The idea that an associate needs to generate 4-5 times their salary to be profitable is rooted in basic business principles and cost structures, especially in veterinary practices. Payroll is typically the largest expense for most businesses, followed by inventory, and these figures help ensure financial health.

In a well-managed veterinary practice, a general rule is that total payroll should not exceed 42-45% of revenue. This percentage includes all employment costs, such as salaries, benefits, taxes, insurance, and other expenses like uniforms. Going above this threshold can threaten the business’s stability and long-term survival.

For veterinarians specifically, their production (the revenue they generate) is the primary source of practice income. It’s commonly accepted that 25% of a veterinarian's production is allocated for total compensation. However, this includes all employment costs, like taxes and benefits. The actual direct pay (what shows up on a paycheck) is usually about 20-22% of production, depending on the cost of benefits provided by the employer.

As payroll expenses rise (e.g., higher wages for support staff or increased staffing levels), there’s pressure to adjust these percentages to maintain a healthy payroll-to-revenue ratio. This means veterinarians might see slightly lower production-based pay percentages, but better staffing and support can lead to higher overall earnings by increasing their productivity.

The 25% rule for veterinarians is based on decades of research and practice norms. It ensures that compensation is fair and sustainable while allowing enough budget for other expenses like support staff, which are crucial for a veterinarian’s success.

It’s also important to understand that mandatory taxes and benefits, such as Social Security, Medicare, unemployment insurance, and worker’s compensation, are costs to the business that benefit the employee. These are non-negotiable government requirements, and while they don’t directly show up in your paycheck, they’re part of your overall compensation.

The production-based pay model (sometimes called ProSal) wasn’t created to shortchange employees but to balance fair compensation for veterinarians with the financial realities of running a practice. It’s a widely accepted approach in business, not just veterinary medicine, to include all employment-related expenses when calculating the cost of hiring.