When hiring a new physician, a nurse, practice manager, or other key position, sometimes a sign-on bonus is negotiated. Typically, the Signing Bonus clause contains two principal elements: (a) bonus amount; and (b) date of payment. A third element that can be negoitated by the one paying the bonus is a “clawback” provision. Clawback provisions generally require repayment of a prorated amount (or payback in full in the event employment terminates for before a specific period. In order to ensure repayment and prevent disputes, sometimes employers negotiate to pay the bonus in installments or offset periodic payments by the repayment obligation. If you fail to include a clawback provision in your negotiation, the employee may be able to keep the bonus even if employment terminates shortly after agreement is signed.
Here’s an example of language that can be included in the employment agreement or offer of employment.
We are pleased to offer you a signing bonus of $ ________________. This bonus will be paid in one lump sum in a separate check on the next regularly scheduled pay date after you start employment with [Practice Name]. The signing bonus is taxable, and all regular payroll taxes will be withheld. In the event that you leave [Practice Name] within 12 months of your date of hire, you will be responsible for reimbursing the practice for the entire signing bonus. By your signature on this employment agreement, you authorize the practice to withhold this amount ($_______) from any severance and other final pay you receive upon termination of employment. In the event that the employee leaves and does not repay any amount owed, the employee shall owe the principal sum due plus any legal fees and costs of collection.
But what happens if the new employee simply abandons their job without notice, at a point in time where the entire signing bonus would be refundable to the practice? And if the bonus was for $5000, but after taxes and benefits, the net pay was $3300, how much is owed?
According to the experts I consulted, the refund owed would be the whole $5000, and to make the practice whole the employee writes the practice a check for $5000.00 and the practice deposits it back into the same account from which the $5000.00 was paid, accounting action closed. How the employee deals with the taxes is between them and their accountant. As for what happens if they disappear one day, never to be heard from and they owe the bonus repayment?Good luck! If you sue them, their attorney will likely argue constructive discharge, breach of some other agreement, etc. Your attorney will likely tell you that the pursuit isn’t worth it.