Do you know the different ways you can get paid? Here’s what you need to know about the most common types of compensation in veterinary medicine!
Let’s be serious – when I was in my residency, I had no idea there were different types of compensation. After all, when you’re an intern or a resident, you have a yearly salary that is divided into 12 or 24 paychecks, and your main goal is to make it last the whole month. It wasn’t until my third year of residency that I started reading about contract negotiations and the different types of compensation. If you’re not looking into advanced training, this must happen during your senior year of vet school.
So, in terms of veterinarian salaries, what are the different ways you can get paid?
1) Hourly rate
This one is very self-explanatory. There is a set hourly rate and you get paid based upon the number of hours you work, independently of how many cases you see or how much revenue you produce for the practice. This is typically how extra shifts or locums (ie. a person who stands in temporarily for someone else) are paid. Depending on the duration of the locum period, you can also get paid a set daily or weekly fee.
2) Production only
You get paid based on the revenue you bring in for the hospital. This can be a little scary because you can’t predict the future in terms of how busy you’ll be. If you’re super busy, great! However, in a slower practice, this compensation scheme can be very daunting.
Most practices that offer production-only compensation will offer a “grace period,” during which time you’re guaranteed a salary until that set period is over. This allows you to ease into the practice and grow your client base.
Keep in mind that not every service or product will count toward your production. You’ll want to know exactly what counts and what doesn’t, and that should be provided in writing in your contract.
This is the example that I gave above – interns and residents are paid on an annual guaranteed salary. Your paycheck is the annual salary divided by the number of paychecks independently of any other factors:
Annual salary $25000/year = ~$2083/month
4) Guaranteed salary plus production
This is very similar to the previous example, except that you get additional pay if your revenue is higher than your base salary.
On the other hand, if your revenue for the hospital is above you guaranteed salary, you get paid more:
Salary is $75,000/year = $6250/month
If your production rate is 22%, you’ll need to make ~$341,000 in production per year, which equals ~$28,400/month.
Here’s the equation:
Annual salary ÷ production rate x 100 = revenue per year to meet your salary
Now let’s say your revenue for the hospital was $30,000 in a certain month. Your total paycheck for the month will be $6600 (revenue x percentage rate ÷ 100 = monthly salary)
5) Base salary plus production
Isn’t this the same as #3? Nope! Any time that you are paid on base salary plus production you must look for the words “negative accrual” on your offer letter or actual contract. If you don’t see it, you still want to ask about it and make sure there is no other wording that means the same thing. If you’re not comfortable with contract wording (who is really?) you can always have a lawyer take a look at it.
Negative accrual means that every time you don’t make enough revenue during a month to cover your salary, that value keeps accumulating.
Here’s an example:
Salary is $75,000/year = $6250/month. Production rate is 22%.
You need to make ~$28,400/month to cover your salary (see math above).
January revenue: $20,000
February revenue: $22,000
March revenue: $32,000
In January and February, you didn’t make enough to cover your salary.
You still got paid $6250/mo but your negative accrual was $1850 (Jan) + $1410 (Feb) = $3260.
How did we reach the negative accrual numbers? Here:
Jan production is: $20,000 x 22 ÷ 100 = $4400; since you got paid $6250, negative accrual of $1850
Feb production is: $22,000 x 22 ÷ 100 = $4840; since you got paid $6250, negative accrual of $1410
In March, your revenue was higher by $3600 ($32,000 – $28,400 = $3600).
If you were on a guaranteed salary, you’d get paid ~$7040 that month ($32,000 x 22% ÷ 100), $790 higher than your usual month.
However, since you’re not and had negative accrual the previous two months, the additional amount you’d get paid is going toward your negative accrual:
$1850 + $1410 – $790 = $2470
This means that you’re still $2470 in the red (ie. you need to produce this additional amount before you’re eligible to receive a bonus on your paycheck for your production). Feeling a little stressed? If you’re just starting a new job or are fresh out of vet school, this can become a problem fast.
What about vacation and CE days?
If you are on production only or base salary + production, while you’re out of the hospital, you won’t be seeing cases and therefore won’t be producing any revenue. If this away time counts towards negative accrual, you can be even more in the red. This is something that you absolutely have to know before signing a contract, or you’ll have a very bad surprise afterwards.
On the other hand, if you’re a seasoned veterinarian working at a very busy practice, you’ll be able to stay out of negative accrual, but you still need to know exactly how this works in your practice in order to avoid surprises.
What’s the bottom line?
The ideal compensation scheme is dependent on your individual circumstances and the type of practice you work for. Please remember that all the examples above are before taxes are applied and not your take home pay!
Always remember that regardless of how you’re paid, practicing good medicine and helping pets and their families is why we do what we do. Never lose sight of that!
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