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
Help! I'm Overpaying My Employees!
Many therapy practice owners are unknowingly overpaying clinicians, jeopardizing their financial stability.
Today we tackle the financial challenges that can come from long-standing relationships and loyalty with clinicians. This episode serves as a crucial resource for both solo and group practice owners who strive to balance financial health with employee satisfaction.
Understanding the intricacies of clinician pay structures is vital for maintaining a financially healthy practice. We’ll discuss transitioning from percentage-based to flat-rate payments, the hurdles insurance-based practices face, and how to handle urgent situations with tough conversations about pay restructuring.
Don't let the daunting task of analyzing your practice’s financial metrics hold you back; this episode will take you through the process. Listen to gain insights and actionable steps for ensuring the long-term success and financial health of your practice.
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
Now more than ever, it's so important to be compensating your employees well, but what do you do if you are trapped overpaying your clinicians and it's hurting your therapy practice? 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. In last week's episode, we dug into the different pay structures that we see within therapy practices and we went through the four most common ones. If you didn't catch that episodes, I highly recommend going back and listening to it, because it's got a lot of insight into the different structures that you might be using or you might have considered using, or they could even be options for you to pivot to If you're stuck in this trap of overpaying your clinicians. Now we see this a lot. Somebody comes in, they sit down, we look at their numbers and we look at their employees and they're stressed out and frustrated because every time payroll comes around, they're overwhelmed. They feel like they don't have enough money. It's draining the bank account. They feel like they can't get ahead financially as the business owner, the practice owner. They're stuck seeing clients and then maybe they want to reduce their caseload. They just don't see a path forward. And when we're digging through the numbers, what we can sometimes find is that they are overpaying their clinicians, that they may have one or two people who, either based on licenses or based on tenure, have been with them long enough that they're getting paid a pretty high percentage and it's hurting the practice and it's preventing growth. Now we can point this out, and sometimes they'll even point it out to us and say you know what we know, but we love this person. They've been with us since day one. They are a founding member, they are loyal, they really buy into what we're trying to do and they are amazing at what they do. But what do we do? So when you face this, this can be really stressful.
Speaker 1:Now, if you are a solo practice owner and you haven't opened your practice yet, I want you to know. This episode is kind of a warning for you. So I recommend listening and using this info to guide your decision making as you hire your first clinicians. But for my group practice owners who have clinicians, if you're overpaying them. There's some things you can do Now. The first thing we recommend is to run a profitability analysis Now. Don't fall asleep on me I promise it's not as boring as it sounds. I can feel a lot of you going straight to the next button on your phone. We want to do a profitability analysis Now.
Speaker 1:In episode 20, we did an episode called how profitable are your clinicians. We walked you through a process that we do with our clients where you can really pinpoint some key numbers. I'm going to give you just a broad overview here, but I do recommend, after listening to this episode, go back. If you're going to be analyzing these things, go back and listen to that episode because it'll walk you step-by-step through how to do this. But we want to know what percentage are your clinicians getting paid Now, if you're doing a commission-based pay structure, this might be simple for you to figure out because you know they're getting 50%.
Speaker 1:That's what they get. That's the pay structure. If they are flat rate or salaried, this might take a little bit more number crunching to figure out. Every time they collect money, what percentage are they getting? If you're offering a sliding scale, this can also offer a little bit of nuance and maybe just a little bit of extra number crunching on your end. So, meaning, if they're getting paid hourly and you have a sliding scale, the percentage could vary. So we're trying to find out that average percentage.
Speaker 1:Every time you collect payment from a client, on average, what percentage are you paying out to your clinician to do that session? Once we have that pinpointed, we want to figure out their average fee, and that might have to be the first thing you do so when you collect payment, what's the average fee they're collecting? Again, if you're private pay only and you have one set price point, this will be really easy. If you collect insurances, you know different varying reimbursements there. Or if you offer a sliding scale, this might just be a little bit of number crunching. Usually, in simple practice, you can export a report where you can look at the client, the fees collected from clients, and just really find an average. Look at it in the Excel sheet and just collect an average fee collected for each clinician. What percentage are they getting paid?
Speaker 1:Now, the last thing we want to include in this is any benefits you're providing outside of the traditional compensation. So are there any benefits like PTO, like 401k, matching any health benefits? Are you paying them any non-clinical hours? So are you paying them to do notes or to do marketing or to do non-client facing work? Are they W-2? We need to include some payroll taxes in there. So there's some things you want to add in to this to really pinpoint what their overall percentage is.
Speaker 1:So let's give you a good example here. Let's say you pay them 50% commission. Every time they do a session they get paid 50% to work with that client. Then maybe you're paying them the payroll taxes, maybe that's another. Let's just call it 5% for simplicity's sake. And then let's say you have a few other benefits, that's another 5%. So there we can see that you are giving. When you collect a payment, you're giving that clinician about 60% of what you're earning.
Speaker 1:Now, a lot of times this is where it can sneak up on you. So you may be sitting down at the table thinking we do a commission-based and it's 50% and that seems like it should be okay. Why are we struggling? When you dig into these other numbers the again payroll tax, any overhead expenses which we didn't really even talk about that gets a little bit stickier and more complicated. But payroll tax, all those benefits that can really drive that price up and suddenly you might realize we're paying them 70%. No wonder we're struggling to keep things up and afloat Because on top of that, we still have to pay our rent and we still have to pay simple practices. We still have to pay all these other things. So take all of those into account their benefits, their payroll, taxes, any softwares, if you're paying for a Psychology Today profile for them, if you're paying for a simple practice subscription for them, all these things include those and then figure out what percentage are they getting, and then the opposite of that would be your profit margin.
Speaker 1:This in itself is going to highlight some problem areas. The other thing you might find is that some clinicians are more profitable than others, and we often find that it can surprise you which ones are which. You may find that the clinicians you're paying the most, which maybe right now your gut is saying oh my gosh, we are strapped, we're tight, we don't know what to do. We're paying this clinician over here the most. What do we do about it? They're hurting our business. You might find that they're actually the most profitable and the one that's dragging you down is the one at the very bottom, who's getting paid the least but is also collecting the least. And so there's a lot of different discoveries that you might find as you do this.
Speaker 1:But oftentimes what we find, especially if you are paying a commission rate, is it's that person you kind of already know. You probably brought them in at again 70% commission 70-30 split, and that was already too high. And then you add in these other things that we just did, you might be creeping up to the 80 or 90% mark, and no wonder you're struggling. No wonder you're struggling to get ahead, because you are just using barely any. You have 10% cash on top of that to pay all the other bills, to pay yourself, to pay your taxes. So finding out those numbers is key. Once you find that out, we wanna analyze our pay structures. So let's analyze how are we paying your clinicians? If it's commission, if it's flat rate, how is that working for you? Again, we went through all these options in last week's episode. Be sure to check that out if you want to hear the pros and cons of each pay structure. If you haven't heard it yet Now, why we want to analyze this is it's not too late to make a change.
Speaker 1:If the commission base is hurting you, then we might need to make a shift Commission base. While is great when you hire people I mean that's how we, when we bring on new coaches, that's how we pay them is they get a percentage of every client they're working with. It's great because it's low risk. It's they're getting paid when they work with clients. It's they're getting paid when they work with clients. But the inverse of that is if you put that commission too high, you can raise rates, but their pay is going to raise in relation to it. So if you're paying them 70%, you could double, triple, quadruple what you're charging clients. Your profit margin is still going to be 30%. Right, it's not going to change that profit margin based on what you're paying them in that commission split. So re-evaluating this, the other thing and this could just be us diagnosing maybe, why maybe things were fine for a while and then all of a sudden they got tight is if you had some of your clinicians starting at 1099 and then they shift into that W-2 role, did you change how they were paid?
Speaker 1:We see a lot of practices who they will start a client or a clinician at a 1099 role and then when they reach full-time status, they will move them into a W-2 position where maybe they'll start getting benefits and things. But oftentimes what we discover is they brought that clinician in at a 60% pay rate, so they're paying them 60-40 split, so the clinician's taking 60%. Then when they become a W-2 employee, they still are paying them 60%, but the business is taking on payroll tax, they're taking on other expenses, they're taking on all these other things that maybe they weren't when that clinician was a 1099 employee. So usually when you make that shift and if you have 1099, so you're considering moving into a W-2, usually it is the norm, or recommended at least, to reduce their percentage. And you can explain it that long-term or big picture they're probably making close to the same. So you maybe, if you're paying them 60% as a 1099, you roll it down to 50% and you're telling them we're taking over your, we're going to be paying your taxes through payroll. You are no longer responsible for paying your self-employment tax. So that's where that difference might be coming out is we are going to be, we're taking on that tax burden for you, and so in order to do so, we need to just restructure the percentage. So bear all that in mind that if you didn't do that. That could be why and you might need to go revisit that conversation and boils down to we made a mistake and we might need to restructure. So keep all those things in place.
Speaker 1:You're analyzing your pay structure. What are you doing now? Is it the best method for you and is it the best method for your practice? If you're paying salary, can you afford to be paying your salary? That's where that clinician analysis may be sounding. An alarm is if you're paying them a salary and realize they're not even making what they're getting paid or they're barely making more than what they're getting paid.
Speaker 1:The third thing we want to do is research your clinician pay rates. Maybe in your area or just across the board, what is the standard? What are clinicians on average? What's the industry standard for pay? And it's gonna vary for each of those different pay types. So whether it's commission, whether it's flat rate, those are all gonna be a little bit different. But in your area specifically, what is the average pay rate? Are you too high? Are you too low? Are you on par this? Are you too high? Are you too low? Are you'm afraid that they're going to go work for somebody else? I don't want them to feel undervalued, so a lot of these things that we almost overcorrect. And so if you're looking down and you have somebody making 70% and you find that the average in your area is 50%, then you realize, okay, we are way above that average. We could pay them 55% and still be competitive against the other people and drop what we're paying them down significantly and improve our profit margin.
Speaker 1:So really look at your competitors I don't want to call them competitors. What's the industry standard for pay? And depending on your pay structure, it might vary on different things. You could do some Google searches. You could, if you are networking with other practice owners, just take a poll. If you're in any Facebook groups, take a poll, see what's everyone charged or paying their clinicians and see where do you fall in that realm and if you're too low, oftentimes, if you're having a problem with turnover, if you're having a problem with clinicians leaving after six to 12 months, that could be just because you're not paying them enough and you're not competitive enough. That's probably another topic for another podcast today where you are focusing on overpaying.
Speaker 1:But just know that knowing your competitors, knowing your industry's standard, is going to really help, give you just a litmus test of where you should be. Like I said, most practice owners don't know what they should be paying when they go into this, and so they just kind of fall backwards into it. So this gives you the data. I know I said up top, we're going to tell you how to solve this problem, but before we can solve it, we got to pinpoint where that problem is. A lot of times it's just a gut feeling or it's this overwhelm, but usually when it comes to the money, it's this murky water that we can't see through. And doing these things figuring out your profitability of each clinician, figuring out your average fee or average pay structure, figuring out what the industry standard is is all going to give you some data to look at and say out what the industry standard is. It's all going to give you some data to look at and say where do we stand? Is this really the problem? Are we struggling because of their pay structures or did we just uncover that there's another problem? Maybe we're overpaying in a building, maybe there could be a number of other things.
Speaker 1:So what do we do at this point? Well, if you find in your data that you're overpaying somebody, or if you just know, because it's commission-based. We're paying them 70% and we shouldn't be doing that, because Craig keeps using that as an example of a bad commission split. And we're doing that. So what should we do? Well, first thing we want to do is try and consider restructuring their pay and if you can do so without reducing their current pay.
Speaker 1:Now, that kind of maybe sounds like it doesn't make sense. It doesn't always work, but sometimes you can look and say, okay, they're getting paid X percent, so they're getting paid 70%. We can't afford to keep doing that. Maybe we'll switch them to a flat rate and maybe we'll pay them what they are getting paid, and so they're still going to be getting 70%, but it's a flat rate. So, for simplicity sake, you're charging a hundred dollars. You're giving them $70 at 70%. So now you stop and you say, hey, we're gonna restructure. You're getting $70 per session. It's the same. You're getting the same dollar amount every session. It's just now. It's a flat rate instead of a percentage.
Speaker 1:What this does is it gives you the ability to, over time, increase rates. So the next time you increase rates let's say you increase them from 100 to 150 per session they're getting $70. Maybe, if you give them a pay raise. It's 80. You give them $80. So you give them a $10 pay bump, but you just raised the fee up to 150. So you see how that's going to automatically give you a little bit more breathing room. It's going to reduce that percentage down significantly. That's going to bring it down to almost 50%. It's going to be between 50 and 60% at that point if you're paying 80 and charging 150. So it gives you the ability. It's not going to be an overnight switch, but this is going to give you the opportunity to start to create that breathing room.
Speaker 1:If you are primarily insurance-based, you're getting your money from reimbursements. You're not going to have a whole lot of control over what you're receiving in compensation, so it might not work Again. That's why I say in an ideal world, we can change their pay structure without coming up to them and saying, hey, you're going to start making less money, but you're still going to see the same number of clients. So if we can somehow do it gradually, then let's do that. If you are in trouble like it's dire, we need to fix this or we're going to be out of business in the next couple months. That means it's going to be time for some tough conversations. Or if you again are insurance and you don't have control over what you're charging clients, it might be time for some hard conversations. And that just is. You know we need to revisit your pay structure and that might mean they're going to take a pay cut and again, you can.
Speaker 1:If it's not dire, you can gradually do it. Hey, we're going to it's going to be 70%, we're going to slowly bring it down to 65%, down to 60%, and if you have control over the pay, this could be. The other option is you just slowly increase the pay rates, what you're charging as you reduce it. Or it's just you know we've been paying you 70% and truthfully it's we just we didn't know we can't afford to do it and so we're going to have to move you down to a 60% split. And it's, it's tough, and they might leave, they might. They might pack their bags, take their ball and go home and while that is hard, it also kind of solves the problem.
Speaker 1:I don't know the details of your numbers, but if that clinician is hurting your business financially, then if they walk you might be in a healthier spot. You might be. And when you're doing that profitability analysis, that could be something you look at. What would our business look like if this clinician wasn't here? And that could be the other hard conversation. You might have to let somebody go Now. If you love that person and you want them to be there, that's where having maybe the restructure and pay is the best route to go.
Speaker 1:But we need to remember that the financial, healthier practice has to be a priority. If you are prioritizing that person because I know you probably care about them you care about your team, you care about your employees I know I do. I care tremendously for my team, but if I am doing things that are hurting my business financially, they may not have a job to come to on Monday. If I am trying to avoid cutting one person's pay and that might lead us to not having a practice anymore and not having other team members out of a job, not being able to serve as many people, not being able to really expand our reach out there there are people and that's the other side of this is there are clients, there are people looking for support who maybe aren't finding you, and it could be just because you're not putting enough dollars, you're not able to extend your handout far enough to reach them.
Speaker 1:So we need to really step back and, outside of the person, think what is best for our business, and that means, again, some really tough conversations. This is the side of business that we don't think about. You know, when we go out on our own. If you started working with somebody else and you're like, you know, I just want to do this myself and try to make more money and be able to keep my full session fee, this is the stuff they don't tell you about. They don't tell you. You're going to be spending all your time and energy marketing and having to make tough, tough, tough decisions on what to do with your team.
Speaker 1:But I think these are going to be crucial. They're going to be so helpful so that tough conversation might be what has to happen. You might also have to increase your workload. So, truthfully, if you are seeing more clients, that's going to dilute your or that's going to improve your overall profit margin, because you're not paying somebody else to see those people. So you're collecting that a hundred dollars. You're not paying somebody else 70. That's full hundred is flowing through the business. Now, once again, it's not all going to you individually, but that's more money going into operating expenses, more money getting set aside for profit and for your salary. So that can help, but that's not a long-term solution.
Speaker 1:Our goal usually is to reduce your caseload so you can focus on the business stuff. So that would be more of a band-aid temporarily. Maybe as you're restructuring during that time period from we are moving you to $70 a session and says 70% and we're going to slowly increase your rates. Maybe during that time you are taking on more clients to just kind of add some more cash into the business to help with that transition. But the key here is we want to have a game plan so you're not stuck working a full, full caseload forever, because that's not what we want. That's why you hired a team. Right is to help reduce that caseload and help you be able to focus on the bigger picture and reaching more people.
Speaker 1:Now, before making any changes, I do need to throw out the caveat and the disclaimer that check your labor laws before you go and drop someone's pay. Every state's different. So just look into your labor laws of what's okay for us to do Before you make any change. Just go look into that. Or an HR rep. If you have an HR rep, talk to them. Have those conversations of what you're thinking about doing, and is that going to violate any kind of protection for your team or your employees?
Speaker 1:All right, I know this has been kind of a heavy, heavy conversation For those solo practice owners. I hope this doesn't scare you away from hiring because, truthfully, having a team is one of the most rewarding, greatest things that you can do. It's just we want to go in with a game plan. So if you are considering hiring a team, just keep this all in mind. Go back and listen to the last episode with the pay structures. Get your game plan in order before bringing somebody on and make sure that it financially makes sense. If you're already in the weeds, try these hard conversations.
Speaker 1:If you need help with that clinician analysis, go back and listen to episode 20 or reach out to our team members we do these for our clients all the time where we will dig through the numbers and present you with a report that says how profitable each clinician is and what's your average fee and what's the average that you're paying them.
Speaker 1:And all these number crunching that I know you probably don't have the time for, or maybe even just the interest in doing so. In the description, as always is a link to meet with one of our coaches. We would love to help you do it All right. Good luck and I hope your team is thriving and if you find that a hard conversation is in order, I believe in you. I know that you can do it and we're rooting for you. 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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