Understanding Employer Law in a Dental Practice

Hey, dental associates and new practice owners. Welcome to the Associates on Fire podcast, powered by Practice cfo. This is the podcast that teaches you what you never learned in dental school, the financial side of dentistry. We cover topics from planning for ownership, buying a practice, to student loans, taxes, and all things financial for the hungry to learn Dental associate. So let's light it up.

Welcome everybody to a new episode of the Associates on Fire podcast series. I am thrilled today to have Anita York with us. And Anita is an employer law. She works with an employer law firm and she has worked with a number of dentists, including a number of our clients who we have sent over to Anita to help them out with all things in HR related to working with their staff, perhaps lawsuits that have come up. There have been a lot of COVID related laws that have been put into place recently. Some temporary, I don't know, maybe some of these personal. You'll have to tell us, Anita. So we're really excited to have you on the program. She's with a firm called Scott and Whitehead. And you're up in Orange county, right, Anita?

We are, yeah. Orange County, California.

And you work with clients anywhere or mostly California?

Mostly California, simply because the employment laws specifically really do vary some much from state to state. So mostly California.

Cool. You've been doing this since 1998. So you're a seasoned veteran in this area of law and you've been working with dentists for about 12 or 13 years, correct?

Yeah, that is.

All right. So you know my space. Well, before I jump into some questions and just have what I hope to be a real engaging educational dialogue with you about an area that is extremely relevant for dentists. And trust me, I say that sincerely, I have had dentists who have been sued by their staff on a number of occasions because they didn't follow the laws in California. The laws are as thick as my, all the way up to my ceiling. I mean, it is, there's, there's so much there. And you come out of dental school, you associate, you buy a practice, next thing you know you're an employer and you're an employer in California or whatever state. I, you know, a lot of the stuff we'll talk about, I'm sure are applicable and in all states. There will be maybe some nuances to California I'll have you tell us about since we're both in California. But this is going to be a good conversation. Just before we do, just want to reiterate to everybody listening on this podcast that this is a part of our Associates on Fire Education series We at my company that I founded called Practice cfo, we provide CPA and financial advisory services for and exclusively to dentists, dental associates, dental practice owners. We help them transition into and out of practices, we help them form partnerships, we do their accounting, their tax work, but most importantly, we're their personal and business chief financial officer, helping them achieve financial independence much earlier in life than the average dentist. That is our measure of success. And this podcast is, is really to interview doctors, to interview specialists in the industry, service providers who know the field, know this space very well, and try to extract as much education and distill it down in a way that is understandable for you dentists out there, who, most of whom did not get any education in the world of business ownership while you were in school. And suddenly you're thrust into that and you have this whole sphere of business owner decisions that you have to make. And we want to give you a platform of learning to be able to make those decisions effectively. Because so much of your financial success is driven by what happens outside of the operatory, not just what happens inside the operatory. So go check us out at www.ass Associatesonfire.com. if you are an associate, please sign up, create an account, enter some basic profile so we know who you are and we can help you as a time comes where you may need some help evaluating a practice or stepping into ownership or just running that practice. All right, Anita, let's jump into this. Here's my first question. Let's, let's target the new practice owner. They just bought a practice. Maybe they've been out of school three, four, five years, and it's a $1.3 million practice. It's, you know, got a couple hygienists, front office, all the standard stuff. And now they're not just managing their own paycheck, they're managing the paycheck of a number of people that they have employed. What can they do when they step into this new practice, which may be a little dusty in some areas because the seller is 65 years old, 70 years old, and hasn't really kept up on their employee manual, a policy, or on employer law, and they've had employees with them for a long time and it's, you know, close relationships, and so there was never anything too sticky about it. But now it's a new owner, it's a new landscape, lots going on. What here's my question is how can they evaluate the strength of the HR policies within the dental practice that they are stepping into?

Gosh Wes, you are speaking my language.

It is very difficult when a, a young, and I don't mean that age wise, I mean that experience wise dentist or, or any other professional for that matter decides for the very first time to become a business owner. Assuming that that means you're also going to be an employer of at least one person, probably multiple people, because it truly is, there's this whole world of rules and laws and, you know, the art of management in addition to the, the rules of management, that you need to have some level of knowledge in order to not get yourself into trouble right from day one. So what I would say in response to your question is that assuming that you're purchasing an existing practice, as you mentioned, not just opening one for yourself, the evaluation really needs to begin before day one. It's, it's, it's a big part of your due diligence and it really should, should be a big part of your due diligence. You know, I tend to work with dentists once they're in a little bit of trouble.

Oftentimes before that, but, but oftentimes the point that they're calling an employment lawyer for the first time is they're in a little bit of trouble. And I'm sad to say that sometimes that's with the brand new practice owner because perhaps they didn't quite understand the level of import of what they were getting into and becoming an employer of certain folks. So the easiest part, of course, is part of your due diligence. You ask for the employee handbook and they may have to, you know, dust it off, as you said, or they may very well say, oh, here's my brand new shiny employee handbook that I got because I knew I was going to be selling my practice, which is great. But then the question becomes, okay, how much of this do you really follow? How much of this is really in place? Start by asking for that employee handbook during your due diligence period. It's the easiest thing to do. The next thing I want you to make sure that you're doing during your due diligence before you, before you own that practice, is I want you to ask that seller for a detailed list containing certain information for every single employee. So that list obviously is going to have every employee's name, their position, is it the hygienist or the chair side or the RDA or the DA or the office manager, or what is it? I want, I want to know their position. You want to know are they full time or part time? And what are their, what's their specific schedule for each person. Is this person 8 to 5 and this person is 7:30 to 4:30, is it Monday and Tuesday only? You want to know their exact schedules, you want to know their compensation, are they hourly, are they salary, are they on some other form of compensation so that you know exactly what those dollars look like and you really want again, as part of that written detailed list, what is every single staff member's employee benefits package. Include who's on insurance, who's on a 401k, who's on which holidays, who's on which PTO or vacationers sickly. Because that's all a big part of not only what you're going to inherit, but what your financial nut is going to be. That's part of what from day one you are all of a sudden in the hold that number of dollars for that. So you need to be aware of what that is. Good news, bad news. When you're buying a practice that has long term employees, the good news is number one, they probably have relationships with the patients, which is awesome. That is so much a part of what you're buying is that goodwill. In addition though, when they've been there a long time, they're probably making more money, they've got better benefits, they've got, you know, five weeks of vacation instead of two weeks of vacation. So the good news, bad news is you've got part of what you're purchasing is that goodwill is the reputation, is those relationships with that patient base. But you're also inheriting that package of financial commitments to those staff members. And I don't need to tell you, when you come in and you immediately make changes, you're going to lose a good portion of those staff, especially in today's job market. So evaluate the policies for compliance, evaluate your foundation in terms of again, financial commitment and staffing. And then to the extent that you can, I want you to try and have a really honest, transparent conversation with that owner and have them tell you about each employee. Employee, almost as though you were doing a reference check, right? Which in essence you are getting ready to hire. How long Susie been with you? How well does she get along with other staff? Does she come to work on time? Is are there any attendance issues? How does she do with the patients? Have you had any complaints? You know, if you were going to sort of give me her list of three strengths, what are they? If you're going to give me her list of three weaknesses, what are they? Get to know what you're walking into. You can certainly Ask to look at personnel files. If I'm an owner seller, I'm not going to let you because those are very confidential to those employees, but some people might. And if you can, have at it again, that's going to give you a few pieces of information, not only information about that employee based on what's in their file, but it's also going to give you some sense of whether that seller owner has been compliant with, with things like maintaining accurate personnel files. You might ask to take a look at a printout of the payroll reports for the last three months. Get an idea of who's working overtime, who's not working overtime, who's showing up late. Ask for a printout of the time records for the last 90 days. Again, see if those match up to the wage statements. Get a sense of for compliance as well as your financial commitments. And that should give you a good starting off point for when you're, you're beginning your new business. Now, when you come into a practice, I want you to think about coming in and saying to folks, look, I'm not going to make any changes right away. I'm new here. I'm going to get to know you and you're going to get to know me. And hopefully we're going to decide it's a great match and it's a great fit and we go forward from that. But here's my commitment to you for the next X period of time. You pick it. 30 days, 60 days, 90 days. I'm not going to make any changes to duties, to wages, to benefits, not to anything. I want to see how things run here and I'm going to learn from all of you as hopefully you'll learn from me. And then within that period of time, I'll decide if I'm going to make any changes or not. Whether it's to staffing, schedules, benefit, whatever it may be. And we'll have another meeting and I'll make sure that I let you know all of that. Last little tip. I don't know if you can do this in your circumstance or not, but if you do not yet know any of those staff members, you haven't met any of them, play secret shopper. Make a phone call to the practice and schedule a teeth cleaning, schedule an exam, schedule something. Get your name onto their schedule when they don't know who you are and just go in and see how it goes. How did that phone call go? How did it go when you walked in the door? Were you met by happy people or were you met by People who, it seemed like, you know, you're just sort of a bother to them. How did that teeth cleaning or that exam go? Obviously you're going to let the dentist know that you're doing this because they're going to see you walk in and I'm going to suggest that you ask them for their commitment not to tell a soul that you're coming. Hopefully you can trust them. But again, that might just give you some information as to what you're inheriting, what you're stepping into and purchasing that practice.

Is it safe to say that when somebody is buying a practice, probably an area of neglect is the due diligence over the current HR.

Compliance and structure?

Sure. Because we don't think of that as being a really important part. Right. We just think of it as we need the numbers, we need the financials, we need to know the patient numbers. How long, how many are long term, short term, what kind of services are you offering? How many producers do you have, how much do they produce? We think about those things in terms of the business part of it. But Wes, you said it when, you said, when you were talking about your Associates on Fire program. These are the things that dental school doesn't teach you to look for. They don't teach you that probably the biggest part of your practice, second only to, you know, sort of patient care and potential risks associated with that is your staff, is your employees, their happiness, their unhappiness, their ability to learn and grow and, and accept you as their new boss. So, yeah, I think it really is a very underrated but incredibly important piece of what your due diligence really should be reviewing and evaluating. I've had multiple new dentist practice owners contact me and then I work alongside them for months, months, trying to work out all those problems and all those kinks because they didn't really realize the quicksand they were stepping into.

Yeah. So when they're, when they're going to buy a practice, I know there is so much information that they've gathered. They've got the prospectus, they have maybe financial statements, payroll reports, tax returns. That's all the financial due diligence, clinical due diligence. They might be looking at patient charts to see what I always recommend a sample of patient charts, see what treatment has been recommended, what's been accepted, how much treatment is left, has the doctor over treated. There's all of that side to it. And then you layer on this HR side. I know it can be quite overwhelming.

Yeah.

I would tell me if I'm Wrong. But it seems to me, like, take that extra time to gather this information. Maybe create a table in Excel or in a Word document with the names of the staff and just put this profile next to each of them. Even if you don't do anything about it right away, you're starting to create the, the image or the X ray of who, of who your people are. And what is the. What are the dynamics of each of them? I think a few things that they'll need to look at right away. This is just in my experience is they should find out are they being compliant with overtime law, which obviously a lot of times is not the case. A lot of doctors believe if they just put somebody on salary, then they don't have to pay them overtime or daily.

Or daily per diem. Yeah, those are huge, huge legal problems.

Oh, I put them on salary so I don't have to pay overtime. Will you explain? And I assume this is the case in most states, not just California, the concept of exemption, the exemptions, I think they're called, who's exempt from overtime. Do any of those categories of exemptions apply to a front office, an assistant, a hygienist, an associate? Where do they not apply? And if they find that the doctor has been paying a lot of staff salary who have been working more than eight hours a day or 40 hours a week, depending on the state requirements, what do you do about that?

Yeah. So if I may, I'm going to back up to what you're talking about before because I absolutely love your concept of gather data on these employees. Create any kind of documentation that works for you, whether it's an Excel spreadsheet or whether it's a handwritten notebook, whatever is your method of documentation. Create that for yourself, put in some data. In addition.

Again, you kind of hit the nail on the head with you're going to get some payroll reports and some things like that. In addition to the report, ask for the time record and then sit down with your practice CFO or sit down with an employment lawyer, pay for an hour or two of their time to say, you know what, help me evaluate this. Is this compliant or is this not compliant? You can also bring your employee handbook to an employment lawyer, pay for 15 minutes of their time. They'll do a quick glance. Does this look current and compliant or not? Those are all really good tools. So now transitioning that into your question, once we have those wage statements, pay stubs, and we have those time records, that is going to tell us definitively exactly how everybody's Paid, which will allow any practice CFO at, at the organization or an employment lawyer in your state to help you to know who is being paid properly, who's not being paid properly, and to explain to you exactly why that is or is not the case. So to answer your question about what does that really look like? It is very different in California than it is in many other states. For this reason, the idea of exemption is that the law defines, not your choice. The law defines, defines who can be exempt. And exempt means exempt from overtime, exempt from keeping time sheets, exempt from being given meal periods, exempt from all those wage and hour things. But the law defines it differently in different states. So the federal law, which is sort of the lowest bar, says if you fit into certain job categories, like a dentist who's licensed to practice and is practicing dentistry, like a business administrator. And I use that term instead of office manager, because we give a lot of people in dental offices the title of office manager. If you're the front office person, boom, you're the office manager. But a business administrator who's really spending a significant amount of their time running your business, managing your staff, dealing with problems. They're not scheduling patients, they're not billing insurance, they're not checking supply high inventories for you.

You're making more strategic decisions around the operations of the practice with a lot of discretion.

That's exactly right. That's exactly right. So those two categories are the primary categories of who probably qualifies for exempt. Now, the federal bar says as long as that business administrator is spending at least 20% of their time doing those things, they're probably exempt as long as they make certain minimum salaries, which they generally do. Here in California, that test is 50%. They must be doing that more than 50% of their time. So again, low bar, federal, higher bar. California and different states are different. Some states just follow the federal law, in which case you're in pretty good shape. But your hygienists are not exempt. Now, again, some states that may be different, but generally your hygienists are not exempt if their primary duty is treating patients. You may have a lead hygienist who treats some patients who. But that person's primary duty is managing the other hygienists and scheduling their CE programs and solving the problems that they have and updating your equipment by, you know, meeting with vendors. That person may be exempt, but a hygienist who's, who's treating patients is not going to be exempt. Your dental assistants are never exempt. Your front Office staff who's not doing management stuff is not going to be exempt. And your associate dentist or your business administrator who's not meeting those minimum salary levels will not be exempt no matter what their duties are. We run into this really with associate dentists who are only working one day a week because then that practice doesn't want to pay them enough to meet those salary levels. And they're different in every state. But when you have an associate dentist who's with you at least a couple days, you just want to make sure that they've got that minimum base salary, guaranteed based salary salary. You can pay production on top of that, collections on top of that, bonus on top of that, whatever you want. But minimum based salary to be exempt.

Okay. And safe to say, at least in California, your standard employee positions, the front office, the hygienist, the assistant, are never exempt.

Correct.

And therefore, whether they're on salary or not, they have to keep track of their hours, which is why I typically will tell a doctor just PAM hourly because they have to track hours anyways. PAM hourly. It just keeps it simple that way.

Well, it not only keeps it simple, but if a dentist is paying somebody's salary, so say you're paying somebody a thousand dollars a week, you're paying your office manager a thousand dollars a week, which if they're working 40 hours, that's 25 an hour. If they're working 20 hours, it's $50 an hour, thousand dollars a week base salary, and then they work 41 hours that week, you have to pay that overtime at the overtime rate. Right. So if they're, if they're working one hour of overtime, that's 3750 for the extra hour. So they just earned 1000, 3007.50 for that week. Now if they happen to work 38 hours or 36 hours or 34 hours, you're not docking their pay. Right. That's what the idea of salary is. You paid a salary. So paying a salary to a non exempt person, someone who doesn't fit those categories that I just said means you're going to get hit both ways. You have to pay the overtime, but you're not going to deduct for the less time. So not only is it much easier, much cleaner, far more likely to be compliant if you're paying hourly, but it's.

Also probably financially wise, and that's a great point, that you.

Are giving the employee all the upside and you are only bearing the downside because you're not reducing their salary. If they work less, but you're paying them time and a half if they work more. That's a great point. Now layer onto this complication and I'll start it off with, with an ex, with, with a case study. I had a client here in San Diego and I actually didn't know this, but I had a client here in San Diego who for years had paid a bonus to their hygienists and the something went south with one of the hygienists and was terminated. And shortly thereafter two of the other part time hygienists left for different reasons. I think pregnancy maybe had been involved and so they wanted to take a time off, whatever it was. The hygienist who is terminated spoke to a lawyer and, and so what's a lawyer going to do is look at the pay stubs, going to look how they were paid and guess what? A lot of times they're going to dig up something and sure enough, what they dug up was the fact that this doctor's bonus pay, this incentive compensation on top of a healthy, I think the hygienist was paid around $52 an hour, pretty darn healthy. And then the doctor would pay some additional compensation for hey, good work. We produced. Well, our patients love you, so I'm going to pay you a little extra. But when paying that extra did, when that person would work overtime, the bonus was not factored into the base pay and therefore the time and a half overtime was understated because it needed to include not only the hourly rate but also a spread of the bonus across all the hours for that period to then calculate what's the true base, which therefore includes the bonus, and then multiply that by 1.5 to get to the overtime rate. And that went on for a few years. So this doctor ultimately settled by paying, I think a sum of around $120,000, which was pretty much the total amount in his business checking account at the time. So it was a real painful, painful thing to learn. I didn't even know that either. And I don't claim to be an HR specialist, but that was something I learned. Have you seen that come up?

Oh, many, many times. And I'm so glad to hear that you've learned that because many of the CPAs we work with still don't understand that and still don't know that they need to be aware that, you know, a lot of CPAs do payroll for their clients and they just aren't paying attention, not paying attention to wrong characterization. They just don't know what they don't know. So here's that rule. It's what in the law it's called regular rate and federal law and state law both say. Now what that means is every state in the country, it is not California specific. So many of these special things are California specific. This is not one of them. So everywhere in the country the rule is when you pay wages and somebody works overtime, that overtime is due based on all wages earned, bonuses, commissions, production pay, collection pay pay, this per patient, whatever it is, overtime is due based on all wages earned. We just think about it as hourly, but it's not just hourly. And by the way, this is for non exempts, not for our, our folks who qualify as exempt, this doesn't apply to them, but for every single non exempt. So what that means is exactly what Wes said and it's more than we could get into just in a podcast. But I do train on this when I do wage an hour programs, which is when you're figuring out overtime on a paycheck, by paycheck basis. Oftentimes it is just hourly. But then when you're looking at bonuses that may be monthly, right? If we exceed a certain amount of production, or if you personally exceed a certain amount of production, or if we have X number of new patients, whatever it may be, whatever that bonus is based on, even if it's just for one month, even what you would consider a spiff, right? It's just a fun little thing. You must then figure out how many hours did that person work. Divide that bonus by that number of hours. That is what is then your hourly pay for the bonus itself.

Figure out over time you figure out 0.5 of the hour, right? That's your overtime is the extra 0.5. And what the law says for most bonuses. And again, this gets very complicated. For most bonuses, you've already paid the 1.0 time when you paid the bonus, you've paid the straight time on it. You just have to pay the 0.5. So if you figure out that your bonus is worth $5 an hour for the month and somebody worked three hours of overtime, they're going to take that 0.5, which is 250, multiply it times the three hours of overtime and pay them an extra $7.50. Now, the consequence of not doing that, I'll give you the, I'll give you how Wes's client's case got to where it did. You have a hygienist, I'm going to say $50 an hour because I can do that math easier. Let's say the hygienist works eight hours a day, $50 an hour, earns 4, $400 per day. Here in California, the penalty for not paying every penny that you owe to that person on or before their last day of employment is 30 days of pay, 30 days in a row of pay, up to 30 days of pay a day for every day that you're late, up to 30 days. So I didn't say that quite right. So you take that person who works for who earns $400 a day, you multiply that times 30 days, and you already have a ton of money in that one penalty alone. Here in California, we then have additional liquidated damages penalties because you didn't pay it. We then have interest on however long you didn't pay it. And then you're going to look at that month after month after month. And then once that lawyer gets all excited, oh, my gosh, they didn't pay overtime, right? Now they're going to look at rest breaks. Now they're going to look at meal periods. Now they're going to look at where they pay for the morning huddles. Now they're looking like, look at where they pay properly when patients canceled or were they paid per patient. So then they're going to really do a deep dive. Now they're going to possibly file a claim on behalf of all the employees in the practice, whether the other employees agree or not. They're allowed to file pocket claims, class action claims, all kinds of claims that now you owe money to everybody, including people who didn't even want money from you in the first place. So for all those reasons, all these wage and hour things are so incredibly important because not only are they absolutely like door closing, potentially expensive, but they are the most preventable. If you do the research, cross the T's, dot the I's, pay folks properly. Now here in California, we have some new case law that also says that regular rate we were talking about, about that whole extra bonus thing, you also have to factor that in when you're paying paid sick leave, because paid sick leave is due on all wages earned, not just the hourly wage. You also have to pay it for other things that just get very complicated. So I'm very sad to say that in the last 90 days, I have moved away from my earlier position of bonuses are fabulous, they're motivating, they're fun, they might be really financially rewarding and people will do things perhaps motivated by that bonus that they wouldn't have otherwise done. Now I'm having to say it's probably too big of a risk. And figure out some other ways to.

Praise and reward and benefit your staff other than bonuses, because the risks and mistakes of not doing all these things, as Wes said, you know, one case, $120,000. And I bet that was a small practice.

You know, I'm.

Sometimes I worry that a, an associate listens to my podcast and says, wow, I'm too overwhelmed. I'm just not going to buy a practice. And in some ways, you know, I kind of get it. I mean, this was one of the negative, I think effects of some of these laws is now when like that doctor I was telling you about won't do a bonus and doesn't want to do it. It just, it's complicated. There's too many landmines now doesn't want to do a bonus. So if you do it, what I would say is A, have it maybe reviewed by somebody like Anita. That's number one. And then B, make sure that how whoever is processing your payroll has a very specific way to calculate that. Is it safe to say, Anita, that payroll software is. Don't automatically, generally speaking, paychecks, ADP or others don't automatically calculate that over time the right way. When you have different forms of compensation other than just a base pay.

Yeah, it varies. And what we're seeing now is those payroll services are trying to do something about that because it's become such a big issue again on a national level, not just a California state level. So ask very specifically your payroll service. Do you calculate overtime on the bonus pay? And they may say we don't generally, but here's a form you can fill out each time and we will do it. Or they may say we can, but you need to choose this or that in your, in your setup. So talk to them about it. And if they aren't doing it, then either you either need to do it yourself and then you just plug it in as a separate line item. Right. And I have employers who are doing that. They just have a separate line item that says, says overtime on bonus. So that when that plaintiff's lawyer is looking at that pay stub, they can see overtime on bonus. Exactly what it is. And, and they get unexcited. We take the wind out of the sales over time on bonus.

So the, the payroll software will calculate overtime on the regular pay. And then just in a separate calculator or an Excel spreadsheet, you calculate the, the overtime on the bonus. You have that as A payroll item. And for you listeners, a payroll item is simply a row basically on a pay stub like, like your federal income tax withholding or your FICA tax withholdings, your Medicare tax withholdings. Those are all payroll items. You have a separate payroll item for bonus or overtime on the bonus pay, which is separate from the other overtime. So you have your regular pay, you have got your bonus, you've got your overtime pay and your overtime on bonus pay. So you have those four payroll items. And I know it's kind of a lot of layers there, but better safe than sorry when you're dealing with state law and federal law on employment issues.

I mean, I really do. I think that bonuses are wonderful. I think incentivizing folks with, with creating programs. I love them. And I will tell you, in our own office, we, we used to have a bonus program for certain kinds of work with our, our legal assistance. And I had an Excel spreadsheet that we had built out with formulas that did all the formulas. And every month, I myself, because I want to make. I'm a control freak. I want to make sure it was done right. I plugged in the data, I checked and double checked, and we reported it as a separate line item. And we have now ended that bonus program because it's just not worth the risk.

Let me pivot now to the subject of 1099s in a dental practice for your associate. And I, I. Anita's making a little sign to me like, oh, beware, this is a dangerous subject. So it's probably been a debatable subject. And I know some recent laws have come out to address this. And let me just give some context here for you doctors listening. As you know, many of you, you have been paid as an associate in a dental practice. You're not an owner, you're not a partner. So you're paid as an. As an associate. And you can be paid as an employee or a W2 associate, or you can be paid as an independent contractor, not an employee. And we call that a 1099 because at the end of the year, you receive a 1099 statement rather than a W2. And as a 1099, there's pros and cons. As a W2, there's pros and cons is a 1099. The advantage is you're your own sole proprietor. You get to deduct some things like maybe your car costs and some CE costs and your license renewals and things that you purchase related to being a dentist to some extent. You can deduct a lot of these to reduce what is your taxable income. And you file a schedule c on your 1040 tax return, sort of an addendum to your annual tax return personally or, or you set yourself up as an S corporation or an LLC filing as an S corporation, depending on the state, and you can get those benefits. The disadvantage to being a 1099 is you don't get to participate in the employer benefits of time off or of a 401k plan or perhaps of an insurance plan. You don't get those benefits. And the other disadvantage of being a 1099 is that you're paying for 100% of your FICA taxes, which are 7.65% employees, 7.65% employer, 15.3% total. If you're 1099, you're paying both the employer and the employee. Those are called self employment taxes. If you're W2, the employer will pay for half of that. But if you're W2, you also don't get to deduct anything against your W2. So pros and cons. Now, in the past, I have traditionally seen it pretty evenly both ways. Associate comes out, they work for a private practice and they're paid as an employee or they come out, they work for a private practice, they're paid as an independent contractor. Now, the state of California and I think other states, I don't recall if this is a federal thing, Anita, but have tried to require employers to categorize these people as W2s so that they fall under all of the labor laws more directly and also so that the IRS can ensure better collection of taxes because it's running through payroll now. And if it's running through payroll, the payroll companies are going to submit the earnings and tax withholdings to the IRS and therefore it's collected. Now, Anita, I still see a lot of doctors doing 1099s to their associates. And that's not just the young associate coming in, but it's also the selling doctor who's associating back. Is that okay? Is it an area of significant risk and how should they approach that?

Let me answer it in a few different ways. So first of all, let me talk bigger picture. Federal.

Yes, this is the rule across the land and has been forever. But the rule meaning that. Exactly what you just said, Wes. That they lean very heavily towards wanting folks to be employees, not independent contractors. But as is so often the case, the federal rules are much easier to meet than the California state rules. And I would venture to say the California state rules are more difficult than pro. Probably any state in the country to.

Be classified as a 1099, to be exact.

Got it.

Exactly. So across the country, federal rules basically say we have this list of 20 or so criteria. And if you meet the criteria or you meet most of them, or you meet enough of them, then you're okay to be an independent contractor. And it has been my experience with dental practices and other clients that the IRS is generally the federal authority that's looking at it. Sometimes it's the Federal Labor Board, but It's usually the IRS who's audited you, and they're looking at your 1099. And so they look at your situation. And oftentimes if they say things like an associate dentist contract in writing, the contract looks pretty legit. And the associate dentist says, yep, I work the days that I want to work, and I work the schedule I want to work. And when I want time off, I take time off. And yep, I filed all my taxes and I paid all my taxes. The irs, what we see on those audits is not that they approve. They simply say to associate dentists, independent contractors, audit disregarded. In other words, they. They just ignore them like it's, check it off. We don't care. We're moving on. California does not do that. California, in fact, will trigger and conduct an audit just because of your 1099s. And they want to see exactly what's going on. And it's not good enough here that you have a contract and that you have a corporation. So it's the dental practice corporation, paying the dentist corporation. That all counts. Federally, they care. They say, that's good enough. We're all fine. California says, no, no, no. California passed a law, gosh, I want to say probably 2012 or so, that they called the Wage Theft Protection Protection act, which basically Prevention act, which basically said by misclassifying folks as 1099s, you're stealing their wages. Right, because you're not paying the overtime and you're not paying all the benefits and all of the things. That's how seriously California takes it. Now, the skeptic in me says California really is looking for sources of income. California is wanting to be more paternalistic in taking care of people where they want to be taken care of or not. California doesn't care that you're making plenty of money. You're very happy with it. Everybody agrees it's the way we want it to be. California says, nope, we're going to step in and fix it even though it's not broken. And so, yeah, it's a high risk thing to do in California, maybe not somewhere else, certainly not in places like, you know, Arizona, Texas, Tennessee, Montana, Wyoming, have at it. They're probably going to leave you alone. But here in California and in some other states like New York and Nevada and Washington and Oregon that have stricter laws, not as strict as us, It's a high risk thing now to classify associate dentists as independent contractors, more so than ever, just in the last two years because we've had new laws come into play that, that make it even.

So your general advice is in California, w two other states. Really depends on the state.

It does. Now, that's with a new associate dentist who's joining the practice with your seller. I would venture to say that you're going to be very hard pressed to convince that seller to become your employee. And I get that's just reality. It's very easy for me to sit here and say, they need to be an employee. Your reality is they're going to say, not a chance. So, so what my, my advice, bigger picture on seller dentists is if you're assuming that you're having that person stay on for some period of time, they should stay on in the capacity of a consultant whose role it is to, is to transition you to the practice. Keep them on for three months, six months, nine months max, a year, not longer than that. There's all sorts of other reasons, by the way, why that's not a great idea to keep them on, but longer than that and make it very clear. And I would do it in an employment, written agreement, written employment agreement that says your job is to transition the practice. Introduce me to patients, introduce me to staff, help me to understand how things have been going, help me to understand what the specifics are to your particular business. Help transition any changes that we decide to make. You are my number one cheerleader. You are the president of my fan club. Selling me to every person, whether they're a staff member, a vendor, a patient, a patient's family, whatever. You are helping me to transition to the practice. Now, that doesn't mean they can't treat some patients along the way. That's perfectly fine. But their role for you is not as a treating dentist, their role for you as a consultant to introduce and transition you to the practice. That makes them an independent contractor. For reasons we won't get into. That qualifies. They're not there to be a dentist anymore. They are now there to be a Consultant that qualifies.

Is it still okay to pay them based on production?

As long as they qualify lawfully as an independent contractor, you can pay them based on anything you want. Now paying them based on production makes it look like they are there for the purpose of being a treat treating employees. So I don't love that concept, but perhaps instead of paying them, you know, 35% of their production, perhaps you're going to pay them 15% of the entire practices production because again, that does support this concept that they are there to help transition and make sure the practice is successful. So that may be a better way or have your practice CFO help you figure out what that number is. But that may be a better way to do it.

I do like that Creative day idea because you want to in line compensation with what your behavior you're trying to incent. And by paying them production, you're incenting them to not transfer treatment, transfer patients. So that would be a good numerical analysis to say about what based on the days that the doctor is there about how much production would, how much would they be paid if it were on production or what does that translate into as a percent of, of the net profits of the practice and give them an incentive that maybe it could be more than 35% of production that their job, their focus is really, I want this whole thing to be successful for you buyer. And if it's successful, great. I get paid a little bit more during this 12 month period that I'm helping transition the goodwill over to you. That's a great, that's a great idea.

And it may even be a tiered plan. Right? So if we hit this goal, it's 10%. If we hit this goal, it's 12%. If we hit this goal, you know, so it may even be tiered. But again that really incent. You know, part of what I've seen sadly is you have a seller that for whatever reason either decides I'm sorry I sold the practice at all and so they sort of sabotage you or they decide I don't like this new guy that bought my business so they sabotage you or for whatever reason they are not really on board with your success. Success and sabotaging. You can be with employees who still go to the seller and he's not supporting you or she's not supporting you or with patience. And I want that to be painful to that seller. I want that seller to have the motivation to, to ensure as much as possible by their efforts, your success.

Great. Okay, I'm going to rapid Fire a few questions at you. And just for the sake of conserving time, but still getting some rich content because I have some, I think, critical HR stuff. I want to cover it. So I'm going to rapid fire these at you. Are you ready? Okay. Number one, should a dentist pay for an HR technology?

Is that helpful? There are technologies out there that you pay a subscription and it helps the doctor stay, stay organized with their employee, with their HR policy manual implementation.

Well, employee manual implementation is a simple thing. You get an employee manual, you make sure it's good, current compliant, and you implement it. But above and beyond the employee handbook implementation. Right. We've got all sorts of things that come up. I have a pregnant employee. I have an employee who's complaining about safety. I have an employee who has a disability. We need to come. There's all sorts of HR things that come up. And so HR technology, HR software can only do certain things now. It can do things like help you spit out that letter that needs to go out. It can help you determine what kind of form do you use. It can certainly track things and give you a good paper trail, which we always like a good paper trail. But particularly for a small organization, that software is absolutely not a substitute for somebody knowing what they're doing. The software only works if the user knows what they're doing. So it's not a substitute for knowing the rules, knowing the laws, and really getting a grasp on that or making sure somebody in your business does. So I have a lot of businesses that are owned by a dentist and their spouse, male, female, otherwise their spouse becomes responsible for learning all that, doing all that. So sometimes you have that office manager who you just, you know, trust with your life and you have them learn all of that. So there's different ways to do that. So software is great and it's helpful, but only to a certain extent. You cannot count on it to solve your problems.

So software is good if it is used as a tool to stay on track to organize things that you already have to know about, though it doesn't replace your brain. And as the person ensuring that HR is the compliance is being lived up to in your office. Okay, excellent. Because there's some good ones out there, I believe. I love technology. The only challenge is always. It's like you pay $299 for every technology subscription that you ever have, and there's a bazillion of them because there's so many technology companies out there. So you sort of have to make sure it's adopted. I always find that technologies are just, they're just garbage if they're not adopted. But if you adopt them, they can provide a really good value to your practice.

I'm going to take a moment just to give you an example of getting yourself into trouble with the technology. And I hope I'm not stepping on toes here, but I am a very, I'm very much opposed to most employers doing their payroll in house using any of the softwares, I don't care which one. Because the truth of the matter is the wage and hour stub is complicated. There's a bunch of things that have to be on every single paycheck stub. They have to be correct, they have to be accurate. And no matter how good you are at technology, if you are not familiar with all of the rules about what must go on to a paycheck stub and how it must be on there, you're going to get yourself into trouble. I've got a case right now with a large employer. They've got a couple hundred employees or larger employer, and we're in a class action case right now. And one of our biggest problems is going to be they've been using Intuit for years and they didn't know all the rules. It didn't work, it didn't track things properly, it didn't have what it had to have. So that's a technology that I'm going to say use it for a number of things. I use it for my husband's business, for his checkbook and all those things. Do not do your own payroll. Use a service that knows what they're doing or a CPA who knows what they're doing. Don't do it yourself.

And a lot of these payroll companies have an extended version that includes more hr.

And do you think that those are good solutions for doctors to use those extended functions?

You know, it really varies. Part of what happens with those programs is you make a phone call in, some random person answers the phone and maybe today you've got a fabulous person who's been doing it for years, knows their stuff and is good at explaining to you what you need to do and you got it all right. Other days you call in and you get a different random person and maybe even calling about the same subject. But now you have to start over and maybe they are newer and they don't quite know what they're doing. So in some ways it's great, it's easy, it's someone's always available to you. But I've had situations where We've gotten ourselves into trouble, presumably because when the dentist was explained to me what they were told, it was completely wrong or maybe just the dentist didn't understand it. But I'm really, I'm iffy on those.

What I would say is that it, it, those are only to support your HR program. They're not to be your HR program. Is that a good way of looking at that? You, the doctor, have to either yourself or have somebody who comes in and evaluates periodically or a trusted team member who's competent enough to oversee this. But you, you have to own this. A technology can't own it. The technology will support you as the owner of that process within your. Within your practice.

Yeah. I will tell you, I couldn't agree more. And one of the resources that California dentists have that I think is a brilliant resource is cda. CDA has a practice management support group that is fabulous. And you can call them. And there's only a few people who on there who do it. And they've been around for a while and they know their stuff. And, and when you get into a question or area that's legal, they know it's legal, they will say to you, let me give you someone you can call and talk to. And there's a panel of attorneys that they refer to. I'm on it. A bunch of other attorneys are on it. And so they know what they don't know and they know when what you're asking is possibly implying some legal issues, even if you didn't know it was. So I don't know if every other state has that, but CDA is so worth the money to be a member of. Use them as, as perhaps a first resource for those kinds of things, and they will tell you when you need to be referred somewhere else.

Great. Next question is what other areas of legal exposure are dentists, from an HR standpoint are dentists subject to?

So wage and hour is the biggest, again, as we see, it's the most claims, it's the most expensive, it's the most. You're the most vulnerable. Other areas, I would say wrongful termination based on age. And I'm saying that in particular to this associates on fire group, because when you're coming into a practice that's been in existence for a long time, oftentimes you're inheriting some employees who are older, right, in the 50s, 60s, maybe even beyond that. And they've been there forever and they've done a great job forever. But all of a sudden, at some point, they're not doing such a great job because perhaps you're bringing in technologies that they aren't comfortable with, or you're wanting to increase production, which they're not comfortable with, or you're just bringing any kinds of changes that they don't, you know, I've been here 30 years. It's not broken. Don't fix it. So then you start looking at, should I let that person go? Should I replace that person? So, particularly to this audience, I will tell you, be careful when you're thinking about terminating someone who's older.

And seek counsel, seek counsel about how to get there, how to do it, how to hopefully mitigate some of that risk. But that's a big one that it's not uncommon to see in a dental practice. Folks stick around for a long time, oftentimes to the point where they're not performing quite the way that you need or the way they used to. Pregnancy is a big thing. When you've got an employee who's pregnant, you want to make sure you're doing all the things that you're required to do in terms of accommodating that pregnancy. But you also certainly have some rights as an employer in terms of what your expectations can be. So you want to make sure that you're, you're kind of crossing the T's, dotting the I's on those legal compliance with all of the safety stuff right now has never been bigger than it is. You know, you mentioned Covid earlier. Wes Covid has made health and safety compliance, again, bigger than it's ever been. So that's a huge, huge, huge issue.

Is that here to stay?

I think that the, the heightened detention on health and safety is here to stay. I really hope that the extremities, extremities, extremeness of the COVID specific stuff because it's airborne, is our risk factor. I hope those aren't here to stay. I hope that the masks and the screens and the, all the PPE is not here to stay forever. But I think a certain portion of it is great.

And one other area where I've seen lawsuits is sexual harassment. And I've seen a lot of areas where there's obviously a big disagreement between the doctor who's being sued and the former or current team member who is suing on what happened. There's often debate and sometimes I, I've seen these come through and in, in some, some case narratives. And it's. And I don't know. I don't know. It's, it's. He said she said, in some ways. So one doctor who I spoke with, who had been sued for that and just was so adamant, so adamant with me that nothing ever happened. He said, wes, here's what I learned. Always keep your door open. Always, always, always. And it keeps you safer. And I think that's probably not a bad policy to follow. Do you have any comments on how to do everything you can to. To prevent any even association or attachment to the possibility of sexual harassment?

I'm going to, I'm going to say start with the good employee habit policy. Start with, you know, here in California, if you have five or more employees, you're required to do harassment prevention training every two years. Do that.

I would, I hate to say it, but I would lean towards what your person you were talking to has said. Doors open or. What we're seeing now is a lot of the offices no longer have walls that are drywalled. They're glass. Right. So, yeah, you may feel like you're in a fishbowl. That's okay. Fishbowls are not a bad thing in an office. So windows, instead of drywall, doors that perhaps have glass in them, blinds that don't come down when there's a meeting going on in that office, those are all important things. We certainly know in medical offices oftentimes now, if a physician is going, if a male physician is going to be doing an exam on a female patient, they have a nurse or a female person come be in the room when they do it. I don't think we need to do that in the dental office because again, we're not invading the person's physical body as much as in a medical office, necessarily, but all those kinds of things. And then other than that, I would say, and part of what I train on is you just have to be really, really diligent about your workplace culture. And by that I mean the following. Your communications, your style, your boundaries. Define your workplace culture. They either define it as someplace where we are very conservative in our behavior, not politics. I don't mean politics, but we're conservative on our behavior, in our dress, in our speech. We don't curse, we don't tell inappropriate jokes. We don't wear clothing that's suggestive or too tight. We are absolutely, completely professional, respectful. I don't tolerate anything other than that. I don't treat people in any way other than that. So that when that person accuses you, you. You have a line of employees in a line, even a former employees who will say, are you kidding me, doctor? So and so would never ever even let us do this or this or this or this. There's absolutely no way. I don't believe that could have happened because that's really the only evidence you're going to have in a he said, she said is credibility. Right. You just have to have the credibility. So by establishing a workplace culture where there are no fuzzy lines of acceptable or unacceptable behavior, we are behavior that would be acceptable in church. That is your best insurance against hopefully having a claim like that or your best defense if you do have a claim like that.

If we're going to wrap it up. This has been such good content. Anita, thank you so much for doing this. I just want to wrap up by asking you if I assume most a lot of people are coming to you once they've already been, a lawsuit has arisen against them. Now you're in pretty much every case. Are you defending the the employer or do you do employee as well?

We never ever do. We never ever do employee. Which also means associate dentists who are currently employed by a practice. We will not represent you as against that practice. We will represent the dental practice and associate desk. We will represent you if there's an employee of the practice who's suing you and the practice because we do defense work. But we will never represent an individual against their employer.

And would it be a safe thing for me to say that it would be a good idea if you haven't had a thorough review of your HR policies in some time as a practice owner? Or of course, if you're stepping into ownership to come and engage somebody like Anita to come and do a review of your HR policies, lay out a game plan, a set of action steps for you to be working on. I'm sure she could help you with an employee policy manual and some of the requirements around that and just get that in place. I think you'll sleep better at night by having that in place. I have seen a lot of lawsuits within dental. It's an area that's very exposed, especially here in California for lawsuits. And yes, it's worth a little bit of money. You know, a few, three, four, $5,000. I don't know what it is to go and get some consulting and get something in place because you're going to be paying a whole lot more than that if something comes up on the back end through a lawsuit that you ultimately are going to have to pay or settle for.

Yeah, that's for sure. And I will say again specifically to this Associates on Fire audience, when you're looking at purchasing a practice, I get calls all the time because folks like you are referred to me by consultants, by CPAs, by their lawyers, by their brokers to come. And let's talk before day one, because when day one comes, certain things have to happen starting on day one, and certain things should happen starting on day one. So when you come to me before day one, we can help save, set you up for success right from the start from a paperwork standpoint, from a policy standpoint, from a conceptualization standpoint. And we can set you up to hopefully be coming out the gate with employees knowing, oh, they do things right. They do things by the book. They do things officially. They expect us to follow these rules. They expect us to meet that level of commitment to compliance. So, yes, again, part of your due diligence before day one. Let's get you ready to go.

Great. This is one of those areas that is easy to neglect but very costly to neglect for a lot of practices. So, doctors, please take HR as a priority. You've got to carve out time to address how well the HR policies are put in place into your practice. And if they're not into place, well, get somebody in to help you do that, and then you can move forward with a lot more assurance that you're doing the right thing as a business owner. Anita, thank you so much for being on our program today.

Thanks. Thanks for having me. It's been fun. Wes.