Payroll is the practice's largest yet most overlooked expense.
The title of this post is “Dental Payroll: What Practices Need to Know to Manage It Right”. That’s a bit of a mouthful, but it’s because dental payroll is one of the most important and complex things that a practice owner needs to manage. I’ve written about dental payroll before, but since I’m writing this from the perspective of someone who has just recently started managing their own payroll (after years of not having to), I think it’s worth going into more detail than I did before.
Why Payroll Matters
In many small businesses, payroll is often the single largest expense. In a dental practice, payroll is often the single largest expense, although in some cases, the cost of equipment or rent may be higher. But regardless of which category payroll falls into, it’s an expense that gets very little strategic attention. This is unfortunate, because when you get too big, payroll problems can emerge suddenly and cause huge headaches for a practice.
When Do Payroll Problems Usually Come Up?
I have found that payroll problems tend to come up during growth, rather than at startup. When a practice is small, with only a few employees, payroll feels manageable and intuitive. When a practice grows to five people, its systems might work well enough for everyone involved. But those same systems may not scale cleanly to fifteen. And as practices grow, they tend to face new challenges:
Timing conflicts. If your payroll timing clashes with your quarterly tax payments or debt service, you’re likely to run into trouble.
Owner compensation. As profits rise, the amount that the owner gets paid must be actively managed.
And so on.
So if you’re planning to grow your practice, it’s probably a good idea to think about how you’ll handle payroll. There are several ways to go about this:
You can hire an accountant or bookkeeper to handle payroll.
You can use a dedicated payroll software platform.
Or you can manage it yourself.
But no matter which method you choose, there are some key considerations to keep in mind. First, you need to make sure that you understand the basics of payroll. You should also know what your legal obligations are. And finally, you should plan ahead for any potential issues that could arise.
How To Model New Staff Costs
If you're thinking about adding new staff to your practice, you'll want to model the costs associated with hiring them. One of the first things you should consider is how long it will take for each new role to generate revenue. You'll also need to assess whether your cash reserves can support the new payroll cost during the ramp-up period. In addition, you should consider the impact of hiring new staff on benefits, overtime, and payroll taxes beyond just base wages. If your practice cannot support the new cost for several months without future growth, then either the timing may be premature, or you'll need to find a way to cover the payroll cost until the practice starts making money.
Intentional Payroll Management
Payroll management should be intentional, not reactive. Successful dental practices don't just hope that their payroll system will work out; they review their payroll metrics regularly, revisit their compensation structure as profitability changes, coordinate their payroll decisions with their tax and retirement planning, and manage the complexity of their payroll intentionally instead of trying to avoid it.
Payroll Software For Dental Practices
There are a number of dedicated payroll platforms available for dental practices. These platforms typically offer features such as automated payroll processing, time tracking, and benefits administration. Some popular options include OnPay, AllianceHCM, and Gusto. Each of these platforms has its own set of features and pricing models, so it's important to compare them carefully before choosing one.
OnPay
OnPay is a cloud-based payroll solution designed specifically for small businesses. With OnPay, you can run payroll in just a few clicks or delegate the task to your bookkeeper or office manager. Setup and migration are free, and accuracy is guaranteed on tax filings and payments. You can pay W-2 employees or 1099 contractors at any pay rate and schedule, and integrate with your accounting, time tracking, and benefits providers. The company offers three plans, starting at $49/month.
AllianceHCM
AllianceHCM targets growing dental groups and multi-location practices. Its software automates hiring, onboarding, and payroll across locations, while managing compliance. AllianceHCM has a flexible pricing model, with plans ranging from $35/month for one location to $75/month for two locations.
Gusto
Gusto is a secure and user-friendly dentist payroll software that streamlines workflow and saves time. It’s ideal for practices that want to focus on patient care rather than administrative tasks. Gusto offers a variety of features including time tracking, benefits administration, and tax filing assistance. Plans start at $49/month.
Other Options
There are other payroll software solutions available for dental practices, including Paychex and ADP. These companies offer similar features as OnPay, AllianceHCM, and Gusto, but they tend to be more expensive. So if you’re looking for a budget-friendly option, OnPay or AllianceHCM might be a better fit.
Conclusion
Payroll is an important part of running a successful dental practice. It can be challenging, but with proper planning and management, it doesn’t have to be. Whether you choose to hire an accountant, use a dedicated payroll software platform, or manage it yourself, it’s important to understand the basics of payroll and how it affects your business. By taking the time to plan ahead and manage your payroll effectively, you’ll be able to avoid many of the common pitfalls associated with this essential business function.