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Calculating a non-principals
profit share
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Under the new contract practices can include
in their partnership, if they wish, other healthcare professionals
such as nurses and non-clinical NHS staff such as practice managers.
The only requirement is that practices must have one general medical
practitioner. (Para 7.8)
One of our clients raised a query regarding
how the partnership could share profits if they decide to take
on their practice manager as a partner under the new contract.
The practice manager has been employed within the practice for
more than ten years. The practice normally rewards her for her
contribution to the practice by paying her a bonus once the financial
accounts have been prepared. The bonus depends on how well the
practice has done financially and the increase in practice profits.
The practice sees her admission to the partnership
as a good opportunity to continue to reward their manager for
her contribution to the practice. As the practice manager will
receive a share of profits she will benefit if the practices profits
increase and therefore this will be an incentive to ensure income
is being maximised and expenses controlled.
The practice normally calculates their profit
sharing ratios based on the number of sessions worked by each
GP. Now that the practice manager will be joining the partnership
they are unsure of the best way to share profits.
Fixed Profit Share
The practice manager could be given a fixed
share of profits with the balance of profits divided by the other
partners in their existing profit sharing ratios. The fixed profit
share could be agreed each year.
The practice manager is currently receiving
a gross salary of £26,000 and has recently received a bonus
of £3,000. The practice profits are about £280,000
and Drs A, C and D receive 28% of the profits giving them a profit
share of £78,400 and Dr B receives 16% giving a profit share
of £44,800.
If the practice decided to give the practice
manager a fixed profit share of £35,000 the revised profits
shares would be as follows:-
Profits 280,000
Add Manager's salary, bonus & er's NI, no longer paid 31,500
Revised profits 311,500
Percentage share of profits
The practice could pay her a percentage share
of the profits, so she would receive the benefit of any increase
in profits. To calculate the profit sharing ratios the practice
could use the profits above as a guideline to how much the practice
manager should receive. If this is calculated as a percentage
of the total profits the practice manager could receive 11.2%
of the profits (35000/311500). If the profits in the next year
were £350,000 then the manager would receive a share of
£39,200. If the practice manager's earnings were being linked
to profits this would be an incentive for her to ensure profits
are being maximised.
Another issue raised by the client was whether
the practice manager should buy into the working capital and the
surgery premises, which is normally required for partners joining
this practice.
The partners in the practice felt that it
was not necessary for the practice manager to buy into the working
capital or practice premises. The reason for her becoming a partner
was so that her salary could be directly linked to profits. She
would benefit from any increase in profits which was normally
down to her ensuring income was claimed and received, targets
being met. The partners also agreed that they did not require
her to leave any capital within the practice and she could take
all her profit share as drawings.
If the practice decided to pay her a fixed
share of profits then this share could be paid in equal monthly
drawings, so at the end of the year the manager had drawn all
her profits. The partners would prefer to give the manager a percentage
share of profits. The only issue they have is that they will need
to leave capital in the practice whereas the manager will not
be required to. It was suggested to compensate the GP partners
that they could be paid interest on their current account balances.
The interest would be prior allocated and the balance of profits
divided in the profit sharing ratios.
The practice manager's superannuation would
be calculated in the same way as the GPs. It was also pointed
out that as the practice manager's superannuation is treated as
being part of her drawings, then her monthly drawings needs to
be adjusted for this deduction. If the manager is going to withdraw
all her profit share then her monthly drawings plus superannuation
should equal her share of profits.
October 2003
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