The Essential Guide to Dental Payroll Accounting and Bookkeeping

Running a dental practice involves way more than burs, bridges and bicuspids, and managing payroll is one crucial aspect that should not be overlooked. Efficient payroll management ensures smooth financial operations and keeps everyone from your front desk staff to your dental hygienists and doctors satisfied. 

To ensure your dental practice runs on a smooth payroll process, let’s go over the 5 fundamental principles of accounting and bookkeeping related to payroll for dentists:  

• Understand Payroll Basics
• Organize Payroll Records
• Calculating Payroll
• Payroll Taxes and Reporting
• Payroll Software and Outsourcing Options

HOW TO RUN DENTAL PRACTICE PAYROLL

1. UNDERSTAND PAYROLL BASICS

Let’s start simple. You may think you already know most of the basics, but let’s review just in case. You’ve got to have a solid foundation of understanding to run your practice’s payroll smoothly and efficiently.  

Payroll refers to the process of calculating and distributing employee compensation within your dental practice. It encompasses several elements, including 

• Employee Salaries: The wages or salaries paid to your employees based on their employment agreements or contracts.
•  Taxes: Payroll taxes are mandatory deductions from employee wages, which include federal income tax, Social Security tax, Medicare tax, and potentially state and local income taxes.
• Benefits: This includes various benefits provided to employees, such as health insurance, retirement plans, and paid time off. Some benefits may be subject to taxation, while others are tax-exempt.
• Deductions: Deductions from employee wages can include items like retirement plan contributions, health insurance premiums, and voluntary deductions like charitable donations or wage garnishments.

Accurate employee classification is crucial for precise payment calculations and compliance with labor laws. Dental practice owners should correctly classify employees as full-time, part-time, or contractors. 

As a dental practice owner in Tennessee, it is crucial to comply with federal and state payroll regulations. In addition to correctly classifying employees, some key considerations include:

• Federal Regulations: Familiarize yourself with the Fair Labor Standards Act (FLSA), which sets standards for minimum wage, overtime pay, and child labor. Additionally, understand the requirements of the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA).
• State Regulations: Tennessee has specific payroll tax obligations and reporting requirements. Be aware of state income tax withholding, state unemployment tax, and any other state-specific regulations that may apply to your dental practice.
• Reporting Requirements: Ensure timely and accurate filing of various forms, such as the IRS Form 941 (Employer's Quarterly Federal Tax Return), Form W-2 (Wage and Tax Statement), and state-specific forms for reporting and remitting payroll taxes.

2. ORGANIZE PAYROLL RECORDS

In order to keep your practice’s payroll running smoothly, make sure your employee’s records are inputted correctly. Accurate and up-to-date employee records are essential for effective payroll management in your dental practice. Pay careful attention to the following aspects:

• Personal Details: Maintain comprehensive employee records that include essential information such as full legal names, addresses, Social Security numbers, and contact details. Having correct and complete information ensures accurate payroll processing and facilitates communication with employees.
• Tax Forms (W-4): It is crucial for your employees to complete the IRS Form W-4, which determines the federal income tax withholding from their wages. Encourage your employees to review and update their W-4 forms as needed, especially when their personal or financial situations change. This ensures accurate withholding and helps avoid under or overpayment of taxes.
• Payroll Preferences: Pay attention to individual payroll preferences, such as how employees prefer to receive their pay (e.g., direct deposit or physical checks) and whether they wish to allocate their wages to multiple accounts. Accommodating employee preferences improves satisfaction and streamlines the payroll process.

Part of keeping accurate employee records is tracking employee working hours. This is vital to accurate payroll calculations and compliance with labor regulations, so implement effective timesheet and attendance tracking methods within your dental practice. 

3. CALCULATING PAYROLL

You’ll need to calculate wages, deduct applicable taxes, and include benefits to ensure fair and compliant payroll practices. Prioritize accurate recording and documentation for transparent compensation management, and make sure your employees understand the ways in which they’re compensated. There are three aspects you’ll need to consider when calculating payroll: 

• Gross Wages: Calculate gross wages by multiplying hourly rates by the number of hours worked or dividing annual salaries by the number of pay periods. Include overtime, bonuses, and commissions as applicable.
• Deductions and Withholdings: Consider deductions such as federal and state taxes, Social Security, Medicare, and voluntary deductions chosen by employees. Ensure accurate recording and compliance with tax regulations.
• Benefits and Perks: Account for benefits like health insurance, retirement plans, and paid time off when calculating total compensation. Deduct employee contributions for premiums and retirement plans, and factor in the value of paid time off.

4. PAYROLL TAXES & REPORTING

Payroll tax responsibilities are crucial for dental practice owners. As you set up your payroll process, be sure to include the following federal and state requirements:

• Employer Tax Responsibilities
  • Federal Unemployment Tax (FUTA): This tax funds unemployment benefits and is based on employee wages. 
  • State Unemployment Taxes: Different states will have varying tax rates, so you’ll need to check with your state to calculate and remit these taxes according to their requirements.
• Payroll Tax Forms
  • Form 941: You’ll use this form to report federal income tax, Social Security, and Medicare taxes withheld, plus any employer contributions. These reports are usually filed quarterly so make sure you set reminders for timely remittance. 

5. PAYROLL SOFTWARE & OUTSOURCING OPTIONS

Consider reliable and user-friendly payroll software designed for dental practices. Look for features like automated calculations, integrated tax filing, and direct deposit capabilities to streamline payroll management.

Outsourcing payroll to professional accounting firms or CPAs who specialize in dental accounting can benefit your practice through time and cost savings, increased accuracy and compliance, and enhanced data security and confidentiality. Outsourcing is a great way to free up resources and ensure efficient payroll management!

Chaliff + ASSOCIATES: YOUR DENTAL ACCOUNTING & PAYROLL EXPERTS

Proper accounting and bookkeeping practices are essential for dentists to manage payroll efficiently, and there are complexities within dental accounting that require specialized expertise. At Chaliff + Associates, our dental accountants know the ins and outs of complex dentistry accounting and bookkeeping. 

When you outsource your accounting to us, you’ll spend less time stressing over spreadsheets and more time growing your business. We’ll streamline your payroll processes and minimize errors, so you can focus on providing exceptional dental care to your patients. Ready to get started? Request your free consultation today!