> ## Documentation Index
> Fetch the complete documentation index at: https://dso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Set up payroll (two employers, one team feeling)
> Set up payroll across professional and support entities, including EINs, associate compensation, multi-state registration, PEOs, benefits parity, and contractor classification.
A DSO-PC group commonly has **two employers**, but state law and the actual job duties determine the allocation. The professional entity employs the people it must control under applicable dental law. The dental support organization (DSO) employs the support staff assigned to it under the structure. Plan for separate payrolls and employer registrations, then coordinate benefits so the workforce operates as one team.
## Prerequisites
* Both entities formed with EINs
* Employer registrations in every state with employees, **for both entities**
* A clear list of who is employed by which entity
## Who employs whom
| Role | Employer | Why |
| ---------------------------------------------------- | ------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Dentists, including general dentists and specialists | **Professional entity where state law requires** | Confirm which authorized entity may employ dentists to practice in the state |
| Dental hygienists | **Often the professional entity** | Hygienists are licensed and practice under a dentist's supervision. State rules differ, so confirm the employer and supervision arrangement with counsel. |
| Dental assistants, EFDAs, sterilization techs | **Usually PC**, sometimes DSO | Same state-dependence; the closer the role sits to patient care, the stronger the case for the PC |
| Front desk, scheduling, treatment coordinators | DSO | Non-clinical |
| Billers, insurance coordinators | DSO | Non-clinical, but coding **responsibility** stays with the PC and the treating dentist |
| Office managers, regional managers | DSO | Non-clinical |
| Marketing, finance, HR, IT | DSO | Non-clinical |
| Executives | DSO | And they cannot be PC officers where the state restricts those roles to licensees |
**The hygienist and assistant question is genuinely state-dependent.** Hygienists practice under supervision and look clinical everywhere; in some analyses assistants are DSO-employable, in others not, and a few states are explicit about who may employ auxiliaries. Get a state-specific answer rather than defaulting either way. See [What a DSO can and can't do](/concepts/model/what-dsos-can-and-cant-do).
However the clinical staff are employed, **never attach sales or production incentives to them.** California's 2026 settlement with Aspen Dental specifically barred sales incentives to clinical staff after hygienists were paid per aligner sale, and production quotas for clinical staff are the recurring red flag in dental enforcement.1 See [DSO enforcement and risk](/concepts/model/dso-enforcement-and-risk).
## The dental payroll quirk: production-based pay
Associate dentists are commonly paid a **percentage of their production or collections against a daily guarantee**, which makes dental payroll depend on practice management system (PMS) reports, not just hours.
* Decide whether the percentage applies to **gross or adjusted production**. PPO write-offs can create a 30–45% difference, so define the term in the agreement.
* Decide how to treat **lab fees**, whether deducted before calculating the percentage or absorbed by the practice.
* Run the production report and the payroll from the same cutoff dates, and archive the report that supported each check
The mechanics belong in the employment agreement, not in payroll-run folklore. See [Draft dentist employment agreements](/guides/agreements/draft-dentist-employment-agreements).
## Steps
Per state, per entity:
* Income tax withholding registration
* Unemployment insurance registration
* Any local or municipal taxes
* Workers' compensation coverage
**Both** entities, wherever each has employees. Missing one produces penalties that accrue quietly.
| Option | Notes |
| -------------------------------------- | --------------------------------------------------------------------- |
| **One provider, two company accounts** | Most common. One vendor relationship, two EINs, two funding accounts. |
| Two separate providers | Rarely worth the added administration |
| **PEO for one or both entities** | See below |
**Test the two-employer case in the demo.** Many payroll products assume one business with one EIN. Ask directly: can I run two employers under one login, with separate funding accounts and separate tax filings? A product requiring two entirely separate instances is workable but is not the integration it was sold as. See [Bundled payroll and processing](/concepts/banking/bundled-payroll-and-processing).
Clinical payroll from the **PC's** account. Non-clinical from the **DSO's**.
This is not a bookkeeping preference. Paying clinical payroll from the DSO's account means the DSO is compensating dentists for practicing, which is the CPOD prohibition.
Staff employed by different entities may still work side by side. Materially different benefits can make recruiting and retention harder, particularly for hygienists.
Where practical, align the health plan design, PTO policy, and retirement plan structure. Offering identical plans across separate employers has its own compliance considerations. **Controlled group and affiliated service group rules** can affect retirement-plan testing and ACA obligations, so involve your benefits adviser.
Each new state may require registrations for both entities, state-specific withholding, unemployment insurance, and programs such as paid leave, disability, or mandatory retirement benefits.
Remote employees create nexus in their state of residence. Track where people actually work, not where they were hired.
**Misclassifying dentists or hygienists as independent contractors is a common and expensive error.** A dentist who works set hours, at your location, using your equipment, under your policies, seeing your patients, is generally an employee regardless of what the agreement says. The same logic reaches hygienists booked through temp-staffing apps for recurring, scheduled days.
Exposure includes back employment taxes, penalties, benefits claims, and state wage-and-hour liability. Classification tests differ between the IRS, the Department of Labor, and each state, and several states apply notably strict tests.
Some dentists are genuine contractors, including true locums, occasional coverage, and specialists who rotate through with independent practices. Regular staff dentists often are not. Have employment counsel review the classification.
Note also that a contractor dentist still must be **credentialed and linked** to the PC's payer contracts to bill for their services. See [Credential new dentists](/guides/enrollment/credential-new-dentists).
## PEOs
A **professional employer organization** becomes a co-employer, handling payroll, benefits, and compliance.
| For | Against |
| -------------------------------------- | ------------------------------------------------------ |
| Better benefits pricing at small scale | Cost, typically a percentage of payroll |
| Multi-state registration handled | Less control |
| Compliance support | Exiting is disruptive |
| Reduced administrative load | **The co-employment relationship needs CPOD analysis** |
**A PEO co-employing your dentists deserves specific analysis.** In a CPOD state, the question of whether a lay co-employer employing dentists to practice creates exposure is not obvious. Some groups use a PEO for the DSO only and keep the PC's payroll direct. Raise it with dental healthcare counsel before signing.
## Verify it worked
* [ ] Both entities registered as employers in every state where each has employees
* [ ] Dentists employed by the **PC**
* [ ] Hygienist and assistant placement confirmed with counsel for each state
* [ ] Non-clinical staff employed by the **DSO**
* [ ] No sales or production incentives attached to clinical staff
* [ ] Production-based associate pay defined in writing, including gross versus adjusted production and lab-fee treatment
* [ ] Clinical payroll funded from the PC's account; non-clinical from the DSO's
* [ ] Payroll provider handles two employers without separate instances
* [ ] Benefits designed for parity, with controlled-group implications reviewed
* [ ] Contractor classifications reviewed by employment counsel
* [ ] Multi-state registrations current as you expand
## Common failure modes
| Failure | Consequence |
| ------------------------------------------------------- | ------------------------------------------------- |
| DSO employing dentists | Direct CPOD violation |
| Clinical payroll paid from the DSO's account | Same problem, via the money flow |
| Sales incentives paid to hygienists or assistants | The 2026 California Aspen settlement fact pattern |
| Percentage-of-production pay with no written definition | Compensation disputes; surprise payroll variance |
| Only one entity registered in a state | Payroll tax penalties |
| Payroll product that can't handle two EINs | Duplicate administration |
| Divergent benefits between entities | Morale and recruiting problems |
| Dentists or hygienists misclassified as contractors | Back taxes, penalties, benefits claims |
| PEO co-employing dentists without CPOD review | Unanalyzed exposure |
| Remote employees creating unregistered nexus | Penalties |
## Sources
1. California AG, [settlement with Aspen Dental over corporate practice](https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-settlement-aspen-dental-over-corporate-practice) (May 7, 2026) (sales incentives to clinical staff barred; hygienists had received $50–$100 per aligner sale). Full terms in the [DSO enforcement tracker](/reference/legal/dso-enforcement-tracker).