Ownership and transitions
Production-based pay
Production-based pay is compensation calculated as a percentage of the production an associate generates, often with deductions such as lab fees taken out first.
The ADA's associate guide says that when compensation reflects production, the formula can be complicated. In its worked example, production of 10,000 dollars is reduced by 1,000 dollars in expenses, so pay is figured on 9,000 dollars. The ADA also defines collection percentage as collections divided by production, times 100. Whether the base is gross production, net production or collections changes the result, and so does the treatment of lab fees. Associates should ask exactly what is in the base and how often payments are reconciled. An attorney should review the contract, and a CPA can explain the tax treatment.