Staff wages, payroll taxes, and benefits are typically the largest single category on a dental practice's P&L, commonly in the mid twenties as a percentage of collections. What makes payroll urgent rather than merely important is that wage and hour law is one of the few areas where a well-meaning mistake, repeated quietly for three years, turns into back pay plus liquidated damages plus attorney fees.
None of this is complicated in principle. It is specific, and dental practices tend to run payroll on habit inherited from the previous owner. Our financial management chapter covers where these numbers land on the statement; this is how to get them right before they get there.
Key takeaways
- Salary does not mean exempt. Federal exemption requires all three: salary basis, salary level (currently $684 per week, or $35,568 a year), and a duties test.
- The 2024 rule raising that threshold was vacated by a court, and in May 2026 the Department of Labor restored the 2019 regulations. Several states set higher thresholds.
- Nearly all assistants, hygienists, and front desk staff are non-exempt and owe overtime at time and a half over 40 hours in a workweek.
- Non-discretionary bonuses must be included in the regular rate when calculating overtime. Most practices get this wrong.
- No federal law requires paid vacation or sick leave, but a growing number of states and cities mandate paid sick leave.
- SIMPLE IRA, SEP IRA, and 401(k) plans fit different practice sizes. 2026 deferral limits: $24,500 for a 401(k), $17,000 for a SIMPLE IRA.
- Unpaid huddles, working lunches, and after-hours texting are the three most common unrecorded-time problems in dental offices.
Exempt vs non-exempt: what the law actually requires
Under the federal Fair Labor Standards Act, employees are non-exempt (entitled to minimum wage and overtime) unless they satisfy every part of an exemption. For the white collar exemptions relevant to a dental office, that means all three of:
- Salary basis. A predetermined amount each pay period, not reduced for variations in the quality or quantity of work.
- Salary level. At least $684 per week, or $35,568 a year, per dol.gov. A highly compensated employee test at $107,432 a year carries a relaxed duties standard.
- Duties test. The primary duty must fit the executive, administrative, or professional exemption.
A note on recent history, because it caused confusion. A 2024 rule would have raised the threshold in two steps and indexed it going forward. A federal court vacated it, and in May 2026 the Department of Labor issued a technical amendment restoring the 2019 regulations, which is why $684 per week is the operative number. Several states set higher thresholds, and where state law is more protective it applies. Do not assume the federal number is the ceiling.
The duties tests, in dental terms
| Exemption | Primary duty requirement | Realistic dental application |
|---|---|---|
| Executive | Managing the enterprise or a recognized department, directing at least two full-time employees, with hiring and firing authority or recommendations given particular weight | A true administrator who supervises two or more people and has real hiring input. Not a lead front desk person who answers phones all day. |
| Administrative | Office work directly related to management or general business operations, including discretion and independent judgment on matters of significance | Sometimes a business manager who sets policy, negotiates vendors, manages insurance contracts. Applying established procedures, even skillfully, is not discretion on matters of significance. |
| Learned professional | Advanced knowledge in a field of science or learning, acquired by prolonged specialized instruction | Dentists clearly qualify. The salary level test does not apply to licensed practitioners of dentistry or medicine, which is why associate arrangements are analyzed differently. |
The classic dental misclassification is the office manager. Hypothetically: a practice pays its office manager $58,000 and treats her as exempt. She supervises nobody, spends most of her day on insurance verification, scheduling, and collections, and works 46 hours most weeks. She is almost certainly non-exempt, and the practice owes three years of unpaid overtime. The title does not matter, and the salary amount does not by itself. The duties matter.
Who is non-exempt in almost every dental practice
- Dental assistants (including expanded function and lead), sterilization and lab support
- Front desk, scheduling, treatment and insurance coordinators, billing staff
- Dental hygienists, whether paid hourly, salaried, or on a daily rate. Licensure does not make a hygienist exempt, and a daily rate does not by itself satisfy the salary basis and duties tests. Treat hygienists as non-exempt unless an employment attorney has reviewed the arrangement.
- Most office managers, unless the supervisory reality clearly matches the executive test
Overtime math, including the part everyone gets wrong
Non-exempt employees must be paid at least one and a half times their regular rate for hours over 40 in a workweek. A workweek is a fixed, recurring 168-hour period that you define; it need not run Monday to Sunday, but once set it should not move around to avoid overtime.
The regular rate is not always the hourly rate
The regular rate includes most non-discretionary compensation: production bonuses, attendance bonuses, shift differentials, and anything promised in advance for meeting a goal. It excludes truly discretionary gifts where neither the fact nor the amount was announced ahead of time.
Hypothetical example: bonus included in the regular rate
All numbers invented for illustration. An assistant paid $24.00 per hour works 45 hours in a workweek, and the practice pays a $200 monthly collections bonus announced in advance, of which $50 is allocated to this week.
- Straight-time earnings: 45 x $24.00 = $1,080, plus the $50 bonus = $1,130
- Regular rate: $1,130 / 45 hours = $25.11 per hour
- Overtime premium owed: 5 hours x half of $25.11 = $62.78
- Total due: $1,192.78
A practice paying 40 x $24 plus 5 x $36 plus the bonus would underpay the premium, because it never recalculated the regular rate. Multiply that small error by every staff member, every bonus period, for three years.
Comp time is not legal for private employers. Four hours off next week instead of four hours of overtime pay this week is a violation, even when the employee asks for it. Public sector employers have a comp time provision; private dental practices do not. You can adjust the schedule within the same workweek, but you cannot bank hours across weeks.
The hours that quietly go unpaid
Dental offices produce unrecorded work time in predictable places. Each is an easy fix and a wage and hour claim waiting to happen.
| Situation | The usual practice | What is generally required |
|---|---|---|
| Huddle before the clock starts | Team arrives at 7:45, huddles, clocks in at 8:00 | Compensable work time. Clock in first. |
| Working lunch | Assistant eats while turning over rooms or taking calls | A meal break must be a genuine break from duties to be unpaid. Interrupted lunches are paid. |
| Setup and breakdown | Early to open operatories, late to finish sterilization | Paid. If it is required for the job, it is work. |
| Required meetings, training, CE | Monthly evening meeting or mandatory OSHA training, unpaid | Generally compensable when attendance is required or it relates to the job. Voluntary, off-hours, unrelated training may not be. |
| After-hours texting | Manager texts schedule changes at 8 p.m., staff respond | Time spent working is work time. Limit after-hours contact by policy and pay what occurs. |
| Travel between locations | Staff drive between two offices mid-day, unpaid | Travel between work sites during the workday is generally compensable |
Fix it with two rules. Every non-exempt person clocks in before any work activity, including huddle, and clocks out only after the last task. And nobody edits a time record without the employee reviewing and initialing the change. Those two rules cost nothing and are what an auditor or plaintiff's attorney asks about first.
Independent contractor classification
Treating a hygienist, assistant, or front desk person as a 1099 contractor is common and usually wrong. The legal tests look at the economic reality: who controls the work, who supplies equipment, whether the worker has an independent business, whether the arrangement is permanent, and whether the work is integral to the practice. A hygienist working your schedule, in your operatory, with your instruments, on your patients, under your protocols is an employee by almost any test. Temp agency hygienists are typically employees of the agency, which is different, and associate dentists are a more complicated analysis; see our associate contract post.
Getting this wrong means back payroll taxes, penalties, interest, unpaid overtime, and benefit plan exposure. The IRS and the Department of Labor each have their own tests and many states have stricter ones. Ask your CPA and an employment attorney, not a message board.
Paid time off, sick leave, and holidays
Federal law does not require paid vacation, holidays, or sick leave. Obligations come from state and local law, plus your own written policy, which becomes enforceable once published.
What varies by state
- Paid sick leave. A growing number of states and cities require accrued paid sick leave, with rules on accrual rate, carryover, permitted uses, and notice. This is the most common state mandate a dental practice faces.
- Vacation as wages. Some states treat accrued unused vacation as earned wages payable at termination, and some prohibit use-it-or-lose-it policies.
- Paid family and medical leave. Several states run payroll-funded paid leave insurance programs.
- Final paycheck timing, which can be as short as 72 hours after a termination in some states.
Our state resources pages point to the agencies to check. Confirm with an employment attorney in your state before writing policy.
A workable PTO structure for a small practice
| Element | Common approach | Watch out for |
|---|---|---|
| Accrual method | Accrue per pay period on hours worked, not a lump sum on January 1 | Lump sums create a larger payout liability if someone leaves in February |
| Combined vs separate buckets | Combined PTO is simpler; separate sick leave is sometimes required by state law | A combined bucket must still satisfy the mandate's terms |
| Waiting period | Accrue from hire, usable after 90 days | State sick leave laws may limit the wait |
| Carryover and payout | Cap carryover at one year's accrual; state the termination payout rule explicitly | Some states prohibit forfeiture. Silence in the handbook defaults to state law. |
| Holidays | Six to eight paid holidays is a common small-practice package | State part-time eligibility |
| Scheduling | Request in writing, minimum notice, blackout weeks in busy periods | Enforce it consistently or it is not a policy |
PTO is also a cheaper retention tool than a raise. See our culture and retention chapter.
Retirement plans at a small practice
A retirement plan serves two purposes: keeping staff, and sheltering owner income. Those goals conflict in a specific way, because most plans require you to contribute for employees if you contribute for yourself.
| Plan | 2026 deferral limit | Employer obligation | Admin burden | Fits |
|---|---|---|---|---|
| SIMPLE IRA | $17,000, or $18,100 for applicable plans; $4,000 catch-up at 50 and over | A match up to 3% of pay, or a 2% non-elective contribution for all eligible employees | Lowest. No Form 5500 for the basic version, no discrimination testing. | Practices with a handful of employees where the owner wants a plan without administration |
| SEP IRA | No employee deferrals; employer contributions only | A uniform percentage of compensation for everyone eligible, owner included | Very low | Solo practices with few or no employees. Expensive once you have staff. |
| 401(k) with safe harbor | $24,500; $8,000 catch-up at 50 and over; $11,250 enhanced catch-up at ages 60 to 63 | A safe harbor match or non-elective contribution that satisfies testing automatically | Higher: plan document, third-party administrator, Form 5500, fidelity bond | Owners who want to defer the maximum and can afford the staff contribution |
| 401(k) with profit sharing, possibly cross-tested | Same deferrals, plus profit sharing up to the annual additions limit | Weighted toward older or higher-paid participants within the rules | Highest. Actuary or specialist TPA and annual testing. | Established, profitable practices where the owner is older than most staff |
Limits adjust annually; verify at irs.gov. The figures above are the 2026 amounts announced by the IRS.
Run the "cost per owner dollar sheltered" calculation. Ask your CPA what each plan design costs in required employee contributions for the owner to defer the amount they want. In a hypothetical practice with $500,000 of eligible staff payroll, a 3% safe harbor non-elective runs $15,000 a year. Whether that is worth it depends on the owner's bracket and how much they want to shelter. That is a spreadsheet, not an opinion.
Two notes. A number of states now mandate that employers above a certain size either offer a plan or enroll employees in a state-run IRA program; check yours. And a retirement plan is a strong retention benefit where many dental offices offer none, worth stating explicitly in your job postings.
Health insurance and other benefits
Most dental practices are too small for the ACA employer mandate, which generally applies at 50 or more full-time equivalent employees. Coverage is usually optional, and many small practices offer a fixed monthly contribution toward an individual or small group plan rather than a rich package. COBRA generally applies at 20 or more employees, but many states have "mini-COBRA" laws reaching much smaller employers; ask your broker.
Other common elements of a dental benefit package: dental treatment for staff and immediate family (free or at lab cost, and worth writing down: who is covered, what is included, how lab fees are handled); a uniform allowance; paid CE registration and time, remembering that required job-related CE time is generally compensable; license, radiology certification, and CPR renewal fees; professional association dues; and inexpensive group disability and life insurance.
Payroll providers and what to look for
Very few practices should run payroll manually; penalties for late deposits alone justify a provider. The market has three shapes:
- Full-service payroll providers. They calculate, file, and deposit federal, state, and local taxes, produce W-2s, and handle new hire reporting, usually for a base monthly fee plus a per-employee amount. Most offer time tracking and HR add-ons.
- Professional employer organizations (PEOs). A co-employment arrangement bundling payroll, benefits, workers compensation, and HR support. More expensive per employee, but can give a small practice better benefit pricing and real HR advice. Read the exit terms carefully.
- Your CPA or bookkeeper. Works well when they also keep your books, because the general ledger coding stays clean.
What to ask any payroll provider
- Do you file and deposit all federal, state, and local payroll taxes, and assume penalty liability for your own errors?
- How do you handle employees who live across a state line?
- Does the system track hours, or do I need a separate time clock, and do they integrate?
- Does it include non-discretionary bonuses in the overtime regular rate automatically?
- Can it track PTO accrual under my rules and my state's sick leave rules?
- Can it export a general ledger file my bookkeeper can import?
- Does it remit retirement plan deferrals on time? Late 401(k) deposits are a compliance problem.
- What is the total monthly cost at my headcount, including year-end W-2 fees?
- Who do I call with a problem, and are they available during my business hours?
The mistakes that cost the most
- Calling a manager exempt because she is salaried. The most common and most expensive dental payroll error.
- Leaving non-discretionary bonuses out of the overtime regular rate. Small per paycheck, large over three years across a team.
- Unpaid huddles and working lunches. Easy to fix, hard to defend.
- Docking an exempt employee's salary for a partial day absence, which can destroy the exemption for that employee and possibly the whole classification.
- 1099 hygienists and assistants, and giving comp time instead of overtime. Neither is defensible, even when the employee prefers it.
- Editing time cards without employee acknowledgment. Looks like falsification even when it corrects a genuine mistake.
- No written handbook, which makes every dispute your memory against theirs. See our onboarding chapter.
- Not keeping records long enough. Federal rules require payroll records for at least three years and supporting time records for at least two. Many states require longer.
- Assuming federal rules are the only rules. State law is often stricter on thresholds, meal and rest breaks, daily overtime, final pay timing, and sick leave.
A payroll audit you can run in an afternoon
Annual payroll self-audit
- List every employee with title, pay type, annual pay, and exempt or non-exempt status
- For each exempt employee, write one sentence describing the primary duty and confirm it fits a duties test
- Confirm every exempt salary clears both the federal and your state's threshold
- Recompute overtime by hand, including bonuses, for two non-exempt staff across three random pay periods
- Check whether huddle time, staff meetings, and required training appear on time records
- Confirm meal breaks are genuinely uninterrupted or are being paid
- Compare your PTO policy against your state's paid sick leave requirements
- Verify retirement deferrals were deposited within the required window every pay period
- Confirm everyone is properly classified, and that workers compensation covers all of them under the right codes
- Verify I-9s exist and are stored separately from personnel files, and that labor law postings are current
- Schedule an employment attorney review of the handbook if it has been more than two years
Where to go from here
The highest-value hour you can spend is the exempt classification review. Write down each salaried person's actual daily duties and compare them honestly to the duties tests. If any look shaky, talk to an employment attorney before you talk to the employee: how you correct a misclassification matters as much as correcting it.
Related on ChairsideSource: hiring dental staff for classification decisions made at hire, managing a dental team, financial management for how payroll reads on your P&L, and business insurance for workers compensation and employment practices coverage.
This is general information, not legal or tax advice. Wage and hour law varies by state and changes. Confirm your situation with an employment attorney licensed in your state and a CPA who works with dental practices.
Educational content only. It is not legal, financial, tax, or clinical advice. Prices and ranges are approximate and vary by region, condition, and year. Verify current rules with your state dental board and qualified professionals. ChairsideSource is not affiliated with any manufacturer, the ADA, or the DAT.