1. Employment Contract & Salary Arrangements
Since 1962, James D. Yurman has been retained by employers seeking to hire a new physician. Not only does an initial employment agreement need to contain a competitive salary and bonus arrangement, but an attractive fringe benefit program may need to be included. In today’s marketplace, however, just what salary level and bonus potential are necessary to attract the right candidate? What fringe benefits are attractive and yet cost-efficient? For what term should the contract remain in effect? What can be done now to help avoid trouble later if a premature termination becomes necessary?
If you are about to begin an employment search, make sure you contact James D. Yurman for appropriate guidance.
Structuring the Ownership Agreements
The relationship between an incoming physician and his Employer usually travels through two stages:
STAGE ONE: The time during which the incoming physician is merely an employee, and
STAGE TWO: The subsequent period when the physician becomes eligible to purchase an ownership interest.
Before signing the initial employment agreement, the incoming physician should be told what his/her future relationship with the Employer is expected to be. Then, as the time for Stage Two nears, various “ownership” documents need to be drafted and presented for both parties signatures:
1. Purchase Agreement
This is the document that details the terms of purchase including a description of what is being purchased, for how much and over what payment period.
Obviously, the document cannot be drafted until agreement has been reached about all of the many purchase variables. Essentially, the newcomer is being asked to buy an ownership interest at a price which may or may not include an inflated value to account for the goodwill of the practice and may or may not include an amount for the accounts receivable. Each different method of handling these items involves significant tax implications and thus, careful attention must be given.
The Purchase Agreement may also dictate how the newcomer’s compensation package will be determined over the next several years. Whether the terms are equitable depends upon what decision was reached with regard to the accounts receivable and goodwill factors.
2. Buy/Sell Agreement
This document typically sets out the terms for the transfer of an ownership interest upon the death, disability, retirement or termination of employment of that owner. All owners benefit from having such a document since it is always easier to arrive at a reasonable and fair decision before being distracted by someone’s death, disability, retirement or termination of employment.
Another document that may be offered involves the benefits that are available upon the termination of employment by an owner. This benefit may consist of some of the unvested retirement plan benefits and/or some of the accounts receivable of the terminated physician.
Let James D. Yurman suggest appropriate terms for your ownership documents and educate you by phone about the issues that need to be clarified. The fee for this service is generally based upon an hourly rate. Satisfaction is guaranteed!
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2. Fringe Benefit Design
Disability Issues
When it comes to disability and its effect on your medical practice, employers should gear their thinking to when – not if – it will happen. Chances are that more than 1 member out of a 3 person group will suffer a long term disability before reaching age 65, according to Standard Insurance of Portland, OR. Major areas of concern are:
- Disability Wage Continuation
How long will the Employer be obligated to continue the disabled physician’s salary? How will these payments be funded? Will the bonus be affected? - Group Disability Insurance
Does the current group policy provide the best value; that is, is the premium commensurate with the definitions and other contract terms? Do all key employees really understand what protection is NOT being covered by the current group policy? - Individual Disability Insurance
What are the basic differences between group and individual contracts? What are the important contract terms in disability insurance policies and how do various contracts compare in the marketplace? What are the various ways of paying the premiums for such coverage and what are the income tax effects? - Disability Reimbursement Program
Will the Employer reimburse its physicians for disability insurance premiums initially paid by employees? - Employment Termination
Will disability automatically terminate a disabled physician’s employment with Employer? What requirements must be met to enforce such provisions? - Ownership Termination
Will a physician’s disability automatically trigger the mandatory sale of his/her ownership interest? If so, under what conditions? Also, will a mandatory sale of other ancillary interests (e.g. real estate, lab or surgery center) be triggered?
One big mistake made by employers is to review the above issues separately rather than as part of an integrated whole. Since they often impact each other, a concentrated effort must be made to develop a coordinated approach by the Employer. With his many years of experience, James D. Yurman is ideally suited to provide appropriate recommendations.
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3. 401(k) Investment Services
Government regulation of the retirement planning marketplace is not only complex, but also constantly changing. Fortunately, the trend has been to increase the benefits available to those who know the rules. What steps have you, as an employer, taken to keep up-to-date? Do you offer qualified plans that provide the most efficient employer contributions? Are you taking advantage of the full current government allowance to be contributed each year for a business owner or key employee into a profit-sharing/401(k), or pension plan?
There is something more important, however, than the amount of the employer’s annual contribution. Believe it or not, attractive investment performance has a far greater impact on retirement fund accumulation. Unfortunately, most employers do not devote enough attention to monitoring investment performance. Too few know what investment return has been achieved and how that return compares with other possibilities in the marketplace. Fewer still have sufficient information to measure whether the investment return compares favorably with the level of risk that has been undertaken.
Medical practices already have enough of an administrative burden without having to devote additional manpower to oversee fringe benefit programs. That’s why many Employers retain James D. Yurman to develop simple recommendations for complex problems.