Associate Structure: Employee vs. Independent Contractor

Associates are classified in one of two ways: employee or independent contractor. Each of these categories is defined by California state law. To lower tax liabilities and decrease administrative costs, some employers prefer to assign an employee (including an associate dentist) the status of “independent contractor.” Owner-dentists should be aware, however, that the laws governing independent contractor status are specific and difficult to bypass. Substantial penalties exist for improperly treating an employee as an independent contractor. Qualified legal advice should be obtained before establishing an associate or any individual working in a practice as an independent contractor. It is important to ask the owner-dentist or employer how you as the associate will be classified. This impacts your compensation, liability (malpractice) insurance coverage, scope and employment taxes. The employment structure of an associate is explained in more detail in the “Associate Agreements” section of the toolkit

Associate, Non-transition

A private practice associate is a dentist who treats patients in a practice where they are not an owner. A non-transition associate is one who works in a practice for reasons other than an eventual ownership position, such as to gain income and experience.

An associate’s legal status will likely be as an employee, not an independent contractor. Because the associate is not an owner, their liability is limited to patient treatment (malpractice). It does not extend to business liability.

Advantages

• No economic or other responsibilities of ownership.
• Associate can earn a competitive income, typically determined as a percentage of the associate’s collections.
• Opportunity to practice procedures to increase hand speed.
• Work with a variety of patients and practitioners with the objective to be mentored and gain an understanding of the business of dentistry.
• Owner-dentist has the ability to expand the practice’s scope of services and attract a new patient demographic.

Possible Disadvantages

• Remuneration is in the form of salary for work done. No equity in the practice is accumulated over time.
• For the owner, an associate who does not have an equity position in a practice can move at any time to any location without recourse by the owner, as California law prohibits noncompete agreements in most situations.
• For the associate, if the owner is still working in the practice, the patient volume may not support a full-time position.
• For the associate, the owner can terminate employment at any time or ask the associate to not report to work if the schedule is slow.

Associate, Transition

An owner-dentist decides to sell all or part of their practice to an associate. There are many variables to consider with this type of career path. The associate and the owner-dentist should each have their own legal representation to determine the terms of the agreement. The agreement should include the employment agreement, compensation, percentage of practice for sale, timeline to purchase, proper protection for both parties, the agreed upon practice value and lease transfer (if applicable).

Advantages

• Ownership potential and vested interest in the practice.
• Opportunity to work with the owner-dentist and be mentored.
• Opportunity to practice procedures to increase hand speed as an associate.
• Owner-dentist has the ability to expand the practice’s scope of services and attract a new patient demographic.

Possible Disadvantages

• Associate may not be able to obtain financing to finalize practice purchase.
• The associate and owner-dentist may not be able to agree on practice transition terms.

Types of Private Dental Practices

As an associate in a private practice, it is important to understand the types of dental practices in California. The type of practice in which you are employed may determine your employment classification, compensation, benefits and patient care. As the associate, you may be considering whether the practice in which you are employed is desirable for you to eventually purchase. Private practice types are organized around the different practice ownership structures. If you have a business relationship with other dentists in a particular practice, the ownership of assets, revenue sharing and assignment of liabilities are some examples of the critical issues you need to consider. Placing private practices into an organized system by type helps you to identify the critical issues commensurate with different ownership structures.

Sole Proprietor vs. Professional Corporation

Each of these terms refers to a form of ownership. There are financial and legal advantages and disadvantages to each. The sole proprietorship is the simpler of the two in terms of its legal structure and administration. The corporation is more costly to set up and maintain, but provides tax advantages in some cases and more protection against some types of liability. Different types of corporations exist. Qualified legal, financial and tax planning advice should be obtained before selecting a corporate structure.

Solo Individual

This is the most common type of practice, both in California and nationwide, where a single dentist owns 100% of a practice and its assets and is responsible for 100% of the liabilities. The practice can be structured as a sole proprietorship or corporation.

Advantages

• Organizational simplicity.
• Complete control of business decisions.

Disadvantages

• Inability to leverage time and other assets.

Solo Group

Two or more solo owner-dentists enter into an expense (overhead) sharing relationship (solo-facility arrangement). Different categories of practice overhead can be shared such as office space, employees, equipment and supplies. Can be sole proprietors and/or corporations.

Advantages

• Efficient management of overhead.
• Maximum use of practice facility and equipment.
• Availability of peers to manage the practice when the owner is absent.

Possible Disadvantages

• Loss of control of some business decisions.
• Greater difficulty in selling or changing ownership of one of the practices in the group.

Partnership

Dental practice partnerships are forms of “general partnerships” where two or more dentists contract with each other to be co-owners. Partners can be non-incorporated dentists and/or professional corporations. Different partners can own any percentage of the total ownership, as long as the total is 100%. The working dentists in a partnership can be partners only or the partnership can have nonowner associates.

Advantages

• Efficient management of overhead, scheduling of work time and flexibility in arranging compensation and other business systems.
• Partners are often credible peers who can be consulted on clinical matters.

Possible Disadvantages

• Loss of control of many business decisions.
• Greater difficulty selling or changing ownership of one segment of the partnership or the entire practice.
• Partners’ liability in some ways extends beyond their percentage of ownership. Partners can be liable for their partners’ actions.

Dental Management Affiliate (DMA)

The number of dental management companies has grown nationally in the past decade. There are two types of these large group practices: Dental group practices and dental service organizations. Both can be privately owned or publicly traded. The associate dentist who works in a DMA practice is an employee of the DMA.

Dental Group Practice (DGP)

Ownership is by non-dentists who hire dentists to work for them. Transition opportunities can be available for employee associates to obtain ownership. DGPs exist in states where non-dentist ownership is legal. This is not the case in California.

Dental Service Organization (DSO)

California law requires dentist ownership of a dental practice. DSOs are independent business support centers that contract with dental practices in the United States. They provide business management and support to dental practices, including nonclinical operations. In a DSO, the dental management company often owns some practice assets (such as buildings and equipment), but the practice is still majority (51% or greater in California) dentist owned and the dentist retains authority over patient care and treatment decisions. Management services are provided by the dental management company in exchange for a percentage of profits. Some practices that operate as DMAs take the name of the DSO. Others retain the name of the owner-dentist.

Advantages

• Access to training and centralized resources through the DMA management services.
• Volume purchasing by the DSO leads to lower costs for equipment, supplies and lab costs.
• High volume of patients and opportunity to work on procedures and hand speed.
• Often salary and benefits included with employment, such as vacation time, retirement plans, health insurance and continuing education, tend to be attractive and competitive.

Possible Disadvantages

• Loss of independence and autonomy.
• Fast pace of patient care and high production expectations can lead to associate burnout.
• Often high employee turnover rates.
• Often lower compensation than associateships in private practices.

Other Career Options:

The scope of this toolkit specifically addresses associate career options. However, there are alternate career options to consider as a dentist in California. The following is an overview of other career options.

Public Health

Public health is the science of protecting and improving the health of communities through education, promotion of healthy lifestyles and research for disease and injury prevention. Those working in this area improve the health and well-being of people who are often less fortunate as well as improve quality of life, increase life expectancy and eliminate or reduce many communicable diseases. There are career opportunities in health policy and education, research, disease prevention and public health delivery systems.

Delivery Systems

Many community health centers (CHC) provide medical, dental and mental health care in the same location. Communities served by CHCs benefit from professional collaboration, and the partnership yields many benefits including advances in disease prevention and a stronger public health infrastructure.

Community health dentists increase access to care in many rural areas as well as low-income urban communities. Dentists can work in CHCs either as a dentist or dental director. The dental director is still able to practice dentistry while overseeing the administrative and financial aspects of the clinic.

Incentives to Practice in an Underserved Area

• The California Dental Association Foundation offers student loan repayment grants to expand access to care. In exchange for a three-year commitment to practice dentistry in an underserved community and provide 30+ hours per week of hands-on clinical practice, participants receive a loan reduction of up to $35,000 per year.
• The U.S. Department of Health and Human Services offers loan forgiveness through their National Health Services Corporation. General and pediatric dentists, as well as registered dental hygienists, are eligible to apply.
• The American Dental Association also offers resources for student loan repayment.

Academic Dental Careers

There are many opportunities to work in both private practice and as a faculty member and experience the benefits of teaching, researching and mentoring while still maintaining a patient base in a practice setting. Salary and benefits included with employment, such as vacation time, retirement plans, health insurance, continuing education and professional liability coverage, tend to be attractive and competitive. Faculty members may produce scholarly articles or publish research results in academic journals or peer reviewed publications. This is a great way to help mold dental professionals from the very beginning, teaching not only clinical excellence but the principles and ethics that make dentistry a valued and respected profession.

The following is a list of Alternate Dental Career Opportunities. For more information, visit Agencies and Clinical Resources (cda.org).

• Local community health clinics, school-based health centers and programs, state and county health departments, private nonprofits, mobile dental facilities, tribal health clinics and the state and federal government

• Federal and state prisons
• Centers for Disease Control and Prevention
• Department of Health and Human Services
• National Institutes of Health
• Universities
• Hospitals
• Private sector (through health care and professional organizations such as the California Dental Association, California Primary Care Association, the Oral Health Access Council and the National Network for Oral Health Access)
• Dental supply companies
• Pharmaceutical companies
• Insurance organizations