How to support higher pay raises
A compensation and benefits strategy can help keep staff invested and retained
Pormezz/stock.adobe.com
What’s in your pay package? This question may be a cheap play on the commercial that asks, “What’s in your wallet?” but it is applicable. How much are you paying your team members, ie, how much money is in their wallets on payday? It is hard enough listening to your team question their pay rates, but with the added pressure of following your state’s requirement to raise the minimum wage, the process of hiring a new team member at a rate close to your current rates becomes a nightmare.
With the increase in the minimum wage comes the obvious query from your team: “When are we getting a raise, since the minimum wage is now higher?” For example, for a receptionist in New York, New York, getting paid $17 per hour1 may have been a reasonable pay rate in 2023. Then along comes this year’s increase in the hourly minimum wage for New York/Long Island, New York, from $15 to $16.2 Does that receptionist look for a wage increase beyond the typical cost of living adjustment? Add in the rising inflation rate, and is it any wonder why there seems to be a constant battle between what you can afford to pay and what your team wants?
How to know whether you have a good pay package
Pay is much more than dollars per hour. Benefits also play into this puzzle. For example, that New York receptionist earning $17 per hour may receive a benefits package including health care; continuing education (CE) allowances; and transportation, child care, cell phone, and tuition assistance. Compared with another receptionist making the same hourly rate and receiving health insurance and pet care discounts, your compensation and benefits package can be a game changer in attracting and retaining team members.
Therefore, the first step is to assess your compensation and benefits package, not just the hourly rate. Once you add up everything, compare your total revenue data with industry benchmarks. For example, the American Animal Hospital Association’s Financial and Productivity Pulsepoints, 10th Edition, reports salary/wages, employees’ portion of payroll taxes, and bonuses in the range of 15.9% to 21.9% of total revenue. Benefit costs fall between 1.3% and 3.6% of total revenue, including medical insurance, life insurance, disability insurance, retirement programs, uniforms, dues, and CE.3 Take the time to assess your current compensation and benefits package before making any changes.
How to determine whether your financials can support a higher wage
Can you afford to pay more? The most common response is to increase fees and decrease costs to improve your business’ financials. The caveat is that there is only so much clients are willing to pay for services and only so much cost-cutting that can be done before it impacts patient care. That does not mean you should skip this step. Many practices find errors in data entries, mistakes in buy-to-sell ratios, and vendors with better deals that improve the numbers.
One of the best metrics for identifying problem areas is revenue-to-expense ratios for laboratory work, diagnostic imaging, prescription food, pharmacy services, parasite preventives, and over-the-counter products. Work with your accountant to ascertain clean financial data before revising compensation and benefits. Lastly, look for opportunities for improvement.
We have all heard about low-hanging fruit. One such example would be lapsed patients. Paying a few team members to search your patient data and contact clients can produce great results: patients scheduling appointments for services. Additionally, strengthening client bonds and forward-booking appointments will help improve revenue numbers. Take a moment to survey your client list to find out what other services they desire and explore any opportunities. A new service that is right for your business and in demand by your clients is another way to improve revenue numbers.
How to determine what else you can offer
Keep in mind that money isn’t everything. Practices that define career advancement, develop leaders through stretch assignments, and incorporate other benefits can enhance their compensation and benefits packages. A survey by Forbes Advisor found that 1 in 10 employees would take a pay cut to have access to better benefits.4
What else can help your practice if a large wage hike is not in the cards? Consider offering voluntary benefits (ie, supplemental coverage at a low cost to employees), mandatory paid time off, retirement plans, remote work and/ or flexible hours, mental health benefits, professional development, job advancement, sabbaticals, and recognition and rewards. The opportunities are seemingly endless.
One benefits option to consider is a cafeteria plan, also known as a flexible benefits plan or a Section 125 plan. This type of employee benefits program allows employees to choose from a menu of benefits options. The business sets an annual dollar amount per employee and provides a list of benefits. During an annual open enrollment period, employees select their benefits from the list. Because there are 4 generations of employees in the workforce, they will value different benefits, and a cafeteria plan provides flexibility and customization.
Using a cafeteria plan, your business can provide a competitive and flexible benefits package without necessarily increasing overall costs, and employees can customize their benefits to better align with their individual needs and preferences. However, the business needs to comply with Section 125 of the Internal Revenue Code and communicate effectively with employees to facilitate the successful implementation and utilization of the cafeteria plan.
At this point, you need to determine your compensation and benefits strategy, which is a comprehensive plan to attract, retain, and motivate employees through a combination of financial and nonfinancial rewards. It creates a competitive and appealing offering that aligns with the organization’s overall business objectives while meeting the needs and expectations of its team members.
How to put it all together
Designing your compensation and benefits strategy requires you to perform all the previously mentioned assessments, integrate performance management, seek employee feedback about benefits, and understand legal and regulatory compliance. Start by listing the items your business wants to offer in its compensation and benefits package and calculating the related anticipated growth in revenue.
Next, set up 2 Excel sheets. One calculates changes to hourly wages and determines the percent of revenue that the new wages comprise. For example, Table 1.
The other Excel sheet lists the total cost of compensation and benefits for each team member. (Table 2).
This statement serves 2 purposes. On the one hand, it gives each employee clarity on the total value of their compensation and benefits package; on the other hand, it can show what sets the business apart from its competition.
Once you go through the process and design your compensation and benefits plan, you must regularly review and adjust it to stay responsive to workforce demographics, business goals, and market trends. Avoid conflict over wages by having a compensation and benefits strategy and discussing the total package with your team members.
References
- Veterinary Hospital Managers Association. VHMA 2023 Compensation & Benefits Report. 2023.
- Governor Hochul reminds New Yorkers of upcoming minimum wage increase. News release. Governor Kathy Hochul. December 27, 2023. Accessed June 5, 2024. https://www.governor.ny.gov/ news/governor-hochul-reminds-new-yorkers-upcoming-minimum-wage-increase
- Vital Statistics. Financial and Productivity Pulsepoints, Tenth Edition. AAHA Press; 2019.
- Miranda D. Best Employee Benefits in2024. Forbes Advisor. Updated February 6, 2023. Accessed June 5, 2024. https://www. forbes.com/advisor/business/best-employee-benefits/
