How Much Payroll is Too Much Payroll?

How Much Payroll is Too Much Payroll?

This DATIS Blog was originally written by Monica Oss, CEO of OPEN MINDS, Market Intelligence for Health and Human Services Organizations, on Tuesday, January 28, 2014 and was re-posted with permission.  Thank you Monica and Open Minds.

There are four big drivers of the cost of services – staff compensation, service staff productivity, administrative overhead and operational process management. Of these, the first, staff compensation (both clinical and administrative), is the largest single factor. In fact, health care leads most other industries with an average of 52% of total operating expenses going to salaries (see Salaries as a Percentage of Operating Expense).

How much should your organization be spending on payroll? To answer that question, it is important to differentiate between the two big categories of staff – those that generate revenue (i.e. provide billable services) and those who support the revenue generators (the rest of the team members, affectionately referred to as “overhead.”)
For the revenue-generating team members (typically clinical or support service staff providing services), what is the right salary range? The simplistic answer is “as much as necessary” to attract top talent. The more complicated answer is the amount that leaves you a margin per service — when you factor in direct staff compensation cost (including benefits), productivity or yield per staff member, direct operating expenses, and overhead. This is a math that is much more complicated – particularly where productivity and overhead are concerned. The short answer is that you can afford to pay clinical staff more when payment rates are higher, when productivity is higher, and/or when overhead is lower. That is the challenge in the competitive market for clinical talent. What are the going rates?

For psychiatrists
1.    Psychiatrist compensation in 2012 averaged $186,000 annually.
2.    About 19% of psychiatrists earn $300,000 or more, while about 13% earn $100,000 or less, and a quarter of psychiatrists earned between $200,000 and $249,999.
3.    Employee psychiatrists earned an average of $184,000.
4.    Independent contractors earned an average of $195,000.

For psychologists
1.    Median psychologists compensation in 2012 was $90,020 annually (see Psychologist Occupational Employment and Wages).
2.    The top 10% of psychologists earn $116,240 or more, while the bottom 10% earn $42,240 or less.
3.    The top average salary for psychologists by state was $107,180 in Maryland.
4.    The top paying industries paid average salaries of $100,380 for elementary and secondary school, and $99,900 for outpatient care centers.

For social workers
1.    Median social worker compensation in 2012 was $39,980 annually (see Mental Health and Substance Abuse Social Workers Occupational Employment and Wages).
2.    The top 10% of social workers earn $66,880 or more, while the bottom 10% earn $25,550 or less.
3.    The top average salary for social workers by state was $55,690 in Connecticut
4.    The top paying sectors of health and human services were $56,540 for home health care, and $54,910 for specialty hospitals.

We’ll continue to keep you updated on clinical staff salaries across the health and human service field. But remember, compensation isn’t only about the numbers – its also an integral part of overall organizational strategy. Compensation levels and performance-based compensation models can help to create a competitive advantage for your organization by attracting talent and differentiating the quality of your services from the competition. To learn more about compensation models, join us at the 2014 OPEN MINDS Performance Management Institute for Best Practices In Maximizing The Value Of Your Team: How To Measure & Manage Clinical Staff Productivity, with Heidi Blair, Vice President of Administrative Services, and Deborah Kostroun, MHSA, SPHR, Chief Operating Officer of Florida’s Manatee Glens.

Monica E. Oss
Chief Executive Officer, OPEN MINDS

Written by MJ Craig

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