In this episode, Gordon answers questions he has received from multiple listeners concerning hiring employees or contractors, and how to pay them. First, Gordon explains the difference between hiring an employee versus hiring a contractor. Hiring a contractor is undoubtedly the more straightforward route and will mean less oversight and less paperwork for the business owner. Hiring an employee is more complicated for the business owner as they will have to withhold certain taxes and pay different insurances. Stay tuned to find out why Gordon switched all his contractors over to employees at the beginning of the year, and then Gordon explains the different ways to compensate your therapists.
Having independent contractors is a great model for having people on board. The advantages of having a contractor are less paperwork and less oversight on your part. You do not have to worry about withholding income tax, Medicare, and social security; the contractor will be responsible for doing this on their own. The contractor is operating as a separate business entity from your practice. You will be more hands-off with a contractor, the IRS is particular about that. One mistake a lot of people make is hiring people as contractors but treating them as employees. Be familiar with your state laws around contractors, some states do not allow you to hire contractors for your practice. Talk to someone who is an employment expert to make sure you are aware of these things.
Employees report to you directly, you have to do withholding taxes, pay for unemployment insurance, and provide some sort of workman’s comp insurance. Hiring an employee is more complicated and requires a lot more paperwork. Because hiring a contractor is more straightforward, it does not mean it will be better for your practice. At the beginning of the year, Gordon switched all his contractors to employees. This switch happened because Gordon started to pay better attention to his numbers and what it costs him to keep them on. It was a better deal for the business to switch them over to employees from a profit perspective.
The typical fee split for most places is 50/50. Some sites do a 60/40 split, therapists keep 60%, and the practice holds 40%. Another way to compensate is a flat rate per session. In other words, you agree to an amount you will pay per session. A more traditional method of compensation is by paying the therapist an hourly rate. Lastly, you can compensate by paying a salary. The way you choose to compensate people is going to depend on the size of your practice, understanding what the cost of labor is, and knowing your overhead.
Gordon has heard from some people that they are discouraged from doing a fee split because of an ethical standpoint. Regardless of how you pay your employees, all of them are fee splits. In other words, you are collecting a certain amount from a client and then paying your employee with that money. For the practice to stay open, it has to make a profit. You have to keep part of the fee that is collected from your clients. All of these compensation plans are fee splits if you think about it that way.
Percentage Fee Splits
Usually, the percentage method works better for contractors. Typically a fee split is only paid out to your contractor after you have collected the money from the client. With insurance, there is a delay in getting paid, you have to wait for the claims to get filed before paying your therapist.
Flat rates work well with both employees and contractors. Let’s say you collect $100 per session, and you pay your therapist $50 per session. If you are on insurance panels, you might only get $85 per session or $60 per session. You still agree to pay your therapist $50 per session. You need to have some money in the reserve to do this. It a good idea to have a financial buffer to cover costs, expenses, and paying yourself. Two months minimum or more is best for your financial buffer. Do your numbers, and find out what you need to have on hand.
Hourly and Salary Rates
If someone works eight hours that day, you pay them at an hourly rate. It could be $15 – $20 an hour, and you pay them whether or not they are seeing clients. (The average salary for counselors and therapists in the U.S. , as of 2019, is around $43,000 a year.)
Incentives and Benefits
If you want to give somebody a raise, you have to know how to do that. Work out with each individual therapist what their rates are. Gordon has levels of therapists; he has interns, level-1 therapists, and level-2 therapists. Once a therapist has been with Gordon for 2 years, then they have the opportunity to move up to a level-2 therapist which will come with higher rates across the board. What sort of benefits are you going to offer in your practice? Gordon wanted to be able to offer health insurance and profit sharing plans to his therapists so that is a big reason he switched from contractors to employees.
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Meet Gordon Brewer, MEd, LMFT
Gordon is the person behind The Practice of Therapy Podcast & Blog.He is also President and Founder of Kingsport Counseling Associates, PLLC. He is a therapist, consultant, business mentor, trainer and writer. PLEASE Subscribe to The Practice of Therapy Podcast on iTunes, Stitcher and Google Play. Follow us on Instagram @TPOTpodcast, Twitter @therapistlearn and Pinterest “Like” us on Facebook.