Note: This blog post is being provided as suggestions and ideas from which to construct bonus systems for your office. This is not to be taken as a guarantee that the information provided is appropriate to your practice. Each practice is individually responsible for ensuring that any bonus system implemented complies with the applicable federal, state and local accounting, tax and employment laws, rules and regulations governing the place in which your practice is located. These suggestions do NOT constitute legal or accounting advice. You should seek advice from your own accounting and legal advisors as to what is appropriate to implement in your practice, prior to implementation. MGE: Management Experts, Inc. is not responsible for any claims, real or otherwise, associated with this blog post or any part thereof.
When it comes to increasing productivity, motivating your team, and sharing the rewards of a growing practice, an incentive or bonus plan can be a game-changer. Not only can it make your practice more consistently productive, but it also gives your team members a sense of ownership and drives them to take a larger stake in your success. And when the labor market is competitive (which it still is in some areas), a solid bonus plan can give you an extra edge when it comes to attracting and retaining top talent.
In this post, I’m going to walk you through a few of the basics of setting up an incentive or bonus plan for your practice. We’ll cover the key elements of an effective plan, what to avoid, and I’ll even share a sample bonus system to download that you can adapt for your own office.
Why Create a Bonus Plan?
First things first—why bother with a bonus plan in the first place? After all, you’re already paying your team for the work they’re doing, right? The
answer lies in the fact that a bonus is designed to incentivize more productivity. If you’re going to pay out more money, you need to ensure that your practice is also bringing in more revenue. Everyone has to win—the staff, the practice, and of course, you as the owner doctor.
A well-structured bonus system can motivate your team to go above and beyond, knowing that there’s something extra in it for them if they do. But there’s a catch: if the system isn’t designed properly, you could end up paying bonuses when the practice hasn’t actually made more money. That’s a losing game.
Key Rules for Designing a Bonus Plan
A few things to consider when creating a Bonus System for your practice:
1. Base the Bonus on Collections, Not Production
When practices base bonuses on production, it almost always causes issues. You can’t pay bonuses with production—you can only pay with collected revenue. Collections are the best
indicator that everyone is doing their job well, from the front desk to the treatment coordinators to the clinical team. If the practice is collecting more money, it’s a sign that everything is running smoothly.
2. Everyone Has to Win
This is critical: the bonus system must work for everyone – including the Owner/Doctor! If the practice brings in more revenue, the team should get a bonus—but so should you. The last thing you want is a system where the staff is getting bonuses, but the practice (or you) isn’t making more money. If the team wins, the practice and the doctor need to win as well.
3. Avoid Double Dipping
If you have team members who are already on individual incentive plans, like a Treatment Coordinator who gets a percentage of what they collect, or a hygienist on some form of commission, you’ll want to be careful about including them in the overall office bonus. You don’t want the same person getting two bonuses for the same performance. It’s best to keep the general office bonus plan separate from individual incentives.
4. Know Your Overhead
This is the “biggie” Before you even consider implementing any bonus plan, you MUST, MUST, MUST know your what your actual overhead is. This means accounting for all expenses, including what you need to pay yourself as the owner doctor. Many doctors don’t include what they need to live comfortably at home when calculating overhead, which is a mistake. If you’re only factoring in your salary and not considering profit distributions (which many doctors need to survive), your overhead calculation will be off, and your bonus system will be flawed. As an aside, when it comes to how to distribute profits or owner/doctor compensation- that’s an accountant question – I’m not an accountant. So, ensure you have a good one to ask these questions.
If you’re not sure about your overhead, or if you need help figuring it out, we have a downloadable overhead sheet available. It is THOROUGH. This spreadsheet will walk you through all the expenses you need to consider, including quarterly, semi-annual or annual costs that are easy to forget. Once you know your overhead, you can start building your bonus plan.
Structuring a Bonus Plan
Now that we’ve covered the basic principles, let’s get into how to structure a bonus plan. I’m going to walk through a simple collection-based system that you can tweak to fit your practice. To that end, I have a download “Bonus Plan Ideas,” that you can refer to as you go through this.
Step 1: Set the Bonus “Threshold” or “Level.”
The first step is determining the threshold for bonuses. This is the amount your practice needs to collect before any bonus is “activated” or begins to accumulate. The threshold should exceed your actual overhead by a considerable amount to ensure there’s adequate profit left after bonuses are paid.
For example, let’s say your monthly overhead is $80,000. You might set your bonus threshold at $95,000. That means bonus does not even begin until the office collects over $95,000. That $15,000 gives you a buffer to cover additional variable expenses, potentially retire debt and/or retain profit. You don’t need to explain all these details to your team—just tell them that the bonus level is $95,000, and anything collected over that will be eligible for bonuses.
Step 2: Deduct for Variable Expenses
Once your practice surpasses the bonus threshold, you need to account for variable expenses. These are costs that increase as your practice produces more, like lab fees, materials, and supplies. In the handout, we recommend deducting 30% of the amount collected over the threshold to cover these expenses.
For example, if you collect $105,000 in a given month, that’s $10,000 over your $95,000 threshold. Subtract 30% of the $10,000 ($3,000) to account for variable expenses, leaving $7,000 to be used for the bonus calculation.
Step 3: Calculate the Bonus
Following our example above, take 20% ($1,400) of the remaining $7,000 that was left after subtracting the 30% for variables, and allocate that $1,400 for staff bonus. That $1,400 (20% of the $7,000 remaining) is the total bonus to be shared among the team.
Step 4: Distribute the Bonus
To keep things simple, we recommend dividing the total bonus by shares. Every staff member gets a share, with certain key employees like your office manager potentially getting two or three shares.
Let’s say you have six staff members, including your office manager. Five of them would get one share each, while the office manager gets two shares. With a $1,400 bonus pool, each share is worth $200. So, the five staff members would each get a $200 bonus, and your office manager, with two shares, would get $400. Now as a note, how this bonus is distributed should be discussed with two people – your accountant and an employment attorney. I say this as the accountant can cover the tax question end of this and the employment attorney can handle any specifics with relation to your state. Important steps and once you’ve spoken to them, you have it set up for the future.
I’ve also seen it where people use this formula and stretch this into a quarterly or three month game where you distribute half the bonus the first and second month and (assuming collections stay above the bonus threshold), distribute the rest at the end of the third month. Up to you – but again, make sure to discuss with your accountant and attorney as to how you do this.
Step 5: Review and Adjust
As your practice grows and you add significant expenses (like new equipment or additional staff), you’ll need to adjust your bonus threshold accordingly. For example, if you hire a new employee with a salary of $3,000 per month, your overhead will increase, and you may need to raise the bonus threshold to $100,000-$105,000 or more.
And one last key point here: I wouldn’t recommend changing the rules mid-game. If you’re in the middle of a month and your team is working toward a $95,000 bonus threshold, don’t raise it mid-month just because you hired someone. Let them finish the month, pay the bonus as per usual, and then implement the new threshold for the next month. Changing the rules halfway through will only cause frustration and erode trust.
Keeping It Simple
One of the biggest mistakes I see is practices creating overly complicated bonus systems. The best plans are simple, easy to understand, and transparent. You don’t need to make it too complex—just make sure everyone knows what the bonus threshold is, how the bonus is calculated, and how it will be paid out.
Consider putting up a whiteboard in your break room to track collections throughout the month. This keeps the team motivated and gives everyone a clear picture of where the practice stands in relation to the bonus threshold.
Spice It Up with Occasional “Jackpot” Bonuses
Once you’ve got your regular bonus system in place, you can add some excitement by introducing occasional “jackpot” bonuses. These are one-off bonuses for specific goals, like hitting a certain revenue target at the end of the year. They can help energize the team during slower periods or give an extra push toward the end of a quarter.
But remember, these jackpot bonuses should be in addition to your regular system—not a replacement. Your regular system should be the foundation of your bonus plan, with the occasional jackpot bonus as a fun extra.
Final Thoughts
A well-designed bonus system can make a huge difference in your practice’s productivity and morale. The key is making sure it’s structured in a way that works for both your staff and your bottom line. If your practice is collecting more, your team should share in the rewards—but again, everyone (including the business and the owner/doctor) has to win!
Hope this helps! If you have any questions about this, feel free to reach out to us at mgeonline.com or (800) 640-1140.
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