Employing Therapists (Lawfully) in California

By Adam Walker, Esq.

No two California Licensed Marriage and Family Therapists (“LMFTs”) practice their craft in quite the same way. They employ varied techniques, approaches, and modalities to encourage positive communication and a healthy outcome for their patients. After all, there are as many unique therapy practices as there are practitioners.

But as different as one practice might be from its counterparts, all therapy practices tend to follow the same basic rules for scheduling patients and paying their therapist employees. Simply, therapy sessions are one hour long (for example, 50 minutes, with 10 minutes reserved for note-taking and preparation). The therapist gets paid for each block of session time.

The time-block method provides clarity for everyone. It’s what clients expect. It’s what insurance companies understand. It’s probably the way things were structured when today’s practitioners first cut their teeth as interns.

But while time blocks are a logical way to manage client care, they don’t always fit neatly into the world of employment law. When are therapists supposed to take their state-mandated rest breaks? How should they be compensated for non-clinical work, like staff meetings and marketing activities? Those trusty hourlong blocks seem downright unhelpful when the realities of business come into play.

If you’re managing personnel and running payroll the same way your supervising therapist did when you started as an intern, you might need to make a few tweaks now that you’re in charge of your own practice. In this article, we’ll talk about how you can navigate and overcome some of the problems unique to therapy practices so you can focus your attention where it matters: your patients.  

THE HYBRID COMPENSATION MODEL: THE BEST (AND WORST) OF BOTH WORLDS

There’s nothing wrong with paying therapists on a salary basis. It’s simple. It reduces administrative headaches. And…it’s almost never used in a modern therapy practice. This is principally because of how most practices generate revenue—namely, on a per-session basis.

The main concern for practices is that their therapists won’t schedule enough sessions to justify their salary (which must be at least twice minimum wage under the law, equal to roughly $49,920 as of January 1, 2020). As a result, practices tend to prefer the flexibility and built-in logic of a “commission” or “revenue-sharing” model. The LMFT is simply paid a percentage of whatever the practice earns from the patient, without needing to hit any minimum threshold number of hours. It’s a system that works for everyone involved: therapists enjoy proportionally higher wages and greater flexibility; employers like the efficiency of a system in which they don’t pay their therapists until the practice is paid.

Yet by relying on a revenue-sharing model, practices find themselves in a deceptively cumbersome compensation system—whether they’re aware of it or not. The reason has to do in part with a concept called “piece rate” work.

We intuitively understand the concept of “commission,” perhaps picturing the traveling salesman of days past, briefcase in hand, who earned a fixed percentage of every sale made. Something feels eminently fair about rewarding skill, ingenuity, and resilience with compensation based only on results.

The problem with applying the same idea to therapy practices is that commissions, as we understand them, only apply to the sale of goods, or their equivalent, not to the provision of services. When an employee is being paid for every piece of work (in this case, each hour-long session), they’re instead compensated on a “piece rate” basis.

In California, the laws governing piece rate work were most famously established in the trucking and automotive world.[1] Just as with the mechanic who gets paid by the oil change or tire rotation, LMFTs are paid by the therapy session. But what about time spent performing work that falls outside the traditional definition of “therapy,” like company meetings, billing, networking, marketing, and other non-clinical services? Clearly these tasks benefit the employer and should be paid for that reason.[2] But if those tasks don’t directly generate income for the practice, how can you pay the LMFT based on their share of revenue?

This is where the “hybrid” model of compensation enters the picture. Under this system, the therapy practice pays its LMFT a percentage of revenue from each hour-long therapy session (piece rate work) plus a fixed hourly rate for all time spent working on non-clinical matters (sometimes dismissively called “nonproductive time”). Two wage rates are quickly established and, ideally, reduced to an employment agreement between employer and employee. In each case, the clinical and non-clinical rates must meet state, county, and city minimum wage requirements.

It might seem easier to just build “nonproductive” time into the piece rate, maybe by averaging everything together. But thanks to a few California courts decisions, later cemented in the Labor Code,[3] this practice of averaging employee compensation together violates the law…even if the employer makes the worker aware of the methodology and mathematics behind the pay rate.[4]

The courts and the legislature reasoned that after taking into account the number of hours actually worked, there was a real threat that employees‑‑‑particularly poorly compensated ones‑‑‑were at risk of seeing their pay drop below minimum wage if their nonproductive time was discounted. After all, if you have to wait six hours for a car to roll into the garage before you can perform the day’s first oil change, shouldn’t you be paid more than $20 for that oil change‑‑‑particularly if your boss won’t let you leave when things are slow?

To prevent this unjust outcome, all nonproductive work, including rest and recovery breaks, must be compensated separately from piece rate wages. That means the worker at the local lube must receive at least minimum wage for all the time they spend at the garage, even if they don’t see a single customer drive in.

So, that leaves professional practices with an ungainly hybrid model—ungainly because it requires the payment of compensation to employees under a multi-tiered regime consisting of commission-style wages on the one hand and hourly wages on the other. But it gets worse. Because you’re not paying the therapist on a salary basis, you’re still on the hook for paid rest breaks and sick leave—and no, the practice won’t be able to pay therapists minimum wage for that time.

REST BREAKS AND SICK LEAVE UNDER THE HYBRID MODEL

It seems logical to pay employees at the minimum wage for time spent performing unlicensed clerical or administrative tasks, and nothing under the hybrid model prohibits you from doing this. The same logic would seem to permit similar treatment for rest breaks and sick leave—by definition the least productive time of all. But the courts recognized one problem with this setup: it encourages employees to skip their rest breaks or come into work when they should really stay home sick.

Why? Because if an employee can either earn a 50% share of revenue for a therapy session, for example, or take sick time at minimum wage, which do you think the employee is likely to opt for? Even the most conscientious employee will at least have something to think about.

To avoid this unpleasant scenario, piece rate employees are paid for their 10 minute guaranteed rest breaks in accordance with a formula found in Labor Code §226.2—effectively, the average hourly rate for all work performed by the therapist during the workweek (e.g. clinical and non-clinical), excluding rest and recovery time.[5] As an example, if the therapist is paid $30 per hour for piece rate work and $12 per hour for all other work, rest breaks will be paid on a weighted average based on the two rates (not necessarily a straight average of the two figures). For instance, if our hypothetical therapist devotes 60% of their day to clinical work ($30/hour) and 40% to clerical work ($12/hour), some quick math results in a rest break rate of $22.80 per hour, or $3.80 for the 10 minute break .  [$30(.6)+$12(.4)=$22.8; $22.8/6]

Paid sick leave is paid under yet another formula, also found in the Labor Code.[6] This time, the employer has the option to pay the therapist sick leave (a) calculated in the same manner as regular pay during the workweek, (b) by dividing the therapist’s total wages by total hours in the prior 90 days of employment, not including overtime, or (c) in the same manner as the employer calculates wages for other forms of paid leave time. This code section seems to provide the employer some flexibility, but in reality, sick leave will end up being paid roughly at the same rate as work actually performed over the past three months (not a single workweek, like with rest breaks).

 Calculating hybrid-style wages is not rocket science, but it is an administrative burden. That burden often falls to the payroll company, or to the practitioner using their own payroll software. But these tools are only as good as the data that goes into them. Often, practitioners aren’t aware of the need to notify their payroll companies about the piece rate work that goes into every paycheck, nor do they account for these adjustments in their own software.

NOTE-TAKING AND REST BREAKS (YES, AGAIN)

Since you probably won’t be paying your employees a salary, your LMFTs will still be entitled to take rest breaks on the clock.

Under California law, employees are entitled to a 10-minute rest break for every 4 hours for their work, with that break to be taken in the middle of that 4-hour period, if possible.[7] 10-minute breaks seem to fit logically into the hour-block therapy system—50 minutes of therapy leaves 10 minutes of free time for the therapist!

In reality, therapists often use this time to record notes of their previous session, prepare for their next session, or otherwise perform billing, clerical, or other non-clinical tasks—none of which is a true break for the employee. By law, 10-minute breaks, as short as they are, are meant to be taken by the employee without interruption from work.[8]

To properly allow for rest breaks, then, the therapist’s schedule should be designed around those breaks, even if it’s not always possible to squeeze them in around the midway point of the 4-hour work block. This staggered schedule results in 2 or 3 consecutive sessions followed by a 10 minute break. Another session or two might follow—keeping in mind that a therapist is also entitled to a 30-minute meal break before the employee works a full 5 hours.

If you’re doing the math at home, you might be wondering how these disruptive little rest breaks are going to fit into your clean, concise hour-block scheduling, which you’ve designed with military efficiency. The answer isn’t terribly satisfying. You’ll either have to (a) tell the employee to shoehorn their break the final minutes of a session, jeopardizing the thoroughness of their notetaking, or (b) deviate from the elegance of hourly appointments (e.g., 9 a.m., 10 a.m., 11:15 a.m.).

In the first scenario, there’s a risk that the employee will feel pressure to skip their rest break in favor of taking proper notes or readying themselves for a subsequent appointment, defeating the very purpose of rest breaks. In the second scenario, you end up with awkward mid-hour appointments that could create scheduling difficulties. Even worse, unless you’re fine scheduling patients at 11:10 a.m. and other unusual times, you run the risk of having an employee twiddling their thumbs and waiting for their next session to start on the hour (or half-hour), all while being paid. Hourly employees (like your non-salaried therapists) are paid for their “waiting time” if they’re not able to use that time for their own purposes, which generally equates to an ability to leave the premises.[9]

Each practice will adopt its own solution to this problem. Many practices are content to take the risk of missed rest breaks, understanding that employees rarely consider the issue worth complaining over. Practices interested in sticking to the letter of the law should consider scheduling slightly staggered schedules that still allow for true rest breaks (like the 9 a.m., 10 a.m., 11:15 a.m. example above). Another way to resolve this problem is to allow for larger gap in the middle of the schedule wide enough to permit employees to leave the worksite for extended periods of time between sessions (e.g. 9 a.m., 10 a.m., 2 p.m., 3 p.m.). While in many industries this kind of schedule would result in the employer having to pay a “split shift premium” to account for the employee’s inconvenience, that premium is only available for lower-wage employees, and as such is unlikely to come into play for therapists.[10]

TWO (STILL MISERABLE) WAYS TO AVOID THE MISERY OF HYBRID COMPENSATION

If you’re looking to bypass the complexities of hybrid compensation for your employees, your options are limited. You can (1) pay your therapists on a salary-basis, with all the attendant downsides described above, or you can (2) pay your therapists a single hourly rate for both clinical and non-clinical work.

While this single-rate system makes sick leave and rest break calculations a breeze (hint: they’re both paid at the regular hourly rate), it comes with hidden, negative consequences. For financial reasons, you might find yourself lowering the pay rate below competitive levels to account for the therapist’s nonproductive time. You may even feel compelled to exclude your therapists from staff meetings and other activities that don’t generate revenue directly rather than pay them what feels like an overly generous rate for that time.

These issues have served to entrench the hybrid compensation model in most practices. Both plausible alternatives may be unsavory for the employer, and the downward pressure on wages that might result from trying to implement those alternatives are also likely to have an impact on the therapists themselves. Neither alternative has appeared to gather much traction.

CONCLUSION

The administrative burden of a hybrid compensation structure for LFMTs might be higher than salaried or fixed-rate methods, but there’s a reason it remains popular. The hybrid model is still the most equitable way for a therapy practice to pay its licensed employees, in a way that doesn’t jeopardize the economic health of the practice itself. With a watchful eye on scheduling and payroll pitfalls, therapy practices can structure a compensation model that both meets industry expectations and complies with the occasionally byzantine requirements under California law.

DISCLAIMER: The content of this article is published for informational purposes only and is not legal advice. Information provided in this article may be incomplete, out of date, or inapplicable to your current legal situation. No attorney-client relationship is formed by virtue of viewing this article or by contacting attorneys at Full Circle Business Law, PC.

Bio

Adam Walker is a partner with Full Circle Business Law, PC, located in Glendale. His primary focus is transactional business and corporate law, including employment counsel for businesses.

[1] Armenta v. Osmose, Inc. (2005) 135 CA4th 314; Gonzalez v. Downtown LA Motors, LP (2013) 215 CA4th 36.

[2] Employment is actually defined, in part, as engaging, suffering, or permitting a person to work. Martinez v. Combs (2010) 49 C4th 35.  

[3] Labor Code §226.2.

[4] Cardenas v. McLane Foodservices, Inc. (CD Cal 2011) 796 F Supp 2d 1246.

[5] Cal Labor Code §226.2(a)(3)(A).

[6] Cal Labor Code §246.

[7] Industrial Welfare Commission Order No. 4-2001.

[8] Cal. Labor Code §226.7.

[9] Armour & Co. v. Wantock (1944) 323 US 126

[10] Industrial Welfare Commission Order No. 4-2001.  See also DLSE Opinion Letter 2012.12.11 (split shifts apply to unpaid breaks longer than 1 hour). To grapple with the calculus behind split shift premiums, take a look at Aleman v. Airtouch Cellular (2012) 209 CA4th 556, 576.