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Blog / Compensation laws for medical spas: What you need to know

Compliance and security

Compensation laws for medical spas: What you need to know

Ivana Kotorchevikj
August 5, 2025
Reviewed by: Teodor Jurukovski

Compensating your med spa team sounds simple until you factor in federal and state laws. 

While it’s natural to want to reward staff with bonuses or commissions, many med spa owners don’t realize that certain compensation structures can cross legal lines.

A common misconception among medical spa owners is that paying providers a percentage of revenue is always allowed, but depending on your state, it could land you in trouble.

Navigating these laws is essential to avoid penalties and ensure your practice stays compliant.

Disclaimer: This article offers a general overview of compensation compliance for med spas. It’s not legal advice, and we strongly recommend speaking with a qualified healthcare attorney before finalizing your pay structures.

Why is it important to be compliant with compensation laws for med spas

Unlike traditional spas or salons, med spas offer both aesthetic and wellness treatments and perform medical procedures.

Many medical spas operate under a hybrid of cosmetic and medical services, so the rules around how you pay your med spa employees can be more complex than in a typical salon or spa business, especially regarding commission-based compensation.

If your compensation model doesn’t comply with state and federal regulations, the consequences can be serious:

Consequences of violating compensation laws

Source: Pabau

Violating compensation laws can lead to serious consequences. 

The risks are real, including steep federal penalties, such as violating the Anti-Kickback Statute, which can result in up to 10 years in prison and up to $100,000 per violation. 

Even if you avoid legal action, reputational damage alone can take years to recover from.

That’s why it’s important to approach this term with caution and be sure your compensation model aligns with healthcare and medical aesthetic regulations.

When this happens, often it’s not a matter of bad intent, but just a misunderstanding of the rules.

💡 Important: The word “commissions” tends to raise a red flag in the medical spa industry. It’s often linked to compliance issues, so use it carefully and sparingly when talking about compensation for medical professionals and healthcare providers.

Federal laws impacting med spa compensation

Now that you know why it’s important to be compliant (and what happens if you’re not), let’s understand the federal and state laws that set the foundation for how med spas can structure compensation.

The Anti-Kickback Statute (AKS)

The Anti-Kickback Statute (AKS) prohibits offering, paying, soliciting, or receiving anything of value in exchange for referrals related to services covered by federal healthcare programs like Medicare or Medicaid.

Simply put, if a company offers compensation to healthcare professionals for using or referring its products or services, which are paid under the healthcare programs, it’s considered fraud.

This is because compensating a provider in this way could influence their medical judgment or encourage unnecessary services.

Even if your med spa is private pay and doesn’t bill federal programs, don’t disregard it. Some states have versions of this law that apply more broadly, regardless of who’s footing the bill.

That means, depending on where you operate, something as simple as a referral bonus or commission tied to medical treatments could be a violation.

💡 Pro tip: Because the rules around AKS can be complex and vary by location, it’s essential to consult with a healthcare attorney before putting any referral or incentive-based compensation model in place.

The Stark Law (Physician Self-Referral Law)

The Stark Law, also known as the Physician Self-Referral Law, kicks in when a physician refers a patient to a healthcare service or facility in which they (or a family member) have a financial interest, such as ownership, investment, or even a compensation agreement.

The goal of the law is to prevent physicians from making referrals based on financial gain instead of what’s best for the patient.

For med spas offering purely cosmetic, self-pay services (like Botox, fillers, or laser hair removal), the Stark Law might not be a big concern.

But the Stark Law can come into play if your medical practice or med spa: 

  • Bills insurance for services like acne treatments, dermatology procedures, or medically necessary laser therapies
  • Offers medical services covered by federal programs
  • Receives patient referrals from MDs or licensed physicians for things like skin condition management or post-surgical scar treatment

When in doubt, always check with a healthcare attorney to make sure your referral and ownership arrangements are compliant.

State-level laws impacting med spa compensation

Now that we’ve covered the federal compensation laws, let’s look at state regulations and laws governing how medical spa owners can pay their staff.

Each state has its own rules when it comes to things like the medical scope of practice, fee splitting and whether or not commissions are allowed for medical treatments.

Some state-specific laws mirror the Anti-Kickback law, while others are stricter, even applying rules to med spa services not covered by insurance.

A breakdown of federal and state compensation laws

Source: Pabau

These laws vary widely, so it’s important to understand the specific requirements in the state you operate, especially if you plan on opening a practice in another state.

Fee-splitting laws

All states have a version of the fee-splitting law, but their interpretation and implementation may vary.

Fee-splitting, in essence, means that the revenue from medical services can’t be split with unlicensed individuals or non-medical entities.

Where fee-splitting can get tricky for med spas

Let’s say a med spa offers Botox treatments and pays a percentage of the revenue from each treatment to a non-medical business owner, partner, or front desk staff member who isn’t a licensed medical provider. 

That kind of arrangement could be seen as fee-splitting, and in many states, it can lead to legal trouble.

Even licensed estheticians can fall under fee-splitting restrictions, depending on the service and the state. Since they’re not medical providers, getting a percentage of revenue from medical treatments, like injectables or laser services, could still raise compliance issues.

Tip: This is why it’s important to structure compensation with legal guidance, especially when non-licensed team members are involved in promoting or supporting medical services.

How to steer clear of violating the fee-splitting laws

The safest approach is to avoid tying compensation directly to the revenue of medical services, especially when paying non-medical staff or contractors.

Here’s what to do instead:

✅ Pay salaries or hourly wages instead of percentages for non-medical staff.

✅ Use performance bonuses based on overall business goals (like client retention or satisfaction), not individual medical service revenue.

✅ Avoid offering commissions to team members, like aestheticians, front desk staff, or marketing consultants, for referring clients to medical procedures.

✅ Offer commission on retail and skincare product sales instead.

✅ If you’re co-owning a business with someone who isn’t a licensed medical provider, structure the relationship legally, ideally with a management services agreement (MSA).

✅ Get legal guidance before offering any incentive tied to medical services, referrals, or shared revenue

When it comes to managing compensation for your staff, we don’t mean you do it all alone. With Pabau, an all-in-one practice management system built for med spas, you can streamline staff compensation while staying compliant.

Among the different staff management features, Pabau helps you:

  • Customize wages and pay rates for each staff member depending on their position and department
  • Set up role-specific compensation plans for licensed providers, estheticians, or front-desk staff
  • Build compliant commission structures (e.g., service commissions only for licensed providers; retail/product commissions for non-medical staff)
  • Incentivize performance with tiered or fixed-rate bonus programs tied to clear business goals
  • Automate your compensation tracking to reduce errors and save hours of manual work

In Pabau, you can quickly decide if you want to pay fixed or tiered commissions, set up your tiers, and choose whether staff earns a percentage or a set amount based on sales.

Commission types in Pabau

Source: Pabau

Pabau gives you the tools to stay compliant, reward your staff fairly, and keep everything running smoothly behind the scenes.

Corporate Practice of Medicine (CPOM) laws

Corporate Practice of Medicine (CPOM) laws are designed to keep medical decisions in the hands of licensed medical professionals, not businesspeople.

In simple terms, these laws prohibit non-physicians from owning a medical practice or influencing how medical care is delivered.

That means if you’re a non-physician owner of a med spa, you generally can’t:

  • Employ medical providers directly
  • Make decisions about patient care and treatment plans
  • Control how providers are paid for medical services.

Here’s where it gets tricky: CPOM laws vary by state. Some states enforce them strictly, while others are more relaxed or don’t recognize the doctrine at all.

In strict states like California or Texas, this can impact how you set up your business, who “owns” the medical side of the practice, and how revenue is shared. If you’re in a CPOM state, you may need to set up a structure like a Management Services Organization (MSO).

In terms of compensation, CPOM can limit your ability to offer profit-sharing or commission-based pay tied to medical services, especially if you’re not a licensed provider.

That’s why it’s crucial to understand how CPOM applies in your state and structure your med spa accordingly, ideally with legal support.

🧾 As a summary, here’s a table of the federal and state laws that impact med spa compensation:

Law What it covers How it affects compensation What med spas should watch for
Anti-Kickback Statute (AKS) Prohibits offering or receiving anything of value for referrals involving federally funded healthcare. Commission-based pay tied to referrals can be considered fraud if linked to federal programs (Medicare/Medicaid). Even if you’re private pay, some states apply similar rules more broadly. Referral bonuses may still be risky.
Stark Law Prohibits physicians from referring patients to entities they have a financial interest in. If an MD refers to your med spa and has ownership or compensation ties, this can be a violation. May not apply to cosmetic-only services, but matters if you bill insurance or get physician referrals.
Fee-Splitting Laws Prohibit sharing medical service revenue with non-medical individuals or entities. Paying estheticians, front desk staff, business partners, non-medical co-owners, or other non-licensed team members a cut of medical service revenue may be illegal. Compensation should be salary- or performance-based, not tied directly to treatment revenue.
Corporate Practice of Medicine (CPOM) Prohibits non-physicians from owning or controlling medical decisions. Non-physicians generally can’t employ providers or decide how they’re compensated for clinical work. In strict states, you may need an MSO (Management Services Organization) structure.

We’ve settled the compensation laws, and now let’s see below what happens if you violate them.

What happens if you violate a law that impacts compensation in med spas?

Intentional or not, violating federal or state regulations around provider compensation can have serious consequences.

Here’s what could happen if your compensation structure crosses a legal line:

Source: Pabau

The federal penalties aren’t just a slap-on-the-wrist type of fine. Violating the Anti-Kickback Statute or Stark Law can lead to hefty fines, exclusion from Medicare/Medicaid, and even criminal charges in severe cases.

Violations can trigger investigations that put your providers’ licenses and your business at risk, with your state’s Medical Board, Board of Nursing, or another licensing authority.

On top of this, you (or your staff) could face disciplinary action, lose a license, or be fined.

Not to mention, legal issues can hurt your brand’s credibility, lead to lost client trust, and force you into expensive legal defense or settlement costs.

Stay compliant with the right support and smart tools

Navigating compensation laws in the med spa world isn’t easy, but you don’t have to figure it all out alone.

Before launching a new pay structure, commission model, or bonus scheme, it’s always a good idea to run your plans by a legal or HR professional familiar with healthcare regulations in your state.

And when it comes to actually managing your team and tracking compensation, the right tools can make a huge difference.

Pabau, your comprehensive practice management system, helps med spas simplify staff management and stay organized and compliant by:

  • Clearly defining staff roles and permissions
  • Keeping up-to-date documentation, certificates, and licenses neatly organized in staff profiles
  • Creating custom commission programs for different roles and teams, whether for services, products, or retail only, to compensate fairly and stay compliant
  • Tracking hours, services performed and products sold per provider, and commissions accurately
  • Reducing manual errors that could lead to noncompliance

With Pabau’s staff management tools, you can confidently build a pay structure that’s both motivating and compliant.

Make staff compensation simple, smart, and compliant. 👉 Book your free demo today