Fair Compensation for Adding Partners to Your Practice
Do you long to increase your practice capacity? To share the workload in a structured, long-term way with another therapist or therapists?
Is it time to diversify the expertise your practice can offer? Are you ready to elevate your profitability and secure your bottom line?
Adding a partner (or partners) to your practice may be the next step. But any partnership decision should result from a considered, informed process. Yes, once that includes setting fair compensation.
So, how can you decide what’s fair? How do you create a pay structure that serves you and a partner-to-be?
First, understand what a partnership is. According to the Internal Revenue Service (IRS), it’s “the relationship between two or more people to do trade or business. Each person contributes money, property, labor or skill, and shares in the profits and losses of the business.”
It’s a legal arrangement.
You need to vet any potential partners carefully. You’ll be in the business and legal trenches with them. It would help if you had a partner who is a professional and personal fit. Once you believe a partnership is the right step, you must decide on fair compensation.
How?
You must enter the process with your eyes open and hold realistic expectations. Researching compensation — although it might seem excessively business-like — is necessary. It’ll help you create a partnership that will work for you and your partner (or partners). Now and for the longer term. This research could save your sanity and bank account, so it’s worth the effort.
Let’s examine five crucial factors to remember when making an informed, favorable compensation-related decision.
Understand Industry Standards
The simplest way to begin is to look at the “norm” for therapy industry compensation. When looking to enter a partnership, your potential partner may have expectations based on these. They’ll also provide you with a foundation.
How can you find this information?
Look at compensation data
Professional organizations and associations often provide information that’ll help you get a feel for the standard yardstick. Yes, a partnership is different than paying a person as staff, but it’ll give you an important baseline.
For example, according to Indeed, the average base rate for a therapist is $36.64 per hour or $76,940 per year, plus additional benefits like insurance and retirement planning.
Also, check out the following:
- The American Psychological Association (APA)
- National Association of Social Workers (NASW)
- Bureau of Labor Statistics (BLS)
These organizations often provide detailed information about therapist compensation in various specialties and settings. Reviewing this data will provide insight into the average salaries, bonuses, and benefits offered to therapists in your area and specialty.
Ask
Talk with other therapists, especially trusted colleagues who are in a partnership. This can help you learn first-hand how others have structured their compensation systems. Importantly, you can also hear about any challenges or issues other therapists faced when setting their compensation. Their path can ease yours.
Consider local factors
It’s essential to take a nationwide bird’s eye view and also look at local factors:
- What’s the cost of living like in your area?
- How much competition exists in the therapy industry?
- What is the availability of therapists (and so, competition) in your area?
- How appealing is living in your city, town, or region?
By taking these factors into account, you can work towards a compensation plan that is in line with local market conditions and accurately reflects the value of your partnership.
But setting fair compensation is based on more than standard and local factors. So, what else do you need to contemplate?
Additional Factors That May Affect Fair Compensation
There is a range of factors that may impact fair compensation. Some are therapy-related, and some are not. Factors like:
- What qualifications and licensures does the potential partner(s) hold?
- How much experience and expertise do they have?
For example, a therapist with many years of clinical experience, an advanced degree, and specialized training will understandably attract higher compensation than a therapist in their first few years of practice.
- What responsibilities will they hold? Will these be split 50-50? If not, how exactly will commitments be distributed?
- Will a partner be involved heavily in the running of the business? Will they have management or administrative responsibilities? Or will they work in the primary role of therapist?
- Will compensation be dependent on their financial performance?
For example, a partner may receive bonuses or other incentives based on the fiscal success of the practice.
It’s essential to consider these factors when determining fair compensation. Remember, a partnership is a two-way street. Both parties need to be happy.
Determine A Suitable Compensation Structure
Once you understand industry standards and the factors that affect compensation, you can determine the proper compensation structure for your practice.
This structure could include a combination of salary, bonuses, benefits, equity, commission, or profit-sharing.
Salary
A salary is a fixed income the partner regularly receives, for example, bi-weekly or monthly. The salary should reflect the partner’s experience, qualifications, and responsibilities and be competitive with industry standards.
Bonuses
Bonus payments can tie into the practice’s financial performance.
For example, bonuses could depend on revenue growth or enhanced client satisfaction.
Benefits
Benefits, such as health insurance, retirement benefits, and paid time off, can help attract and retain top therapists and provide financial security for partners.
Equity
Business equity can be a valuable form of compensation, as it provides partners with a stake in the practice’s success. Equity can be granted as part ownership or through profit sharing.
Commission-based earnings
Commission-based earnings are when a partner receives a percentage of the revenue they generate by consulting with clients. Commission can provide a financial incentive for partners to grow — even explode — their client base, which can increase practice income.
Profit sharing
Profit sharing is a form of compensation where partners receive a portion of the profits from the therapy practice. A pre-determined agreement should set profit share. This option can also provide a financial incentive to wildly grow the practice.
Negotiate, Negotiate
For many therapists we talk to, negotiating compensation can be challenging. But this delicate process is designed to strike an attractive deal for you and a potential partner. It’s a necessary part of business and practice-building.
How can you negotiate well?
Here are our top 3 negotiation tips.
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Prepare thoroughly
Before beginning a conversation, ensure you have the groundwork completed. Research, then research some more. Have a good understanding of industry standards and the factors that may affect compensation. Yes, those mentioned above. Also, know what you need and expect. Being prepared enables you to have a well-informed and confident conversation about money.
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Be transparent and open
Communication is vital when it comes to compensation. Be transparent about your goals and expectations, and be open to hearing the needs and concerns of a potential partner. This conversation can build trust and ensure a fair and equitable compensation structure.
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Be flexible and willing to compromise
Negotiating compensation can be challenging for all parties. So, remember to be flexible and willing to compromise. Be open to different compensation structures. Be prepared to adjust the compensation structure if it’s necessary and in line with your values. Aim to reach an agreement that meets everyone’s needs and expectations in the short and long term.
Review And Adjust Compensation
Reaching a fair initial agreement is vital. But don’t set the rules in stone.
It’s important to regularly review and adjust compensation, when needed, to ensure pay remains fair, is (at least) aligned with industry standards, and works for both partners. This assessment could include annual or semi-annual reviews of compensation and regular evaluations of the partner’s responsibilities and performance.
Fair compensation is essential to add — and keep — quality partners. Doing so may increase your practice capacity, share the workload, diversify your practice’s expertise, boost your profits, and secure your bottom line.
So, consider what you need. Consider what a potential partner needs. Opt for thoroughly researched, planned, and fair compensation for the partners in your practice.
And, of course, seek professional advice. While we can share essential information and important factors to consider, requirements and legalities vary from state to state. We strongly recommend seeking accurate legal advice if you plan to move forward with a partnership arrangement.
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