In the realm of dentistry, labor costs often constitute the most significant portion of practice overhead, averaging around 27 percent in the industry. This figure may encompass various benefits such as retirement contributions, healthcare premiums, bonuses, and additional perks. However, some dental practices witness their labor costs soaring beyond 30 or even 40 percent of total overhead expenses. While this occurrence is understandable, a crucial question for dentists arises: why allow this situation to persist? Fortunately, there are numerous effective strategies for compensating staff adequately while ensuring the profitability of a dental practice. Here are six proven strategies to effectively manage labor costs for dental practices:
1. Avoid Overhiring
Dentists should carefully assess their optimal staff size in relation to collections and steer clear of overhiring. A general guideline is to maintain one staff member for every $185,000 in collections for general practitioners and one staff member for every $220,000 in collections for specialists. If the payroll is burdened with too many staff members, consider exploring the options below.
2. Embrace Part-Time Employees
Leveraging part-time employees, working 20 hours or fewer per week, can optimize doctors’ time and alleviate the additional costs associated with full-time pay. This strategy proves especially effective during peak production periods, allowing for scalability during slower business times.
3. Cross-Train Employees
Efficiently managing staffing levels can be achieved through cross-training existing employees. For instance, employees can be trained to handle various tasks such as setting up and breaking down treatment rooms, sterilizing equipment, answering phones, scheduling appointments, and handling payment collection. This approach also aids in managing vacation requests and sick time, with due consideration for state laws on dental assisting.
4. Introduce Incentives
Linking bonuses to performance benchmarks, such as production goals, can effectively control labor costs while motivating staff to contribute to the practice’s success. Some dentists opt for partial commissions, aligning costs with performance, while others implement a commission-based system on top of a base salary.
5. Outsource Administrative Duties
A frequently overlooked yet straightforward solution involves outsourcing bookkeeping, payroll, and receivables. Practices that adopt this approach often experience heightened productivity and reduced labor costs, as in-house staff can focus on core responsibilities. Outsourcing also benefits from the expertise of third-party vendors in organizing documents and processes.
6. Consider Hourly Pay
Transitioning from salary-based compensation to hourly pay can yield significant cost savings. While many practices have already adopted this model, those still utilizing a salary structure should contemplate making the shift to hourly pay.
In addition to these strategies, other successful methods for lowering labor costs include:
- Adjusting clinical staff levels on non-patient days.
- Offering increased paid time off and fringe benefits instead of wage hikes.
- Implementing fee adjustments and production increases to align labor costs with higher collections.
- Eliminating overtime expenses.
By approaching staffing and compensation creatively, dental practices can unlock a range of possibilities, providing greater flexibility than conventional staffing models. Collaboration with employees to establish manageable processes and incentives is crucial, and dental CPAs can offer valuable guidance on the financial implications of adopting new systems.
