The compensation number a physician is quoted at signing is rarely the one that shows up in their bank account.
The gap between physician’s headline compensation figure and actual take-home is wide, and three physician leaders joined Becker’s to discuss how it is rarely accidental. Overhead often goes undisclosed until after the contract is signed, state tax burdens swing by as much as 12 percentage points depending on geography, W-2 structures can consume 40 cents of every bonus dollar before a physician sees it and post-employment penalties claw back earnings long after someone has left.
Question: What’s the biggest gap between the compensation number physicians are quoted and what they actually net? Where does the math go wrong?
Sudhir Bhaskar, MD. Gastroenterologist at Gastro Health (Orlando, Fla.): Employers, no matter who they are — hospitals, private equity groups, etc. — fail to adequately reveal the overhead accurately. This can result in a significant gap in compensation.
Sam Cady, MD. Cataract Surgeon at Maine Eye Center (Portland): Compensation numbers generally do not represent the “dollar in your pocket” take-home amount as taxes are excluded. Federal/SSI/Medicare taxes are uniform nationwide, but the state tax impact can be substantially variable, i.e. 0% to 12% depending on state/local tax burden. Conversely, pretax benefits are frequently not represented in the physician salary, but rather total benefit packages. 401k match, HSA contributions, conference/travel/phone/car stipends do have real value but are not shown in high level numbers. Lastly, any post employment “penalty” should be considered as having negative compensation impact (tail coverage, noncompete, bonus payback etc).
Rajiv Sharma, MD. Gastroenterologist and President of Mirage Health (Phoenix): Math goes wrong because it is made wrong by not factoring in W-2 or W-9 status. W2 is the worst structure and makes the tax man rich and depletes physician earnings like rust. Any bonus paid as W-2 is an illusion. Anything W-2 immediately eats away 40% of your earnings. W-2 is better for organizations as it’s a line Item that benefits them.
Math goes wrong since due to leveraged buyouts by PE. The debt is transferred to MDs. The only people making money are administrators, PE investment managers or my esteemed senior physicians who benefit by structuring deals to benefit them, and poisoning the financial success of their junior partners and new future partners. It’s a pyramid scheme.
They all prefer W-2 employees as well as it benefits the owners. A $600,000 per year salary after taxes is about $350,000 while the same in W-9 gives more take home and wealth building.
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