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Layoffs, furloughs and wage reductions: Considerations for dental practice owners heading into 2021

December 15, 2020 1676

Quick Summary:

With a 20% patient volume shortage over 2019, dental practice owners may need to look at reducing payroll overhead costs going into 2021. While CDA Practice Support recommends monitoring other costs before reducing employee wages and hours, here are considerations if making a difficult decision.

When dentists were asked the following survey question, conducted by the ADA’s Health Policy Institute (published Nov. 2, 2020), “Assuming your patient volume remains the same through the end of the year, would you consider any of the following additional measures?” 31% of dentists surveyed said they may reduce staff hours, 18.6% said they may downsize the dental team and 13.1% said they may reduce employee wages.

Dental practice schedules and production have certainly been a rollercoaster in 2020. Most practices experienced low production in the spring to then realize record-high production through the summer. As we near the end of the year, many practices are reporting a slight decline in patient volume compared to the third quarter. According to the Nov. 2 ADA HPI COVID-19 survey data, patient volume nationally still hovers around 80% of pre-COVID numbers.

With a 20% patient volume shortage over 2019, dental practice owners may need to look at reducing payroll overhead costs going into 2021.  

Because employee wages and benefits represent 25-30% of practice collections, it is not surprising for dentists to look first at reducing payroll costs. While CDA Practice Support recommends monitoring other costs before reducing employee wages and hours, the following are considerations should you be faced with this difficult decision:

  1. Communicate with your team. Financial decisions that impact employees can greatly impact team morale. It is important that the practice owner explain the reasons behind such a decision, convey to each employee that the decision was not made easily and express that all other expenses were closely evaluated, assuming the evaluation took place. Explain that the practice is operating at a shortage compared to previous years, making it necessary to reduce all expenses. Have individual conversations with team members so they can express their concerns and you can individually answer their questions. Transparency is key to keeping the team positive during challenging times.
  2. Lead by example. Inform your team that you are in this with them. If you have taken a wage reduction, let them know that you, too, as the owner, will be taking a wage reduction. The shortage in patient volume and production impacts all areas of the practice.  
  3. Understand the different options to reduce labor costs and consider each carefully. Three main options for reducing labor costs exist and each has different impacts to both the employer and employee. They are: Layoff (termination of the employment relationship), furlough (unpaid temporary leave of absence) and compensation/hour reduction.
  4. Implement and document the business and financial reasons for selecting the employees subject to the layoff, furlough or wage/hour reduction. A layoff, furlough or reduced compensation may constitute an "adverse employment action," meaning employees may claim discrimination. Even though the motive for the action is obvious – the pandemic and its economic impact – the reason for who is selected is not always as clear to your team. Document the decision with reasons like job classification and tenure rather than performance or other subjective reasons. For example, if you have three dental assistants who have all been employed about the same length of time, all work the same hours, and generally receive the same wage, it may be best to equally reduce their hours. However, if you have one hygienist and the hygiene schedule is down 20%, you can justify that this position needs to be reduced to reflect the change in that specific area of the practice.
  5. Provide the required documents for employees to seek unemployment insurance, including the Notice of Change in Relationship and the Unemployment Insurance Guide. Be sure to explain that any reduction in hours or pay is a qualifying event to be eligible for unemployment insurance. Unemployment insurance benefits are administered by the California Employment Development Department. Employees are eligible for unemployment insurance benefits when they are laid off, furloughed or have hours or compensation reduced.
  6. Give sufficient notice of the change to your employees. For at-will employees, compensation cuts must be announced in writing before the start of the week that is covered by the new pay rate and preferably in advance of the start of the pay period in which the cut is effective. Doing so will avoid complexities in deducting from an exempt employee's salary and calculating overtime with two different rates for nonexempt employees. The written notice, preferably individually addressed to each employee, should provide the reason for the reduction in compensation, when the cut in compensation is set to take place and what type of pay is being cut, e.g., salary or hourly pay. Furloughs should be communicated to employees in writing before the start of the furlough period. Any work performed must be paid. Please reference CDA Practice Support’s Sample Employee Furlough Letter for more information.
  7. If reducing compensation, provide employees with the New Hire Wage Theft Protection Notice indicating the new compensation rate. Be sure to not reduce the compensation for any exempt (salaried) employee below the minimum salary-level threshold for the exemption. And be sure to not reduce the compensation for any nonexempt (hourly) employees below the applicable minimum wage. Further, inform employees if the reduction in hours will affect their eligibility for benefits in your practice. Use the Department of Industrial Relation’s Notice to Employee.

Before making any employment reduction, seek legal counsel to evaluate the decision and rationale. Each employee situation is unique and should be carefully considered.