How is a Veterinarian Given a Draw in a Contract?: Production in Veterinary Contracts
What is a draw in a veterinary associate employment contract? A draw is related to compensation. Basically, it means how much money you are going to make each month in some way. Let’s kind of talk about the different compensation models and then when a draw would come into play. Usually, the vet 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 just have straight productivity. In the veterinary arena, it’s almost always calculated through net collections. Net collections are any of the money that the practice receives for the vet’s personally performed services.
Whatever they collect, that’s what would be considered net collections for that vet. And one common way of doing it is let’s just say you have a one-year guarantee, and the reason why they do that is it takes time to build up a practice. Now, I guess it’s depending upon what specialty you’re in, but for the most part, let’s just say you’re a general vet. You’re not just going to hop into 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 pro Sal method commonly. And it’s kind of a methodology for a veterinary practice to pay their employees which allows them at least a small profit margin.
And in that method, they will basically take a projection of what your net collections would be. And 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 just go through some examples. Let’s say the vet is making 120,000 per year in their first guaranteed base year. And then they collected that amount as well. While under pro Sal, they would maybe knock it back to 80%. You would make 10,000 in that scenario per month. And so, they would say, alright, what is going to knock it back to 80%? And then the vet is going to 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’re going to 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. Now, the downside is if you are in a negative balance, meaning, if you collected less than they paid out, they generally are going to 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 just say it’s $6,000. Over the next three pay periods, they might take 2000 out of your paycheck until you’re back to zero. Is that fair? It just depends. Obviously, no one wants to employ any employee that doesn’t cover their own salary and expenses. If the vet is completely unproductive they can expect a termination letter.
Veterinary Contract Production Compensation
Now, if there are some underlying problems as to why a vet is not as productive and 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 and then you moved into a kind of a decreased percentage per month as your draw, but then you collected 160,000.
Well, then they would probably bump up your draw to 120,000 and then they would do another reconciliation at the end of a year. There are a ton of different ways to calculate compensation in a veterinary associate contract, but that’s probably the most common way when it comes to productivity. I also find many vets are just paid a straight base no matter what for year one to year five. And that makes it simple, to be honest.
Negotiation for Veterinarians
How should you negotiate a veterinary associate contract? There are lots of things to consider when you want to negotiate your contract or what we call an employment agreement. The first thing you want to understand is how much leverage do you have and what I mean leverage, I mean, are you just out of your schooling? Do you have any experience? Are you specialized? If you’re specialized and there are very few of you in the veterinary industry, then you have more leverage. But if you’re just out of school for general veterinary practice, you might have a little less leverage. And then also, if you’ve been practicing and you have a substantial client base and you have lots of years of experience, then you may have more leverage in relation to that.
Once you understand how much leverage you have, then 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 just the flat, you’re going to get every month upon continuing your employment. The problem with this is normally how veterinarians are compensated is not only just through their 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. So yes, the base compensation is important, but there are so 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 if you have a substantial client base and you know that you’re going to be bringing those clients in, 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 base salary is the big number on an employment agreement, but you also want to think about collection percentage as well, because you can make a lot more money with a higher collection percentage if you know that you are going to be bringing in those clients.
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’s going to take you 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, but specifically the non-compete. Right now, the veterinary industry is booming and practices that are bringing on and employing veterinarians are protecting their interests.
And so, sometimes these non-competes can be unreasonable and can attach to many locations or just many miles from one practice. So, you really 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 a lot of times, it’s overlooked because it’s something way in the future. And you’re excited about this prospective future employer or you’re right out of school and you really want to start earning money.
And so, that’s what you’re really focused on, but non-competes are those sneaky clauses in employment agreements that can really hurt you in the future. I would say more than anything, a non-compete agreement is something that you should always negotiate. Now, 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, which is very general, and if you’re specialized, I would negotiate that it’s only within your specialty.
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. 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. And then it’s really going to save you a lot of money in the end, and a lot of headaches as well.
Red Flags Per the Agreement Language
What are some veterinarian employment contract red flags? Let’s say you are just coming out of training or maybe you’re even switching jobs and you have a new employment agreement. What are some things you need to think about as far as what could make an agreement maybe not such a great opportunity? First, compensation clearly is usually the number one thing in most people’s minds. With veterinarians, a lot of them will use the Pro Sal method which involves a percentage of the net collections that the practice receives based upon your personally produced services or there’s usually some kind of hybrid where you’ll get a base plus a percentage of what the net collections are.
But negative balances in that situation can be moved forward. Let’s kind of dive into that quickly. First, if you’re a veterinarian associate and you’re moving into practice, you need to think if it’s not just a straight based salary, which many times it is. And so, in that scenario, you get paid a base amount, a hundred thousand a year, you work your normal hours and that’s that. If it’s collections-based method, your volume and how many clients you see, and how much you do per day are going to directly affect how much money you make annually. And especially lately with kind of vet staffing at difficult levels for nearly anyone in the industry. Vet techs and front office staff are difficult to find at this point.
I know plenty of vets are struggling with volumes simply because they’re having to do things that a vet tech would do in addition to seeing all the normal patients that they would. So, looking at whether the practices staff appropriately and as efficiently which will allow you to be as efficient as possible and then be as productive as possible, monetarily is important. You need to ask those hard questions. Have you had any problems with staffing lately? If you have, what are you doing to correct those problems? What’s the average volume for the current veterinarians in the practice? Those questions are important and even ask hard numbers. What is the average net collection for a veterinarian in my specialty in this practice? That way you can kind of gauge what your ultimate compensation is going to be.
If you’re looking at an employer and they’re unwilling to even give you moderate data as far as that’s concerned, it’s a huge red flag. Because normally it means, one, either they’re so disorganized, they don’t know what the numbers are, or two they’re so bad, they don’t want the vet to know about them. So, the first red flag is making sure they’re staffed appropriately, which will make you more efficient, and will ultimately lead to more money for you. The second huge red flag is if there’s no without cause termination in the agreement. In almost any provider agreement across any industry, physicians, dentists, veterinarians, or whoever, there needs to be without cause termination. And what that means is that either party can terminate the agreement at any time with a certain amount of notice to the other party. If there is no without cause termination, let’s say a vet has a three-year contract and then there’s no way to terminate the contract early.
Well, I find that the contracts that have no ability to terminate the agreement without cause usually mean that that employer has had a very difficult time staffing and they’re wanting to lock in vets under any circumstances. And if they have high turnover, they have trouble holding onto vets, it usually means they’re kind of, I would say, bad business people, or maybe they treat the vets inappropriately or not with the professionalism that they deserve. So, you absolutely need without cause termination in the contract. Normally, it would be somewhere between 30 to 90 days. If it’s 180 days a whole year’s notice you can’t accept that. It needs to be shorter just for that situation. And especially if you’re being paid purely on production and you have no way of getting out of the agreement and your compensation is just completely nose-dived, you are stuck.
Unless you find some way that they’ve breached the contract, you need the ability to get out. And then the last major red flag would be the restrictive covenants. The non-solicit and then the non-compete more importantly. The non-competition clause is enforceable in most states, there are few where it’s not, but for the most part, non-competes are enforceable. And that basically says the vet can’t act in their specialty for a period within a certain geographic radius. Normally, a non-compete would be one to two years, somewhere around there, obviously one would be more favorable. And then as far as the geographic restriction kind of varies wildly amongst location and a rural environment.
It might knock the vet completely out of the town, whereas if you’re in a big metropolitan area, it could be five miles all the way up to 20. You want to make sure those are as tight as possible, meaning, you want it only from one location or your primary location for the smallest radius possible. That way, you don’t have to necessarily move. Now, if you get a non-compete, it’s five years long and knocks you out of the five contiguous counties that you’re in, that is not a reasonable non-compete and you absolutely should not sign that. Now, for some people, they may move for a job and then have absolutely no intention of staying there if the contract ends. So, for them, the non-compete doesn’t matter at all. But if you have ties to an area, you have family in the area, your kids are going to school, there’s like 0% chance you can move if the contract ends.
You absolutely need to make sure that you have a reasonable non-compete, so it doesn’t completely affect your lifestyle for a year or two or however long it is. So, those are three major red flags. Doesn’t have cause termination, are they staffed appropriately so that your compensation isn’t affected? And is the non-compete fair? There are several other red flags too, but I’m just going to focus on those three in this blog.
Production Compensation Samples
How is veterinarian production calculated? Let’s give a little rundown of the productivity models. In the veterinary industry, the Pro Sal method is used a lot, which basically takes a percentage of the collection. So, whatever the practice received that is specific to the veterinarians personally performed services and then 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 productivity-based compensation model, there are two ways of doing it, at least as far as most vets go.
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. 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% is kind of a standard amount. Then you get 18% 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% 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% 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 injured handing an offer would be, especially in the vet industry lately, just a lack of staffing. 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 all that kind of stuff that a vet tech normally would do. They have to do that in a day in addition to providing care for the animal. And that makes the vet less efficient. You need to make certain that they are staffed appropriately, and that they are efficient. In that way, it doesn’t affect you if you are on one of these productivity-based models. If you’re kind of entertaining a new job and the employer is not explicit about either what they’re going to do to make sure they’re appropriately staffed or is kind of wishy-washy as far as, oh yes, we’ve had problems, but 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 just find a better opportunity. The places that are kind of, I don’t know if sneaky is the right word, but secretive about their numbers or staffing or anything like that. That is a huge red flag. And that would be some place that you’d most likely want to avoid. 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. And so, you need to make certain how much you’re at risk of a negative balance caring 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 you 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.
What needs to be in a termination letter for a veterinarian who’s employed at a veterinary practice? The short answer is it needs to be direct and really doesn’t actually need to include too much. To start off though, first, you need to know if you can terminate your contract, if it has to be for cause or without cause, and you’re going to start with your employment agreement. There’s normally, or there should be, and you should always look for this before you sign an employment agreement, a without cause termination. And what that means is you can have a cause, or you can have no cause at all. And you don’t have to disclose that when you terminate your employment with the veterinary practice. Normally, there is a notice provision in there that states that you must give the employer anywhere from 60 to 90 days’ notice that you will be ending your employment agreement.
There’s also going to be a clause in your employment agreement itself that normally states how to give proper notice. So, where are you going to be turning that termination letter into, is it a person? Do you have to mail it, hand-deliver it, or email it? Every contract should have a notice clause, however, they’re all vastly different. So again, read that employment agreement and it’s going to tell you how to turn in that letter. Now, most of the time, I would say that it has to be in writing. Sometimes you can email it, sometimes you can hand deliver it. You also want to be careful if it does state that you have to mail in your termination letter. Normally, there’s an address where to send it, and even sometimes there’s more than one address. So, you want to be careful. Also, it will explain to you if your notice starts the day, you mail your letter, or if you have to count anywhere from one to three days before your notice starts.
This is important. You should read this before you write your termination letter because in the termination letter, all it should state is that you are terminating your employment, this is you giving you proper notice, and that your last day will be, and then you can fill that in. If you want to thank them for all of their support and opportunities, you can, but really only what’s required is that it’s in writing that you are notifying them that you’re going to terminate this agreement. It’s also helpful sometimes if you want to let them know that you will assist them with the transition to a new veterinarian, but all situations are kind of different, depending on your relationship with them.
If you’re ending in bad circumstances, maybe the most direct route is the best route. You do want to make sure though, that you are giving proper notice for the full time. Sometimes we have clients call who need to give a shorter notice than what’s required under the employment agreement. It can be a little stressful because you could technically be in breach of your contract. So, if you ever need to give a shorter notice than you’ve agreed to give, you may want to consult an attorney or our office. We can also assist with that. So again, just to reiterate, the employment agreement if you’re terminating, it needs to be done how it’s written in the contract. And normally it’s in writing. You need to state that you are terminating your employment, you are giving notice, and that your last day, whenever that will be.
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