The Therapy Business Podcast
We know how challenging growing a therapy practice can be, and don’t think it should require an accounting degree just to run your business. If you own a solo or a group practice, we’re here to help you build a business that creates more time, makes more money and serves more people.
The Therapy Business Podcast
Pay Structures for Therapists 101
Ever wondered how to choose the best pay structure for your clinicians? Today we dissect commission-based, flat rate, and salaried pay systems. Learn how the right choice not only incentivizes your team but also enhances your practice's financial health.
We'll also explore the pros and cons between 1099 contractors and W-2 employees. Discover why commission percentages vary and how these differences impact your bottom line and the trade-offs between flexibility and financial control when opting for flat rate or hourly pay.
We also highlight innovative compensation tactics for non-clinical hours and reveal why competitive benefits may be the key to retaining top talent.
Our Profit Coaching program is enrolling new practices now.
We specialize in helping therapy practices like yours achieve financial clarity, so you can focus on what you do best—helping your clients and managing your team- while we help handle all the businessy stuff they didn’t teach you in grad school.
To see if your practice might be a good fit, schedule a free consultation at therapybusinesspod.com.
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*Intro/outro song credit:
King Around Here by Alex Grohl
The hardest part about growing a group practice is pay structures. How should you be paying your clinicians? A lot of times we run into practices that have been business for a while and they're frustrated because they feel like they just didn't know what to do when they started hiring and they kind of just fell into this pay structure. And if you're considering starting a group practice maybe going from your solo business right now to having some therapists working under you you've likely wondered how should I be paying them? Well, today we're going to be going through the four main types of pay structures that we see inside group practices and kind of the pros and cons of each one and what we ultimately recommend for practices. My name is Craig and I'm the CEO of Desi Financial Coaching. Our goal is simple to help you run a therapy practice that is permanently profitable. If you own a solo or group practice, we're here to help you build a business that creates more time, makes more money and serves more people. This is the Therapy Business Podcast. As a group practice owner, you want to pay fairly and you want to pay competitively. Therapists out there we've all been there. Likely, unless you started your group practice right out the gate, you probably worked for someone and were under some kind of pay structure, and I'm sure at a point in time you came to a place where you're going okay, I'm making 50% or 60% of every client. I'm seeing, why don't I just run out and do this myself and make a hundred percent? Well, as business owners, we know that that's really not how it works. You may be collecting a hundred percent, but you don't get to keep 100%. But that fear always kind of lingers in the background that our clinicians that we have on our team are going to kind of come to that point, and so this fear oftentimes drives us to overpay our clinicians or create pay structures that maybe we are hoping will be beneficial to them but might not be beneficial to you and your business. Most of the time when we talk to our practice owners, they just didn't know. When we ask okay, so why did you choose this pay structure? I don't know. That's how I was paid when I was working for someone else, or we just wanted to make sure that they were paid enough to keep them here, and a lot of times this gets us into trouble, and so I want to walk you through the four pay structures Now, if you are a group practice kind of here's the lens I want you looking through.
Speaker 1:If you already have a group practice, you're already paying your clinicians. Start really thinking through one of these is likely how you're paying them and listen to the pros and cons of all the alternatives and see if you're struggling, if you're thinking our finances are just really tight right now, how do we overcome that? Consider maybe one of the other pay structures to see would they help alleviate some of that stress. And in our next episode we're actually going to be talking about what to do in case you are overpaying your clinicians. So if you have clinicians that you're overpaying right now, how can you walk out of that process? So stay tuned next week when we release that episode. Now, if you're a solo practice owner meaning you don't have any clinicians working for you yet this is a great time to be listening to this episode. So take copious notes and really listen and think what would be the best option for my practice as we grow and there's a lot of different pros and cons and we'll talk about them through both of those lenses as we go through, so that you can come to a conclusion of what is the best method for you.
Speaker 1:Now the first pay method we see a lot. One of the most common ones is commission-based pay. This is you give a certain percentage to your clinician based on every client they see. So if they meet with a client, they may get 40, 50, 60% of that pay. So when the client pays, you pay them out a percentage. You keep the other percentage. Now this again is the most common one that we see. Truthfully, this is how we pay our coaches when they came on. So our first few coaches that we hired on our team, it was a commission-based pay structure. There's a lot of pros to this.
Speaker 1:If you are starting out so my solo practice owners out there right now who are considering it it's great for your first hire and the reason is it's low risk. It is low risk. You're not paying them unless they are seeing clients right. So you're not paying them an hourly rate. You're not paying them a salary. It's just if they meet with a client, they get a percentage. You get a percentage If the client, if they don't have a lot of sessions that week, you're not paying them. So it can really help ease you into this place if you're worried about hiring and not having enough leads coming in. You're worried about a lot of different things. This can help ease you in. It also can provide some incentives to your clinicians to maybe increase their caseloads. Or if you are doing private pay only, maybe it might incentivize them to charge more or raise their rates, because the more they're charging, the more their clients are seeing, the more money they're making, and inversely that means the more you're making as a practice and it's giving you that opportunity to scale and grow.
Speaker 1:Commission is also good in the sense of sliding scale. So if you're working with insurance companies, if you offer a sliding scale fee structure where, if a client maybe is financially not doing well, you offer them a lower price point than maybe your average person, so if your practice offers that, commission can actually be really good for this, because that means you're not paying your clinician X dollars and collecting less, meaning your profit margin is going to squish. Your profit margin is going to be the same regardless, because they're getting, let's say, 50% and you're keeping 50%, and so if you charge less that profit, you're still getting 50% Versus again, if you're charging a flat rate, you're paying them X dollars. Your profit margin is going to squish down alongside that. So if you have sliding scales, if you're working with different insurance companies who may be reimbursed at different price points, a commission-based is a pro in that sense that you have that predictability.
Speaker 1:Now there are a lot of cons as well to commission-based pay. It's really hard to increase your margins I would say impossible to increase your margins, but that's not 100% true but really meaning, just like we said, it's great if you drop that pay scale. If you're charging less, your profit margin doesn't change. The inverse is true and that means if you're charging more, if you decide to raise your rates across the board, your profit margin is not going to go up Now across the business as long as you're overhead. You're going to have some overhead expenses like rent or simple practice softwares and those things. So of course, those are not all going to go up in relation whenever you raise your rates, but what you're paying your clinician will. It'll go up alongside whatever your rates are going up. So just keep that in mind that with commission-based it really can tie your hands. And this is where we see when again what I said before if you're in a place where you're overpaying your clinicians, a lot of times it's commission-based and this is where you get trapped, because the solution might be hey, let's raise our rates so that we can be more profitable and offset this, but then you're paying them more and it's this hamster wheel of how do we get out from under overpaying them.
Speaker 1:The other problem with commission is clinicians may compare what they can make solo. This is kind of what we were talking about before. It's this thing because a lot of times they're not paying attention to what you're paying them. Dollar amounts, I mean they are to an extent, but they're hearing 50%. I'm getting 50% of every client I see. And as we go, just like I was talking about before, there might come a time where they're going why don't I go, start my own thing and keep 100%? Why I'm getting half? I'm seeing this client and I'm getting half of what we're charging. I feel like I could just go and take these clients with me and start charging them 100% and getting to keep all that. So this can be something that is in their mind.
Speaker 1:I mean, truthfully, most practice owners, like I said, started working for someone else and this idea came into their head and then they launched. Now we all know that running a business. I remember when I started my coaching business, I was a full-time teacher and I would sit here and daydream about teaching people about how to manage their finances and man, wouldn't that be great. That's what I could spend all my time doing, and making money. And then, of course, when I stepped into the business, I quickly learned that that's the time I spend working with clients is only a fraction of what I actually do. The rest of it's marketing, the rest of it's sales, prospecting, trying to create products or trying to create our program, all these other things, and then maybe 15, 20% of my time is actually in client sessions. This is the truth with their time and money, right? So, as they're thinking, 100% of money comes to me. We all know that's not true.
Speaker 1:They need to reinvest that in their own things that you're probably covering, like their simple practice softwares, websites, marketing dollars. If they're gonna have a physical location, they need that. Any other softwares they're going to have. So there's a lot of these expenses that they often don't think about. And then the added pressure of having to market themselves, which you, as the practice owner, are likely doing the heavy lifting for them. You've established yourself. You're getting leads coming in just by being open for however long you've been open, the word of mouth whereas they're going to be starting fresh and a lot of times that can be overlooked.
Speaker 1:But this commission-based pay structure can add that seed of doubt and we will likely see higher turnover if you're commission-based versus some of the alternatives Not guaranteed. But that's just something to keep in mind. And then the other side of that is the percentage, as we were just talking about. They hear 50%. So let's say, you raise your rates, right, and that means they're going to get a pay raise. If you were charging $150 a session, you just bumped it up to $200 a session, they got a pay raise. But once again, they're still getting 50%. So it doesn't behaviorally or just emotionally, it doesn't feel like a pay raise. It feels like they're getting 50%. A pay raise would be hey, you've been doing amazing. We're gonna bump you up to 55%, right, that to them would likely be the pay raise. They're feeling You're not raising how you're paying them, it's just you raise the rates, so that means they're gonna get a little bit more money. So that's just something to keep in mind as you're increasing, as you're growing Now industry averages and I'm going to kind of give you what we have seen and what the research has shown and on the show notes I'll put a link to an article where we got some of this data from, so that you can check those sources or even do some of your own research.
Speaker 1:But what we have seen as far as industry averages on commission pay is that 1099s are typically making on average about 60% commission, whereas W-2s are about 50%, so just a 50-50 split. This is because when they become W-2, you are taking on their taxes. So as a 1099 contractor they're in charge of all their own taxes. When they're W-2, you're running payroll. You are taking on a financial load, and so this can sometimes be overlooked. You might hire someone as a contractor to start, decide to bring them on as W-2 when they hit a full-time caseload but never change their pay structure, which means you've just added on probably 8% more expense. So if you were paying them 60%, you might be adding another 8% or so in payroll taxes on top of that. So now they're getting 68% of every client they see, and that can a lot of times be where that financial pressure can come from. So those are the averages we see. Obviously that scale can go down. We've seen people who do a 40-60 split. We've seen some who do a 70-30, even an 80-20 split. And a lot of times that's where you can get into trouble is when you get up into that 70 or higher exchange where you're giving them 70% because it just gives you very minimal profit margin for you to grow, for you to pay them in other ways, for you to offer benefits or other things. So just bear that in mind. 50-50 split, if they're W-2, is typically the average that we'll see.
Speaker 1:All right, the other pay structure, the second most common one we see, is an hourly or a flat rate pay structure. Now, the pros of this is there's flexibility in your profit margins. So if you raise your rates and you don't raise what you're paying your clinician, you now have more profitability. Or if you raise your rates by $50, say that $150 to $200, well, you've just raised it that much, you don't have to raise their pay. You can give them a pay increase, but it doesn't have to be in relation. So let's just say you're giving them a flat rate of $75, right, so $150, that's half, that's 50%. If you're giving them a flat rate of $75, right, so 150, that's half, that's 50%. If you're paying them $75 flat rate off of 150, they get half.
Speaker 1:Now let's say you decide to raise it up to 200, just like we were talking about in that commission-based. In the commission-based, if you did that, they'd be getting $100 per session. Because you raised it, they're getting half, it's 100. Now in the hourly or flat rate, let's say, when you raised it from 150 to 200 a session, you decided to raise their pay from $75 to $90. So you can see right there, it's instead of commission where they would get 100, you've given them a $15 per session pay raise, but it's not in relation. You've added a little bit of profit margin a $10 per session profit margin into your business so that you again have some flexibility to grow, to invest in marketing, to grow their caseloads, which they will be grateful for. So this is not you as a practice owner being stingy or trying to squeeze dollars out. You have their best interest at heart. You are trying to grow this practice so that you can have more impact, have more reach or even reinvest that money in benefits and other things that you can provide to them outside of compensation Maybe 401k matching or whatever it is you're trying to do or things that they might be interested in. That's where those dollars can come from. All right, so that's the beauty, is the flexibility and profit margins.
Speaker 1:The other thing is just like commission-based. They're only getting paid when they see clients, so that low risk is also there. If they're not seeing somebody, you're not paying them that flat rate. They're getting paid based on the sessions, the clients that they see. So this can be another great way if you are hiring your first clinician to do it is to go in at a flat rate, hourly rate. We think of them as the same thing, because typically a client session is going to be an hour long and so you're paying them for that hour or a flat rate. So it's pretty much the same idea. I usually err towards the side of flat rate, so that way it's just a, it's kind of a commission, it's just not percentage based. They're just getting paid for that therapy session, whereas hourly can sometimes get muddied with what are they doing? Let's say they're in the office and there's an hour in between sessions and they're like well, I'm here, I'm at work, this is an hour of my time, so it can kind of muddy those waters, whereas if we just say flat rate, you get paid X dollars per session. That's your pay structure. It's a little bit cleaner and clearer Now.
Speaker 1:The cons of this is the sliding scale. So, just like we're talking about the commission, if you offer a sliding scale and you're charging less, their pay gets reduced. Flat rate it doesn't, and so you're charging 150. Let's say you have a sliding scale that goes down to $100. You're still going to pay that clinician $75. And so you see, instead of making 75, you've now made 25. So if you're still going to pay that clinician $75. And so you see, instead of making 75, you've now made 25. So if you're doing a sliding scale this is just something to bear in mind you can offer multiple tiers. If you really want to do a flat rate and you're all about having that sliding scale, you can offer different tiers.
Speaker 1:Where it's you know you have a sliding scale. Let's say, if you charge 100, you get paid 50. So it's almost like a commission. It's just you're flat rating. It based on each one. It just gets a little complicated.
Speaker 1:Same with insurance. Each insurance can reimburse at different amounts and so some you might make a little bit more money and some you might make a little bit less and really it's all about averages. So we just say figure out the average and bake that in and that's typically the easiest way to go about it and just know that if one insurance company pays less and one pays more, that we're gonna hopefully those should offset, and you kind of figure out what's the average that they are making and that you're paying out, so that you can kind of see that. And then in turn, if you're private pay which a lot of practices are only that that gives you a little bit more control on what you're charging and keeping all those numbers in check, all right. So that is the biggest con with the hourly and flat rate. It also has the issue of clinicians comparing and trying to think out of where they can go elsewhere and keep the full amount. So I don't know that that ever goes away, at least in these where they're getting paid directly for the sessions they do. So just know that. That's another area where it might be. Sometimes it's not as prevalent when it's just you get 50%. There's just something about that that you are getting paid half it just almost directly, saying we're only giving you half. And I say only we know that that's a pretty fair deal. That's can sometimes stick more than just the hourly, so bear that in mind. Now, the average that we see on hourly rate is $30 to $70 an hour, just depending on licensing, depending on a lot of different things, and so that's typically the average that we see. We know that what clinicians and therapy practices charges can vary drastically, and this also doesn't take into account that some collect insurance and some don't, and so those who do private pay only are charging usually a premium versus sometimes insurance. Obviously, you have no control over what you're getting reimbursed on that side. All right, so those are the first two main ones.
Speaker 1:Now the third one I'm going to just touch on briefly because it's not very common, but I just want to give it to you as an option which is a combination of the hourly and commission. This is where you give them a hourly rate or that flat fee, and then on top of it you give them a small commission. Now, there's not really. The main benefit of this is if you want to offset that commission side. So, meaning, if you have that sliding scale and you're giving them a flat rate, this will kind of offset how much it varies your profit margin. Same thing with just as you raise your rates, it'll help offset that profit margin side. So you have a little bit more control, but they're also getting a commission. So it's kind of like a little bit of best of both worlds.
Speaker 1:The problem is it's pretty complicated, and so to me it's unnecessarily complicated. I don't really recommend this one, but it's there. So what this could look like is they're paid that lower end, maybe they're paid $30 a session and they're getting 30 or 35% of clients the session fee. And so if you were going to look at this option, really what I would do is and if you're looking at any of these options, I would sit down and say here's what we're charging. What would it look like if we did a 50% commission? What would it look like if we did a flat rate? What would it look like if we did a combination of both and just see and then play with it? What if we raised our rates? What if we reduced it? Look at each of your insurances and try and play around with them, but odds are this one's going to be more complex than what you're going to do. That's why I'm just touching on it and I'm not going to spend a lot of time on it, because if a client were to ask us about pay structures, this is not one I would probably steer them toward.
Speaker 1:The last one, which can be incredibly beneficial but it's also can be challenging, is salary. That is where you just get paid X dollars a month, a year, and it's flat and it's done, doesn't matter how many clients you see. That is your pay. Now the pros is it's predictable for both you and the clinician. They both know what they're going to get, how much they're going to get, when they're going to get it. It's on a consistent rhythm. The other pro is this Usually if somebody's coming in on salary there's it's a little stickier, so you have less of concern of somebody bailing.
Speaker 1:Usually if they're salaried, they're got a lot more buy-in to the company, not to say that the other people don't. It's just. There's just something about that salary where I'm a part of this that can really help A lot of times. The salary as well is you can have them doing other things that maybe you're not having to compensate outside of. So meaning, every other pay structure we've talked about has been directly related to client sessions, whereas salary maybe they're doing some marketing efforts, maybe they are helping with programs or creating intensives or workshops and doing these other things that can be revenue generating, that you're not having to compensate them for directly because they're compensated in their salary and it could just be part of their job description. So there's some benefit there where you can put those things under the umbrella. Now the main con really is it's only realistic for large practices Meaning my solo people out there you probably already realize this it's hard to hire your first clinician and have them come in on salary. It's hard to hire your fourth or fifth clinician and have them come in straight on salary, simply because you are dependent on those caseloads.
Speaker 1:A lot of times when we see a salaried employee, it's somebody transitioned from one of the other pay structures. See a salaried employee, it's somebody transitioned from one of the other pay structures into a salaried role. Or you have so many clients on a waiting list Maybe everyone's full and you got these people on a waiting list. Or you have a client load that you are trying to offload, or one of those number of combinations where you know, okay, we've got X dollars in revenue just sitting here waiting to start one of those number of combinations where you know, okay, we've got X dollars in revenue just sitting here waiting to start. Let's bring somebody in and we can start them in on salary. So those are really the two instances where you might see it.
Speaker 1:But again, usually it's just the larger group practices who can afford to do this and they just have the cash to go out and hire somebody and take that risk. Because really the time long term salary is really really beneficial financially or it can be, it can be really beneficial, but the time where it's the most costly is that window of hired to full caseload. Right, they have to build up their caseload to be generating enough for you to be paying them and not only break even. You don't want them generating what they're getting paid. You want them. I mean, if you want to get to the point where the 50-50 split, so they need to be generating double what they're getting paid, ideally triple. So that's where usually you'll get your ROI out of it. So it's just kind of a slow burn to get it, but that's just something to consider. So those are the four main types.
Speaker 1:Now here's some alternative things I want you to consider when you're paying and compensating your clinicians Non-clinical hours. So if you're paying hourly, even if you're paying commission or flat rate for their sessions. What about those non-clinical hours, those times that they're maybe having to do notes? Now, typically, as you know, if there's an hour session, usually it's 50 minutes and then you have the 10 minutes baked in for any kind of notes or any admin work they need to do. But we have seen that sometimes you wanna pay out some non-clinical hours to offset any extra work they're doing outside of that 10 minutes, because we also know that it can sometimes take more than 10 minutes to do that. So what we've seen is some therapists, some practices, will do every six clinical hours, every six hours that they're doing sessions, they get paid for one non-clinical hour and this is a low, maybe $25 an hour pay where they're getting paid for that.
Speaker 1:It's also a way to incentivize maybe, clinicians doing some marketing and doing some outreach and doing some other tasks to help build your business. This can be really incentivizing because a lot of times the biggest complaint, especially if they're paid flat rate or commission, is when business is down. They are feeling the financial pinch. They're not getting paid because they're not doing sessions, and so having an opportunity for them to get X non-clinical hours per week can help them make some money. And in turn, if you're strategic with it and you're saying I'm gonna pay, I'll pay you five hours non-clinical per week for you to be doing blogs or for you to be creating content, or for you to be creating content or for you to be doing some kind of outreach or doing something where you're generating some clients, generating some leads. So those can be really beneficial ways to utilize it and it's kind of a win-win. Just be careful, because that would be, to an extent, some overhead expense and it can be easy, especially in the summer months when business is down. If you're paying out a lot of non-clinical hours, that can put a financial strain on you.
Speaker 1:The other thing to consider is how else will you be compensating them? So what other ways are you going to be paying these clinicians outside of the traditional pay structure? This is a great way to really value your employees without giving them a straight dollar for dollar, without appreciating them through their pay structure, if that makes sense. So, yes, we want to pay them well, but we also know that it's competitive out there and there's a lot of people overpaying their clinicians and yours might look over there and say well, they're paying 70% over there, why don't I go work for them and make more? Well, there's other ways that you can compensate them to keep them around that might be not hurt your profit margin. We don't want to go into it based on fear, and that's a lot of times what happens. We see that person paying 70%, so we feel like we have to pay 70% if we want to keep good people. But you could pay 50% and then also have different benefits in place, which you know. We'll talk a little bit more next time on on some of those options.
Speaker 1:But just to quickly overlook, I mean, there's, you know, 401k matching, there are stipends, there's if you want to do any tuition reimbursement, if they're going through anything, if you want to help cover any licensing, all these different things, trainings, different things that maybe you cover that they would traditionally be covering on their own PTO. Lots of different things where you can incorporate some other financial opportunities where, yes, you're going to pay some money and we'll want to incorporate that when we're thinking about our margins, but it's typically a win-win. They're getting things where they feel valued, they want to stay, you have a place, you've created a culture and a business that attracts them and what makes them want to be there, versus just being there for the paycheck, all right. And then, lastly, the thing to consider when you're paying your clinicians is are you going to pay them when money is received or when the session is complete? This is a big, big question to ask. Are you going to pay them based on so, let's say, judy met with her client on Monday, but you don't get reimbursed from them for another three weeks, right, and they're getting paid in that two-week mark? Are you going to pay them based on that session or are you going to wait until after money is received? There's not necessarily a right or wrong. Paying them before the money is received can create a financial cash stream. So just be careful on that. Just know, if you're paying them before the money comes in, you need to probably have some cash cushion in place to be able to do that. So think through those processes Really. Again, there's not a right or wrong. Just articulate it in writing to your clinicians how that's going to work. You will be paid once money is received from your client sessions, or vice versa? All right, that is our pay structures. Again, if you're overpaying your clients, we're going to be talking clinicians. We're going to be talking about that next week.
Speaker 1:Guys, if you have been enjoying the content in this podcast I have loved digging into these topics and sharing what I have seen after working with dozens of therapy practices out there. If you've been finding value in it, we would greatly, greatly appreciate it. If you would leave us a review, give us five stars, do whatever you can, whether it's on Spotify, on Apple. If you're on YouTube, subscribing to our channel, that tremendously helps us get more visibility. We're trying to get out there and help more practice owners like you, and the more stars we're getting, the more reviews we're getting, the more we get pushed out to be in front of people just like you, and so we would greatly appreciate any feedback that you have.
Speaker 1:Any questions you have, shoot them our way. Just info. At daisycoachingcom you can shoot any questions and we would love to either do a future episode on it or just address that question on one of our podcast episodes. Thanks for joining us on the Therapy Business Podcast. Be sure to subscribe, leave a review and share it with a practice owner that you may know If your practice needs help getting organized with its finances or just growing your practice. Head to therapybusinesspodcom to learn how we can help.
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