Resources
Legal Council
Compensation Minus Cost
Question:
My contract says "In addition to the Basic Salary, Employee will receive additional compensation equal to: 50% of the Employee's production less those costs associated with the Employee, i.e., salary, pension, health and malpractice insurance, and all other business expenses directly associated with Employee. Corporation shall deduct and withhold all necessary Social Security and withholding taxes and any other similar sums required by law from any compensation paid to Employee."
At the end of this my first year, I was told that due to a lag in collections I would not receive a bonus. However the employer decided to base production on the rate of collection for a calendar year ("realization percentage"). I billed / collected much more than my salary. When time for my bonus the following was done:
Subtraction of 50% Less Expenses of:
- Salary
- FICA
- Health Insurance
- Dental Insurance
- Malpractice Insurance
- Dues
- Phone
- Licenses & Permits
- Mileage
- Nurse salary
- Nurse FICA
- Transcription
A short time after my arrival, the Employer hired a nurse. I agree with many of the expenses but I was surprised about the FICA and nurse expenses. I appreciate you input.
Response:
The subject of incentive or bonus compensation is a frequent topic of discussion and dispute between physicians and their employers, especially in the first year when it is common for a physician not to receive a bonus in year one of the employment agreement due to the lag in collections. This underscores the need to review and revise the incentive compensation language set forth in the Employment Agreement carefully to address the cash flow issue and to clarify in ambiguous wording (to the extent possible) prior to execution of the Agreement.
In this case, however, it will be left up to the physician and the employer to negotiate an acceptable resolution. While I am unclear as to the methodology used by the employer to calculate the realization percentage, it does seem that the Employer may have attributed some costs to the physician inappropriately.
Specifically, the language quoted above notes that the Employer will subtract all other costs directly associated with the Physician. You are correct in noting that the payroll taxes (social security and Medicare) are the responsibility of the employer. This is set forth in Section 3111 of the Internal Revenue Code (subsection (a) addresses FICA and subsection (b) addresses the Medicare tax). As such, it is questionable for the Employer to characterize the Employer's portion of the FICA tax as a cost directly associated with the Physician, or to otherwise indicate it is the physician's responsibility to pay such costs.
Further, you probably have a decent argument that the costs incurred in connection with the nurse are not costs directly associated with your practice. It is common for an employer to allocate some portion of the overhead incurred in connection with the employment of mid-level practitioners to each physician, but such costs are usually described as "pro rata," "allocated," or "indirect," not direct. In the end, however, it is far from an open and shut case. The best advice is to tread carefully if you plan to continue practicing with this employer as a drawn out dispute may create some hostility in the workplace.
The preceding was prepared by John Powers, JD, an attorney with the healthcare practice of Husch & Eppenberger. It is prepared as a source of general information concerning recent health law developments and is not legal advice or an opinion. No action should be taken in reliance upon this information without obtaining the advice of a knowledgeable healthcare attorney.
Attorney John Powers has partnered with Cejka Search to address healthcare legal issues in our Legal Counsel feature on cejkasearch.com. His area of expertise include hospital and medical practice issues, physician recruitment transactions, managed care counseling, development of MSOs, IPAs, and managed care delivery systems, antitrust counseling to healthcare clients, insurance matters, physician-hospital contracting, medical staff matters, and bioethical issues.
If you have a question or comment for Mr. Powers, please send a message to: info@cejkasearch.com