Production deductions

Q. We currently subtract the cost of inventory from our doctors' production. Do you recommend this? Also, should we subtract payroll taxes?

"If you pay the doctors a percentage of production and you're marking up your inventory correctly, why would you subtract the cost of inventory?" says Veterinary Economics Hospital Management Editor Mark Opperman, CVPM, owner of VMC Inc., a veterinary consulting firm in Evergreen, Colo. "The cost of inventory is already figured into their percentage-based compensation."

Opperman says payroll taxes depend on the percentage you're paying the associates. "Remember, the total cost of employing an associate shouldn't exceed 25 percent of his or her production. So if you're paying at the high end of this percentage, you might subtract out the taxes. If you're closer to 21 percent or 22 percent, you wouldn't—depending on the cost of other benefits." He suggests using a total compensation statement (available at www.vetecon.com) to figure out the total costs of employment for your associate.

Mark Opperman