How is Veterinarian Production Calculated? | Veterinary Contract
The ProSal method is used in the veterinary industry, which takes a percentage of the collection. Whatever the practice received that is specific to the veterinarian’s personally performed services, the vet will get a percentage of that. Many are just on straight-based salary. So there is no productivity necessary, or at least they don’t get paid more for seeing more patients. Let’s just take a net-collections percentage and talk about that. As I said before, if you’re on a productivity-based compensation model, there are two ways of doing it, at least as far as most vets go.
Veterinarians Calculate Production Based on Pure net-collections
One would just be pure net-collections, meaning, you only get a percentage of what the practice receives from your services. And almost all those agreements will have a fee schedule. These are the things that you can bill for. And then these are the other things that will not count towards yours. Maybe like any food that’s bought from one of your patients would just go to the practice and not be attributed to you. Or maybe ongoing prescriptions after the first one.
You need to look into that, obviously, that varies based upon the specialty. But they’re usually very specific about the services that count towards the collections of the vet. If you’re on pure net-collections and you’ll get a percentage of what comes in, and then that’s what you get paid. Usually, it’s monthly. They would just do an inventory of what the practice received that month. Then the percentage would be taken. And then that’s what the vet would get.
Veterinarian Production Based on Draw
Another way of doing it would be they would have draw. Let’s just say they made 120,000 a year, so it’s 10,000 a month. They would say any of the net-collections received above 10,000 a month after you reached your salary threshold. Then you would get, I mean for vets, 18 percent is kind of a standard amount. Then you get 18 percent of any of the collections received monthly above 10,000 a month. Or maybe they would do it quarterly. Then you’d get the 10,000, 10,000, 10,000, and then they would take any amounts received over the 30,000. And then you’d get 18 percent of what those net-collections are.
In that model, usually, if you have a negative balance. Meaning, you didn’t bring in 10,000 per month, that negative balance would be carried forward. And if you’re only generating 10,000 a month, you’re getting paid 10,000 a month. Something is very wrong as far as the practice goes. Normally, somewhere between like 35 to 40 percent of the revenues generated by a provider would go to the provider. The rest contributes to overhead. That’s kind of the normal productivity model. Veterinarians don’t generally use just encounters or RVUs. It’s just usually a straight net-collections base. Now, a couple of things you need to think about if you’re thinking of accepting an offer would be, especially in the vet industry lately, just a lack of staffing.
Do They Have Enough Staff?
So, do they have an appropriate amount of vet techs to assist the vet in providing quick and efficient care? I know many vets who must do everything. They have to room the patients; they have to do the initial assessments and everything that a vet tech normally would do. Do they have to do that daily and care for the animal. And that makes the vet less efficient. You need to make sure that they are staffed appropriately and that they are efficient. That way, it doesn’t affect you if you are on one of these productivity-based models.
If you’re entertaining a new job and the employer is not explicit about what they’re going to do to ensure they’re appropriately staffed. Or is wishy-washy as far as, oh yes, we’ve had problems. Still, you need hard data to determine if a job is worth taking or not. And if an employer is unwilling to give you any of that, you need to move on. You need to find a better opportunity. I don’t know if sneaky is the right word for places that are secretive about their numbers. Staffing, or anything like that. That is a huge red flag. And that would be someplace that you’d most likely want to avoid.
From a Lawyer to a Veterinarian
I think the vet industry is probably simpler than some of the others. Because it’s usually just a straight base net collection, pure net-collections, or a hybrid of that. And I mean, in my opinion, it is easy to understand. But you need to make certain that the negative balance part is usually the biggest concern for most vets.
You need to make certain how much you’re at risk of a negative balance carrying forward. And especially, this is the most important thing in this blog. If you’re joining a practice and your net-collections from the very beginning and they’re carrying forward negative balances and again, if you make 120,000 a year, if you’re just establishing a patient base, it will take your time to get up to speed. And whatever that threshold is, you may carry a negative balance forward. And you might be in the hole, tens of thousands of dollars in the first couple of months.
You want to make certain that there’s like a guaranteed base draw that won’t be held against you for those first few months while you’re building up a practice. Usually, it takes 12 to 18 months for practice to reach maturity. Now, if you’re coming in and replacing a vet, that’s just left. Well, obviously, you have an established base. Therefore, it’ll kind of get you up to speed quicker. But if you’re just building from scratch and you’re on pure net-collections, it’s going to be lean in the first few months.
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How is a Veterinarian Given a Draw in a Contract?
What is a draw in a veterinary associate employment contract? A draw is related to compensation. It means how much money a veterinarian will make each month. Let’s talk about the different compensation models and when a draw would come into play. Usually, the veterinarian would have a guaranteed base for at least the first year or two of their contract. It’s very unlikely that you would come into a new employment opportunity and have straight productivity. In the veterinary arena, compensation is almost always calculated through net-collections. Net collections are any money the practice receives determined for the vet’s personally performed services.
Whatever they collect, that’s what would be considered in calculating net-collections for that vet. And one common way of doing it is to say you have a one-year guarantee. And they do that because it takes time to build up a veterinary practice. Now, I guess it depends upon what specialty you’re in, but for the most part, let’s say you’re a general vet. You’re not just going to hop into new practice and have an immediate client base. It takes a while to build up. So, they’ll give you a guaranteed base in year one. Then after year one, they’ll probably switch you to productivity/net collections model. And that’s when a draw would come into play. The veterinary industry utilizes the ProSal method commonly. And it’s a methodology for a veterinary practice to pay their employees, which allows them at least a small profit margin.
ProSal Method
And in that method, they will take an estimated projection of what your net-collections would be, based on different factors and conditions or information from past years. The vet would then receive a smaller percentage of that per month. And then there would be a reconciliation or true up at the end of the year. Let’s go through some examples. Let’s say the veterinarian makes 120,000 per year in their first guaranteed base year. And then they collected that amount as well.
While under ProSal, they would maybe knock it back to 80 percent. You would make 10,000 in that scenario per month. And so, they would say, alright, what will knock it back to 80 percent? Then the vet will get a draw of $8,000 per month. And throughout the year, they’ll make 8,000 per month. And then, at the end of the year, they will take whatever the total net-collections were for that vet versus what was paid out.
In that scenario, 8,000 times 12 minus 6,000. And then if there is a difference, meaning, if they collected more, they would then get a percentage of those net-collections. The downside is if you are in a negative balance. Meaning, if you collected less than they paid out, they would generally make you pay that back over time. And what they’ll normally do is they’ll take however much you’re in the deficit for. Let’s say it’s $6,000. Over the subsequent three pay periods, they might take 2000 out of your paycheck until you’re back to zero. Is that fair? It just depends. No one wants to employ employees who don’t cover their salary and expenses. If the vet is entirely unproductive, they can expect a termination letter.
Veterinary Contract Production Compensation
Now, if there are some underlying reasons why a vet is not as productive. This is big in the vet industry right now due to lack of staffing. If you can’t get the vet techs, if you can’t get the front office staff if they can’t have any efficient workflow, and the vet is doing all the things that they didn’t have to do before, that will slow them down, and their collections are going to decrease. Just a side note. You need to make sure there’s language in your employment agreement that states the veterinary practice will provide you with proper support to make your practice efficient.
Back to the draw, it could change over time. Let’s say you had a 120 base. Then you moved into a kind of a decreased percentage per month as your draw, and then you collected 160,000. Well, they would probably bump up your draw to 120,000. And then do another reconciliation at the end of a year. There are many different ways to calculate compensation in a veterinary associate contract. But that’s probably the most common way to productivity. I also find that many vets are just paid a straight base for years one to five. And that makes it simple, to be honest.
Pros and Cons of Employment at a Corporate Veterinary Office
What are the pros and cons of a veterinarian working in more of a corporate clinic setting? First, are you working as an employee or 1099 independent contractor? When working for a corporation, there are a lot of pros. Starting with the benefits typically offered, such as health insurance, retirement, disability, life insurance, sometimes travel, and cell phones. The list just goes on from there. More benefits will be offered to you in a more corporate clinic. Also, the facilities are typically more standardized. If there’s more than one location that you’re going to be providing services at, typically, they’re standard between the locations. And then also support staff. Usually, you’re fully staffed with the people you need and the equipment within the facilities.
Salary Talks, Corporate Practice or Solo?
So, this is great. You’ve got benefits, the facilities are great. Sometimes the pay can be more in a corporate setting. I would say often. You are typically compensated more. Those are just kind of the pros, depending on what you’re looking for. Suppose you’re looking for benefits (which will be provided with any W2 position). In that case, if you’re looking for things that are more standardized policies, also with admin, then that’s considered a pro for a corporate clinic.
Some cons you want to think about are you’re normally not able to negotiate quite as much in an employment contract. When starting your employment with them, it’s typically offered the same sort of agreement for all the other similarly situated veterinarians. Also, you want to think about your compensation. That is one thing that you can sometimes negotiate in a corporate clinic.
Other Important Cons
Some other cons and probably the biggest one. Well, I would say there are probably two. One, there are usually a lot of expectations for how many clients you will see in their animals per day. There are quotas, there are maximums, and there are minimum expectations that you must meet. And if you’re not meeting those, there are consequences to those. That’s something that you want to consider if that’s something that you feel up to. I would say another con is usually the non-compete clauses. They are extensive. There will probably be multiple locations, large miles from each location that you will be restricted to. Also, be careful if you are working as an independent contractor that the agreement does not contain a non-compete clause.
And then, usually, for an extended period, the biggest con of a corporate clinic is those non-compete clauses. Because those can come back to bite you. Going back to the pros, I would say another pro would probably be just marketing and advertising. They’re marketing and advertising on your behalf. They’re bringing in tons of clients and their pets, so there’s no worry that you will have that client base there. It’s easy to build up because you have them supporting you in this setting.
Veterinary Clinic Contract and Benefits
How should you negotiate a veterinary associate contract? There are many things to consider when you want to negotiate your contract or an employment agreement. The first thing you want to understand is how much leverage do you have and what I mean by leverage. I mean, are you just out of your schooling? Do you have any experience? Are you specialized? If you’re specialized and very few are in the veterinary industry, you have more leverage. But you might have a little less leverage if you’re just out of school for general veterinary practice. And then also, if you’ve been practicing and you have a substantial client base, and you have lots of years of experience, you may have more leverage in relation to that.
Once you understand your leverage, you need to understand what you should be asking for. The first thing I always see our clients want to negotiate is their base salary. Base salary or base compensation is the flat you’ll get every month upon continuing your employment. The problem is that veterinarians are normally compensated, not just through base compensation. You’re also normally compensated through collections. That’s the typical sort of layout of compensation for really any type of veterinarian. Even if you’re specialized, it’s normally base compensation, and then there’s a part of collections.
Base Compensation is Not Everything
So yes, the base compensation is important, but there are many other aspects to an employment agreement. Your percentage of collections can be huge. You want to fight probably for a larger percentage of collections over just a base salary because the base salary will never change unless you renegotiate in the future. But suppose you have a substantial client base, and you know you will bring those clients in. In that case, you will want a higher percentage of your collections which you can make well over your base salary. It’s something to consider. I know the base salary is a significant number on an employment agreement. Still, you also want to consider the collection percentage. Because you can make a lot more money with a higher collection percentage if you know you will bring in those clients.
Clinical Office Work Pros and Cons
Now, if you are right out of school and you do not have an established client base, and maybe you’re not replacing someone at a veterinary practice or clinic, they’re just expanding. It will take a while to build up that client base. Then you, in that situation, might want to fight for a higher base compensation or salary for a year or two so that you can establish, as I said, that nice client base. Other things that can be more detrimental to you than even the compensation are those restrictive covenants. And what I mean by restrictive covenants are non-compete clauses and non-solicitation clauses, specifically the non-compete. Right now, the veterinary industry is booming, and practices that are bringing on and employing veterinarians are protecting their interests.
Look Out For The Non Competes
And so, sometimes, these non-competes can be unreasonable and attach to many locations or just many miles from one practice. So, you want to consider that because if you are establishing a client base, you’re working hard, you’re bringing in clients, and then you decide to leave the practice, or they decide to terminate their employment with you, you could have a serious problem. You might not be able to practice in the area. You could even have to up and move your family. Non-compete clauses are extremely important that you want to negotiate in your initial employment agreement. And often, it’s overlooked because it’s something way in the future. You’re excited about this prospective future employer, or you’re right out of school and want to start earning money.
And so, that’s what you’re focused on, but non-competes are those sneaky clauses in employment agreements that can hurt you in the future. I would say more than anything. A non-compete agreement is something that you should always negotiate. They’re normally a mileage from specific locations that you can negotiate. And then also, for a specific period, they can be anywhere from six months to three years.
And I would always try to negotiate that amount of time down and then always the miles down. When you’re negotiating how many miles, you also need to consider, can you find work outside of that restricted area without having to up and move? And then you also want to know what’s restricted. Sometimes the non-compete clauses specifically for veterinarians may just say that the practice of veterinary medicine is very general. I will negotiate that it’s only within your specialty if you’re specialized.
Business Non-Compete
So, non-compete clauses want to negotiate those, most important. Non-solicitation clauses just mean you can’t solicit clients or employees coming with you. And sometimes that period can be negotiated down to six months or a year before you can reach out directly to those clients or to those employees. Then you have your sort of ancillary benefits. In your continuing education, typically you’re given an allowance every year, which is anywhere from 2,000 to 4,000 typically within a veterinary practice. You can negotiate that money because if you don’t, then you must pay for your continuing education to keep your license. So, that’s something I would negotiate as well. And then also any sort of dues, fees, licensing, all those costs really add up.
And we don’t think about that when we’re just looking at the base salary and how much money you’re going to make, but these sorts of costs can be negotiated at the beginning. Then it’s really going to save you a lot of money in the end, and a lot of headaches as well.
Breaking a Corporate Clinic Contract
Can a veterinarian break an employment contract? I think the most important matter is defining what break means. Do you mean, can I terminate the contract, meaning get out of it if I’ve already signed it and have started? Yes, that’s one way to think of breaking the contract. In my mind, breaking a contract usually means you’ve signed the agreement but haven’t started yet. But we’ll kind of look at both of those. Let’s talk about the first one first. Can you break a contract? In any employment agreement, there’s going to be language about how to terminate the agreement. And there are generally four ways to terminate an agreement.
You can do it if the term expires, then there’s no automatic renewal, so let’s say you have a two-year contract, get through the two years, neither party has renegotiated an extension, the contract ends, it’s terminated. Next, by mutual agreement. If either party is like, you know what? This isn’t working out. Let’s move on. The contract can end. The third would be for cause termination.
If one party is in breach of contract and doesn’t fix the breach, then they will have the option of terminating the contract immediately. And then the last way would be without cause termination. And that just means either party can terminate the agreement at any time, for any reason, with a certain amount of notice to the other party. In the veterinary industry, somewhere between 30 to 90 days is kind of a standard amount for without cause termination. Just because you’re utilizing one of those four ways of terminating a contract doesn’t necessarily mean you’re breaking it.
Is Negotiation Possible for Non-Compete?
Depending upon where you are, if you’re in a bigger city and there are dozens to hundreds of different practices, you may be able to work after the contract terminates. A smaller radius would be considered more reasonable. Now, there will be employers that try to push the limits of the geographic restriction, and they’ll do it in several ways. One, they could try to stretch out the mileage 30 or 50 miles from your practice location. That would not be considered reasonable in most places. Two, if they are a vet clinic with multiple locations within a city, they may say it attaches to every location they own. If you’re not working at those other locations, it is not fair if that is included in your non-compete. You want to remove that and limit it to where you just work.
Now, what if you work at multiple locations? Well, one or two locations, okay, it could attach to both of those, but an employer may try to be sneaky, and it states any place you’ve worked over the last 12 months it attaches to, and maybe they have four or five locations. And so, they might just try to place you at one location one day per year to attach the non-compete to that. You need to make certain that they are not allowed to do that.
And the easiest way to do that is just to state in the contract that if there are any locations that the employer wants you to work at beyond the initial location, there must be a mutual agreement. When is the right time to negotiate a non-compete? Before you sign the contract. You have no leverage after the fact if you sign an agreement and then come back to the employer.
What are the effects of non-compete clauses in the veterinary field?
So, you want to ensure that they understand that the non-compete will not work for you for whatever reason. People who live in a city have kids who go to school, have family in the area, and cannot move after the contract is terminated. This could be the biggest problem with any kind of employment contract. Others just move to a city for a specific job and do not care because they don’t plan on staying there if the job doesn’t work out.
You need to prioritize what’s most important to you, but the non-compete, certainly for a lot of my clients, is the number one thing. And you need to make it clear to the employer. Look, I’m not going to accept this the way it’s written. If you want me to work for you, we’re going to have to come to a compromise, and some will say, okay, and then others will say, no, take it or leave it. And then it’s up to you to decide whether it’s something you want to leave or not. So, is 10 miles a reasonable non-compete for a vet? For the most part, yes, it would be considered reasonable, but you must take into account all the other factors I just talked about.
Can You Break a Veterinarian Contract?
Can veterinarians or veterinary associates in animal care practice break their employment contracts? And the short answer is yes. They can. However, if this means that veterinarians or the employee, in general, are breaching the employment contract and not adhering to the employment contract terms, then they would likely open themselves up to liability, which includes litigation costs and arbitration as set in the employment agreement.
The employer can ask for damages that might include recruitment costs for new veterinarians for the practice, they may ask for administrative fees, credentialing fees, and the list kind of goes on from there because of the resources they spent to find a new employee. So, it’s never a good idea for veterinarians employed in veterinary practice to break employee agreements. We never advise our veterinarians or veterinary associate to breach their employment contracts. The best way to break or terminate the contract is by doing it exactly as outlined in the contract agreement. Typically, there is a clause called a termination clause, and there are normally three ways to terminate a contract agreement.
Mutual Agreement Termination
The first way is that both parties, the employer and employee, mutually agree to terminate the contract and go their separate ways. However, this is rare, and we don’t see it happening often.
For Cause Termination
The second way is for-cause termination. And this is typically weighted more towards the employer. The employer can terminate the veterinary employment contract without notice if any egregious acts happen; typically, they are listed on the veterinary employment agreements themselves. This might be violating a law, being convicted of a felony, and losing your license to practice animal care. And again, the list just goes on from there.
Without Cause Termination
Then the last way to terminate a contract would be for no cause, and a no-cause termination is typically outlined in the employment agreement. You must give the other party 60 to 90 days’ notice, and then the contract is terminated, and you can go your separate ways.
Proper and Effective Notice of Termination
The veterinarian’s employment contract also typically outlines how veterinarians or a veterinary associate will give that proper notice. It normally has an address, and you would either mail in a letter, hand-deliver it, and in some rare instances, you’re allowed to email it. We also encourage our clients to give notice in multiple ways, as long as the law allows for it. The proper way to save the employee from liability is to properly terminate a contract, so both parties can save on resources by avoiding litigation as permitted by the law.
Is There Any Repercussions?
But when you’re deciding to do this or break the veterinary employment agreements, you also want to keep in mind, are there any repercussions? Meaning, do you have to pay back any signing bonuses, or any relocation expenses, so you are near the job site? Typically, those have a payback provision or a forgiveness period. And if you are to break or terminate the veterinary contract within that time, you must repay those. So, that is something you want to look at in your veterinary contract, and keep that in mind whenever you decide to break or terminate the veterinary contract agreements.
Restrictive Covenants
And then lastly, most veterinary employment agreements have a provision with restrictive covenants. Restrictive covenants include your non-compete and non-solicit clauses to clients and employees in animal care practice. In the non-compete clauses, you want to ensure that you’re not practicing animal care within the restricted area of practice during your restricted time, as determined by the noncompete clauses in your veterinary employment agreement. Typically, you’re not allowed to solicit clients, which means veterinarians leaving the job can’t ask clients or entice them to come with the veterinarian to a new job location, and the same for employees at your clinic or practice.
In summary, you never want to breach a contract. If you want out of it, you need to terminate it properly and give proper notice to your employer. And then you also need to remember, are there any repercussions to look for? Sort anything you’ll need to pay back, like signing or relocation bonuses, and then look at those restrictive covenants to ensure you’re not violating any of them.
Lawyer Review of a Non-Compete Agreement
Veterinary practice noncompete clauses can be rather complex for the employee and are certainly relevant to your work life moving forward. Some people prefer to take their veterinary practice agreements to a lawyer to have them review said veterinary agreement before they sign on the dotted line. Doing so will likely give the signer some peace of mind, and it will certainly make it less intimidating to try to figure out if the documents that you just signed are in your best interest or not. Beyond the non-compete clauses, veterinarians must also determine their malpractice insurance responsibilities if the veterinarian’s contract is terminated. What type of professional liability policy did you have?
If you would like more information about employee non-compete agreements, how they operate, the law that covers noncompetes, and what you should do if a company gives you an offer and you are asked to sign one, please contact us today! We will be more than happy to discuss the content of clauses of the agreements veterinary practice, average job wage, a different approach in negotiating the veterinarian’s contracts clauses, and other resources.
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