate on days dominated by paid-in-full patients, initial exams, or retainer checks.
Draws and Advances
Percentage-based compensation that offers a “draw” or “advance” against future percentage compensation, rather than a guaranteed base per-diem, should be approached carefully. Under this structure, the practice provides daily compensation, but if the percentage calculation does not exceed the draw at the quarterly true-up, the associate may owe money back to the practice. For a young associate, few outcomes are more discouraging than leaving a position and owing the employer money to do so.
Payroll Tax Impact for Independent Contractors
If the associate is an IC, the stated compensation should be viewed in light of the additional payroll tax burden. Because the IC pays both sides of payroll tax, the associate effectively earns 7.65% less than the stated rate unless that difference is offset through a higher per-diem or percentage.
Bonuses and Negotiation Considerations
Other compensation features may also affect the total package. Some offices, particularly large practices and DSOs, offer bonuses for starts and debonds. These bonuses can increase compensation, but they also raise ethical concerns: Are patients being started or finished because they are clinically ready, or because the associate has a quota to meet?
Each contract is unique and subject to negotiation. Private offices tend to be more flexible, while DSOs are often more rigid. Both sides should evaluate the benefit they expect to receive and adjust their expectations accordingly. Practices hire associates to generate value for the office, and associates expect to be paid fairly for that contribution. When either side believes it is not receiving the benefit of the bargain, the relationship breaks down. I often advise young associates not to overplay their hand and to consider accepting slightly less at the outset in order to prove their value. I also advise employers that turnover is expensive; when they have a good associate, paying a little more may be less costly than losing that associate to another opportunity.
The practical takeaway is simple: before signing, compare the stated compensation rate against the benefits, tax treatment, patient flow, reconciliation terms, and any incentive structure that could influence clinical judgment. There is no one-size-fits-all contract or compensation schedule. A durable agreement is usually one where both sides feel they received fair value, even if each side also believes it could have done a little better.
In future issues of Legal Bites, we will explore other aspects of employment agreements from both the employer and employee perspectives. See you in the next issue.
Eric J. Ploumis, D.M.D., J.D.
The information presented here is not intended as a substitute for legal advice. You should familiarize yourself with the laws of your local jurisdiction and seek legal advice from a local attorney who specializes in such matters.
Dr. Ploumis is an attorney, an orthodontist, and adjunct clinical professor of orthodontics and risk management at New York University. He limits his legal practice to issues surrounding the practice of dentistry, with an emphasis on practice transitions, employment issues, leases, and defense of allegations of professional misconduct before the Office of Professional Discipline. He can be reached at: EPloumis@dentalpracticelawyers.com.
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