Implementing an Effective Compensation Plan to Attract and Retain Employees

By Wesley W. Lyon II, CPA, CFP

According to the American Dental Association Health Policy Institute’s (HPI’s) Q1 2025 survey on Economic Outlook and Emerging Issues in Dentistry, just 5.8% of dental practices found it only “slightly challenging” to “not challenging at all” to recruit a hygienist (or “not applicable”). Meanwhile, a whopping 94.2% of dental practices found it moderately, very or extremely challenging to recruit a hygienist, a figure unlikely to surprise anyone.(1) When fighting increased demand and a lack of supply of good employees, it is more important than ever that you are competitive when searching for employees.

How Did We Get Here?

The COVID-19 pandemic dramatically shifted the employment landscape in the United States. The availability of remote jobs took many clerical employees out of the office and into other industries. Furthermore, the surging number of corporate-owned dental practices placed further increased demands on the number of employees. A CEO of a major private equity firm revealed to me in private that they did not see the hiring troubles coming, leading to substantially inflated wages. The combination of COVID-19 labor shifts and corporate-owned practices increasing demand led to a disaster for many privately owned practices, with many of my clients reporting losing hygienists who left to make $65 per hour or more at corporate practices. Some good news is that remote jobs are declining across the country,(2) which should bring back some employees to search for jobs locally. However, it won’t solve the entire staffing crisis.

Can You Distinguish Your Practice from the Competition When Hiring?

The days of placing an ad on Indeed.com or the local job board and finding an employee in a few weeks are gone. You need to be more creative with finding employees, and even more competitive when it comes to having a job that potential employees will fight for. Based on my experience as a tax, business and planning consultant, as well as data from the HPI and DentalPost’s annual salary survey, I have found the following three factors to be of utmost importance when seeking to hire staff: culture, benefits and wages.

1. Culture: This is overlooked by many doctors, but having a company culture where your employees want to come to work is key to attracting top talent. With practices competing for a limited pool of staff members, potential employees are going to seek opportunities they feel excited about. In DentalPost’s 2025 Dental Salary Survey, most hygienists and dental assistants cited a better work environment as their second-most important factor when seeking out a new opportunity (15.5% and 24.3% of respondents, respectively), second only to compensation (19.9% and 38.3%, respectively). However, lower-cited reasons, such as a more appreciative employer (11.4% for dental hygienists) and career opportunity (9.3% for dental hygienists and 17.5% for dental assistants), also fall under the umbrella of work culture, so it is important not to underestimate the impact of work culture on staff morale.(3) (Note: 2025 response data was not available for dental hygienists, so 2024 data is used here.)

Be certain to take the time to appreciate your employees, make them feel empowered and sporadically schedule team-bonding events. One of my clients has great success sending his staff to happy hour with his credit card — but not actually attending himself. He has found that staff morale and team-bonding are increased substantially by the staff enjoying time together without the stress of the boss being around. Another client of mine has implemented “Bubbles with the Boss,” where she invites different positions to have champagne with her and chat once per month. Check your ego at the door, and make sure your staff members are enjoying any appreciative events you do.

The DentalPost 2025 Dental Salary Survey also revealed great appreciation for continuing education (CE) and empowerment. More specifically, team members cited a wish for more group learning and CE to help better patient experiences. There were also negative connotations toward dental services organization-affiliated practices (note that corporations are only allowed to own practices in a handful of states), showing employees have higher job satisfaction when working directly for the decision-maker.(3) I found these comments to be indicative of a lack of autonomy or input into patient care, especially in the hygiene department. If your office does not have a “treatment philosophy” or culture built around how you treat, now is the time to change that.

Recently, my hygienist found a soft spot lesion on the side of my tooth. She very calmly explained that she wanted the doctor to take a look, but that, in her experience, it would likely just require a small filling to get ahead of the problem before it could get worse. I was immediately relieved that I wouldn’t be spending thousands of dollars for repairs. When the doctor arrived and completed the exam, he explained that a small filling would prevent the problem from getting worse and having to complete painful treatment. My only question was, “How soon can we get it done?” This was a great win for the dentist as both a practitioner and as a businessowner. Hygienists who have autonomy and are allowed to provide input on patient care report substantially higher job satisfaction than those with lower autonomy.(4)

To summarize, take a hard look in the mirror, and answer truthfully: Is your practice a place employees enjoy working? If not, aim to fix it immediately.

2. Benefits: In 2022, the HPI found that over one-half (53%) of private dental practices were not offering any type of health insurance, with costs being the No. 1 factor for those not offering health insurance.(5) The DentalPost 2025 Dental Salary Survey report showed similar data. While 92.2% of hygienists received benefits in 2024, versus only 70% in 2022, health insurance coverage was not listed among the top benefits received (paid time off, retirement and dental) and remains the most coveted benefit for hygienists who do not have it.(3) According to the Kaiser Family Foundation, the average premium for single health insurance coverage has increased 25% over the last five years, while family coverage is up 24%. This premium increase is more than 50% if the last 10 years are taken into account, easily explaining why jobseekers prioritize employer-paid health insurance.(6)

Unfortunately for businessowners, times have changed, and offering health insurance is a must in order to attract top talent. Dentists have two major options when looking to add health insurance. The first is to offer an employer-sponsored health insurance plan to the employees. In my experience, the typical dentist will pay at least 50% of the premium for individual plans, with some offering to pay 100%. However, most dental offices will not voluntarily choose to pay for family coverage, but the employees can choose the coverage and cover the difference themselves.

The second option is to offer a qualified small employer health reimbursement arrangement (HRA). Under a qualifying HRA, an employer may reimburse staff members for medical expenses, including health insurance premiums. This tool is great for practices that want to offer a benefit, while still encouraging staff members to take advantage of their spouses’ employer-sponsored health insurance. Under this arrangement, the employer can choose to reimburse only health insurance premiums, or health insurance premiums and qualifying medical expenses up to a certain threshold, to be chosen by the employer. This provides flexibility to exclude all employees receiving health insurance elsewhere, as you cannot reimburse premiums that have been paid pre-tax, but rather only plans purchased personally. Employers can also decide to reimburse for both premiums and medical expenses up to a chosen threshold. I generally recommend doctors reimburse between $300 and $500 per month, depending on their circumstances.

In order to institute a qualifying HRA, you must have fewer than 50 full-time employees and create a plan document. An employer cannot offer both health insurance and an HRA to employees. Employees must prove they have health insurance in order to participate and receive reimbursement from the practice. Those without health coverage would not be eligible. Thereafter, they can submit receipts for tax-free reimbursement. I recommend that dentists choose to reimburse quarterly in order to keep headaches to a minimum while avoiding paying a third party to administer the plan.

In a shocking change of pace, retirement replaced time off as the second-most coveted benefit in the DentalPost 2025 Dental Salary Survey.(3) This is good news for dentists, as private practitioners should be implementing practice retirement plans for their own tax and retirement savings! However, not all retirement plans are created the same. Historically, small employer retirement plans have operated in a pooled account due to the cost of running a participant-directed plan; in simpler terms, the retirement plan has one account, and participants receive an annual statement without the ability to choose their own investments. In a participant-directed 401(k) plan, every employee can log in and see their investments daily, making changes as they wish. Costs have come down for participant-directed plans, and I recommend every dentist look into making the change if they haven’t done so already. If your employee only receives a statement once per year, the benefit isn’t tangible, and their view will not be as favorable.

Lastly, staff members should not be paying for their own CE. Attending CE as a team is a great way to build culture, especially if you combine the outing with a social event. Even better, you can ensure everyone receives their necessary CE for their licensure or certification and that you pay for it. Asking a dental assistant or hygienist to pay for their own CE is a definite red flag for hiring. Even if the cost is only a couple hundred dollars, the perception of paying for the ability to do their job is not worth the hassle.

3. Wages: Every dentist is facing increased demands for wages, with many feeling like they have nowhere to turn for accurate data. DentalPost’s 2025 Dental Salary Survey Report is a great resource, but the U.S. Bureau of Labor Statistics website is an even better resource. I recently helped a client determine his wage profile. By utilizing the U.S. Bureau of Labor Statistics wage data, I was able to find the mean hourly wage, 75th percentile and 90th percentile of wages for his specific zip code and job title. While this data was backwards-looking to 2023, it was a great starting point.

The dentist had two hygienists working full time. One hygienist was making $37 per hour, and the other was making $39 per hour. He had heard reports that hygienists were making more than $45 per hour in the area, but he had no definitive source to prove it. Another consideration was that the highest pay rates were likely to be found at corporate offices. Given his location, he did not feel he was competing with corporations, as his staff members valued the culture of his office. Since the dentist had a few all-star hygienists he wanted taken care of, we pulled the 90th percentile of wages and determined it was $40 per hour. With this information, he was able to offer a $2 per hour increase to each hygienist, costing him approximately $7,000 total per year in wages and payroll taxes. This data was particularly helpful since he was in a rural area, and the wages paid in rural areas are much lower than the national averages that are widely quoted. Had he taken advice from his dental colleagues in different areas, he could have ended up overpaying by tens of thousands each year, with hygiene wages reaching $60 per hour or more in many parts of the country.

Most of my clients prefer to calculate total wages including retirement benefits, health insurance and other perks. While calculating total pay is a better metric for total compensation from an owner’s perspective, my experience has taught me the hourly wage is king of compensation. Benefits are an addition to staff wages but will not win you a battle to keep an employee happy. To be sure your staff compensation is in line with industry norms, add up all benefits except for retirement plan contributions, payroll taxes and wages. The combination should not exceed 27% of collections, excluding any associate dentist compensation.

Retaining Staff: How to Judge Your Current Compensation and Benefits

For small practices, determining if pay is adequate can be quite painful. One of the most successful ways to determine pay ranges is to join a local study club and have each member complete a survey. Thereafter, schedule a meeting dedicated to discussing staffing and compensation. There is no better source than actual data from dentists in your specific area. If this data isn’t available, retrieve the data from the U.S. Bureau of Labor Statistics at bls.gov/bls/blswage.htm. These sources should be great ways to quickly determine market value and give raises to all-star employees as necessary.

Next, I recommend asking each staff member during an annual review what their preferred method of receiving additional compensation would be. Some benefits, such as retirement, can be increased for individual staff members based on their needs. Find out what benefits they get elsewhere, such as through their spouse’s employer, and what would truly benefit them. Afterall, the purpose of a benefit is in the name — your benefits plan should be tailored to what will benefit your employees the most. The only way to truly understand where you are coming short is to ask.

How to Determine Appropriate Associate Compensation

Associate compensation is quite a bit easier to calculate. Associates should be paid based on a percentage of net production or collections, with a daily minimum to get started. Since fee schedules will vary based on the cost of living in different areas, you don’t need to acquire data to determine pay. Compensation with associates can vary in corporate offices versus private offices; however, this is a function of how much dentistry is being done rather than a difference in the rate. Be certain you have enough work to keep an associate happy! The three components of associate pay you need to consider are pay rate, benefits and guaranteed minimum.

1. Pay rate: Pay rates for general dentists will vary between 30% and 35% of net production or collections. I recommend owners pay associates based on net production, since it is the owner’s job to collect the money and the associate’s job to produce the dentistry. I have seen cases where associates do work they know they won’t be paid for, so many owners will choose to pay based on a percentage of collections instead. Either way will work great for a private practice. When deciding on a pay rate, it is important to know your market and how your compensation offer compares in both percentage terms and total dollar compensation. If you are a fee-for-service office that has an overflow of patients in a high-demand area, you should aim for 30%. The availability of production combined with no insurance write-offs will net the associate much higher pay at 30% than the associate would make at an insurance-based practice with a 35% pay rate. For example, if an associate produces $1 million, at 30% they would collect $300,000 in a fee-for-service office. If the same production was discounted 30% due to in-network fee schedules, the associate would collect on $700,000 of net production, which, even if paid out at a higher pay rate of 35%, would only be $245,000. Not all dentists understand this, so be certain to drive this point home when speaking with candidates. If you are practicing in a competitive area and battling insurance write-offs, you may need to offer 35% to be competitive.

Some practices will choose to net out a portion of the lab bill in the calculation. I prefer to stay away from this practice for simplicity of the calculation with a couple of exceptions. Aligner treatment should be negotiated separately on how much the dentist will take home due to the high lab bills. Some practices will do a flat dollar amount, while others will pay a lower percentage. The same applies to practices that are doing large implant cases. Since the cost of marketing to obtain these cases is much higher, oftentimes the percentage paid will be lower. In both aligners and large implant cases, it is common to pay the associate dentist 25% instead of 30% to 35%. This does not apply to practices that do occasional implant work, but rather strictly to implant-based practices.

2. Benefits: Benefits were not even a consideration for associates in the not-so-distant past. Looking forward, benefits may become an expectation. Over half (53%) of associate dentists reported receiving medical benefits in 2024, and it was the top-wanted benefit for those who did not receive it.(3) This can put owners in a peculiar position, having to choose between paying benefits or potentially paying an associate as a 1099 independent contractor rather than a W-2 employee. Fortunately, there is an easy solution: Allow the associate dentist to receive benefits so long as they are deducted from their percentage of pay. This strategy allows the associate dentist to take advantage of health insurance, retirement, CE and more on a tax-deductible basis. Meanwhile, this doesn’t cost the dentist anything, since the amount of benefits paid is part of production-based compensation. Employment agreements should be written so that the associate dentist is paid the greater of their guaranteed salary or a percentage of their net production/collections, less any of the following practice-paid perks. Many owners will also add a provision to pay the first $2,000 of CE on behalf of the associate dentist, leaving the remainder to be paid from the associate’s compensation package.

3. Guaranteed minimum: In order to be competitive, owners should expect to pay a guaranteed minimum. Since many senior dentists did not receive a minimum guarantee when they started, they are opposed to the idea. My recommendation is to swallow your pride and offer the guaranteed minimum. This will allow the new dentist to feel safe renting or purchasing a home, paying their student loans, and continuing to live their life while they get on their feet. The minimum can either be structured as a guaranteed daily rate or as a guaranteed monthly rate with a set number of days to work. This figure will vary based on location, but, as a general starting point, will be $600 per day or $10,000 per month for the first six months of employment. Do not let this deter you if you truly need an associate. If the new dentist cannot produce at least $1,800 per day within a few months to cover their daily minimum, it’s time to either rethink your need for an associate or move on to a better associate.

According to the DentalPost 2025 Dental Salary Survey, 28.8% of associate dentists, 20.5% of dental hygienists and 23.2% of dental assistants had changed employers in the last year. Currently, 46.6% of associate dentists, 33.7% of dental hygienists and 56.7% of dental assistants are job hunting or considering job hunting.(3) The odds imply that some of those job seekers browsing the job boards right now could be your own staff members. Use the information above to increase your staff retention rates and also help you attract more of these job seekers to fill gaps in your staff.

Wesley W. Lyon II, CPA, CFP, is president and CEO of McGill and Lyon Dental Advisors. For more information on his firm’s comprehensive tax and business planning services for dentists and specialists, contact Danielle Fitzgerald at 877.306.9780, or email consulting@mcgillhillgroup.com. To comment on this article, email impact@agd.org.

References

1. Health Policy Institute. Q1 2025 Main Report: Results for Private Practice Dentists. American Dental Association, 2025, ada.org/-/media/project/ada-organization/ada/ada-org/files/resources/research/ hpi/q12025_economic_outlook_dentistry_main.pdf. Accessed 13 May 2025.

2. Johnson, Arianna. “Remote Jobs Disappeared Nationwide This Year—Here’s Where They Fell Fastest.” Forbes , 4 July 2024, forbes.com/sites/arianna-johnson/2024/07/04/remote-jobs-disappeared-nationwide-this-year-heres-where-they-fell-fastest/.

3. "2025 Dental Industry Salary Survey Report." DentalPost, 2025, dentalpost.net/salary-survey/.

4. Patel, Badal M., et al. “Job Satisfaction, Burnout, and Intention to Leave Among Dental Hygienists in Clinical Practice.” Journal of Dental Hygiene, vol. 95, no. 2, April 2021, pp. 28–35.

5. “HPI: Nearly Half of Dentists Offer Health Insurance to Employees.” ADA News, American Dental Association, 8 Aug. 2022, adanews.ada.org/ada-news/2022/august/hpi-nearly-half-of-dentists-offer-health-insurance-to-employees.

6. Kaiser Family Foundation. “2024 Employer Health Benefits Survey: Section 1: Cost of Health Insurance.” KFF, 2024, kff.org/report-section/ehbs-2024-section-1-cost-of-health-insurance/.