How is a Dentist Given a Draw in a Contract?: Dental Contracts with a Draw
What is a draw in a dental employment contract? For the most part, a draw would be associated with productivity-based contract. For instance, some dentists, especially dental associates who are relatively new, would just get a daily rate or maybe a base salary. But at some point, it’s very likely that the compensation will switch from income guarantee into a productivity model involving net collections percentage. Net collections simply mean that you will get paid a percentage of whatever the practice collects from your specific services. As far as what a normal percentage is for a dentist, I would say anywhere between the high twenties all the way up in the low forties is probably a good standard range.
How Is a Draw Calculated in Dental Contracts?
Let’s just say, for example, the practice would bring in $50,000 in a month that is attributed to the dentist’s personal services. Then if it was a 30% net collections rate, they would just multiply the $50,000 times 30%. Then that’s what the physician would take home whenever it was paid out. Now, a draw flattens out the amount. So, there’s not as much variance between a month to month. And so, what will happen is the dentist or dental associate will then reach an agreement with whoever the owner is. And instead of just saying, 15 days after the end of each month I get paid, whatever it is, they would come up with a base amount. Let’s just say it’s $8,000, and they’ll both agree, no matter what happens, I’m going to get paid $8,000 a month.
And then either at the end of the month, or usually it’s done quarterly, there will be a reconciliation, and then they’ll take what I was paid out versus what I was collected based upon my services. And then whatever the difference is that amount is then multiplied by 30%.
Let’s just say your draw is 8,000 a month. And then you brought in 32,000 in the month. Then it would just be 32,000 minus 8,000. So, you have 24,000 multiplied by whatever the percentage was. If it was a third, then you would get another 8,000. You’d have a total of 16,000 for the month. Now, maybe there’s a month when the dental associate went on vacation and didn’t work for two weeks. That also happens where you could have a negative balance carried forward. Let’s say you only brought in 7,000 in the month and they paid out 8,000. Then most of the time, the contracts would state that that negative $1,000 would then carry over into the next month.
And then the dentist would have to cover the difference between the two. That’s how a normal draw for a dentist is defined. Now, I guess the other way of defining it would be if there’s just an owner of the practice, and instead of having a base salary, you just take an owner draw of whatever the profits were. But I find as far as discussing what’s a draw in a dental contract, the first part where the dentist has percentage of net collections, and then to even it out, they just take that draw each month.
Dental Contracts Termination
Can You Break a Dentist Contract? And the short answer is yes. However, if breaking the contract means breaching the contract, and you’re not adhering to the terms of the contract, then you are likely opening yourself up to liability for litigation or arbitration. Your employer can come and ask for damages related to recruitment costs to replace you, credentialing fees, administrative fees, and the list kind of goes on from there. So, breaching your contract, if you’re going to break it is not a great idea, and we never suggest that for our clients. There is a much better way to end your contract, and that is in the termination clause that’s in typically every dental employment contract. Underneath the termination clause, there are typically three ways that you would properly terminate the contract.
The first way is if you were to mutually agree, so you and your employer agree to go your separate ways and terminate the employment agreement. However, this is rare, and we don’t normally see this happen. The second way is for cause termination. This clause is likely weighted towards the employer. In this type of clause that would be in a contract, there would be an enumerated list of sorts of offenses that would occur, and they could terminate the contract with the dentist immediately. Some examples of things on that list are, if you lose your license to practice dentistry, lose a DEA license, you are not credentialed with insurance companies: Medicaid, Medicare, and the list kind of goes on from there. And then the third way and most common way that contracts are terminated is without cause which would require a written termination letter.
Contract Notice Periods
Most contracts state that a contract can be terminated by either party for no cause given a specific amount of notice to the other party. And typically, that’s between 60 to 90 days. So, you give your notice 60 to 90 days, then the contract is terminated, and you can go your separate ways. Another thing that’s important is that if you are deciding to terminate your contract, you want to do it exactly how it’s written and give proper notice. There’s normally a notice clause within the contract and it will state if the termination letter needs to be hand-delivered, mailed, or in some cases, emailed, but that’s rare. That’s how you properly terminate a contract. And then the next thing I want to address is that you also need to read your contract to know what requirements you have once the termination process has started.
Will You Have to Pay Back Benefits?
Specifically, if you are given a signing bonus, relocation expenses, you’ll need to know if you must pay those back because some contracts have a certain amount of time that if you terminate the contract within that period, you must pay those back. So, that’s something you want to look at. And then the last thing you want to consider when you are terminating a contract is malpractice, specifically tail coverage. After leaving the employer, there would likely be a lapse in malpractice insurance and that’s typically covered by tail insurance. Some contracts address who is the party that is responsible for providing it or reimbursing the other party for it. Again, that’s something that you will want to look at in your contract and is likely detailed in that process. In summary, can you break a dental agreement contract?
The answer is, yes, but you don’t want to breach it. You want to terminate it properly by looking at the actual agreement that you had signed and do it exactly how it’s written. And then, you also want to know any consequences that would likely incur, meaning, paying back any of your signing bonuses. And then also, I did forget to mention, you also want to look at your restrictive covenants in your agreement. That’s non-compete clauses, how long is that for, what area is covered, and you want to make sure you’re not in violation of that. You also want to make sure that you’re not soliciting employees or patients, and that is likely outlined in your agreement as well. Again, it’s always important to look at your actual dental employment agreement, because it would likely have all these instances outlined in the contract on how to proceed.
Negotiating a Dental Employment Contract with a Practice
There’s no great resource that aggregates all the data for salaries across the country that I find that is accurate for the dentist. So, talking to colleagues, mentors, people you were in training with, I think is usually the most accurate way of finding out kind of what’s the going rate. And sometimes, some of the dental associations can provide, I guess, some data that’s okay, but I wouldn’t completely rely upon it. When you get an initial offer, let’s just say it’s for 120,000. Most employers expect at least some kind of back and forth as far as compensation is concerned. So, don’t feel bad asking for more. Now, how much more depends, but you need to be reasonable. If 120 is kind of the average for a, let’s just say, you’re right out of training, you have no experience in building up a practice and you say, you know what, I don’t want 120, I want 240.
Well, that is very likely going to be laughed off by the employer. And it’s going to put you kind of or at least start you on the wrong foot. If you’re going to ask for a bigger amount, it needs to be reasonable and then it needs to be as informed as you can be. One good way of doing it is if you’ve identified an area that you want to practice in, reach out to multiple practices and try to get an average of what all of them are offering you. And then, that way you can determine if one place is kind of lowballing you or not. Beyond salary, you also need to consider all the ancillary benefits. The actual benefits like health, vision, dental, life, disability, retirement, but then are there potential bonuses?
Are they paying for your malpractice insurance and tail? What are the restrictive covenants? When I find people that are just basing a job on the baseline number for their salary and not anything else, I think that’s shortsighted. One job that pays $20,000 less could be much better when you consider all the different bonuses and benefits, and maybe a kind of a lesser restrictive covenant, like with the non-compete, for instance, versus another one that pays 20,000 more but doesn’t offer all of those other good things. Another tip: when you’re searching for your first job out of training, you want to go into an environment that you can learn from. There should be other experienced dentists around you in a professional environment. I mean, you obviously need to interview and go out and look at the practice and see how they operate. Is there proper staffing? Are you going to be efficient? If you’re paid on productivity, are they going to do everything necessary to make you as efficient as possible? Because if they don’t, then your production is going to be less and you’re going to make less. Now, as far as the other kind of compensation models, a daily rate is pretty simple.
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