Sign-On Bonuses for Physical Therapists
Is this Part of the “New Normal”?
By Paul J. Welk, PT, JD
Businesses across a broad range of industries are having difficulty hiring qualified candidates for open positions.
This difficulty arises from a combination of factors which may include expanded unemployment benefits, increased caretaker responsibilities at home, anxiety related to COVID-19, and early retirements or other exits of individuals from the labor force.1 The physical therapy industry has certainly not been immune to these hiring difficulties. By way of example, I was recently speaking with a private practice owner who estimated that in early 2020 received dozens of applications for a physical therapist position, while the same open position today had yet to receive a single application after being advertised for one week. This difficulty in hiring has caused a number of practices to implement, or in some cases reimplement, the use of sign-on bonuses to recruit and retain qualified staff. When offering a sign-on bonus, it is important for both the employer and the employee to understand the terms of the particular program and to include these terms in a signed agreement so that both parties are clear as to their respective rights and obligations. While this article will discuss sign-on bonuses, similar issues arise with other recruitment tools such as relocation bonuses, retention bonuses, and tuition forgiveness programs.
Although the amount of the bonus is variable and will be dependent on the market, once a practice decides on the amount to be offered it is important to determine over what period of time the bonus will be paid. For example, should a $5,000 sign-on bonus be paid in full up front or should $2,500 be paid upon the start of employment and the remaining $2,500 be paid upon the completion of one year of satisfactory work performance? Obviously, paying a bonus over time provides increased protections for the employer and creates an additional incentive for employee retention by essentially dividing the bonus into a sign-on and a retention component. The employer should also consider what level of employment commitment is required in exchange for the bonus. Depending upon the dollar amount of the bonus and manner in which the bonus is paid, one to three-year employment commitments are relatively common.
The written agreement should also clearly set forth what happens in the event an employee fails to comply with the terms of the sign-on bonus agreement, with the most common issue being the failure to complete the agreed upon period of employment. In such a situation, the employer has not received the benefit that it bargained for with the employee and it is reasonable that the benefit received by the employee should be returned, at least in part, to the employer.
This is an area of significant variability among sign-on bonus programs and one to which the employer and employee should pay particular attention. As one option, the agreement may require a repayment of the entire bonus if employment is terminated at any time prior to the end of the agreed upon time period. Another program may require that the employee repay only a prorated portion of the bonus based upon the period of time actually worked by the employee, therefore reducing the potential financial burden on the employee. Finally, some agreements may instead include a set dollar value (often referred to as “liquidated damages”) that the parties agree will be the payment due to the employer in the event the employee fails to comply with the terms of the agreement. This liquidated damages amount may in certain cases be greater than the bonus amount under the reasoning that the employer is investing substantive time and resources into onboarding a new employee and should therefore be compensated for this loss. Some sign-on bonus agreements also include certain limited circumstances when the bonus is not required to be repaid despite a termination of employment, such as when an employee is terminated by the employer without cause. The best option for a particular employer is dependent upon the local employment market and the employer’s preference as to the appropriate level of repayment.
An additional consideration from the employer perspective is whether to include a restrictive covenant within a bonus agreement. Depending on particular state law, the payment of a sign-on bonus to an employee may provide sufficient consideration for a restrictive covenant. It is easy to imagine circumstances whereby an employee is recruited from out of the practice’s geographic area, paid a sign-on bonus, and upon termination of an employment arrangement seeks to compete in the local market. Including one or more restrictive covenants (e.g., a non-compete, non-solicitation or other similar provision) in a sign-on bonus agreement may help to mitigate this risk to the employer.
While this article is not intended to, and does not, provide tax advice, from a practical standpoint it is helpful if the employer and employee have an understanding of the tax consequences of the bonus payment. For example, an employee may elect to utilize an entire bonus payment to pay off a portion of a student loan without considering his or her future tax obligations. This can create significant issues for the employee and, from the author’s experience, is more common than one might imagine, especially when the employee is a new graduate and the bonus payment is of a higher dollar amount.
The use of sign-on bonuses as a recruitment and retention tool by physical therapy practices increases or decreases based upon a variety of factors. Given the current employment market, there is a noted increase in practices using sign-on bonuses to attract qualified employment candidates. While each practice will need to make its own decisions on whether to utilize a sign-on bonus program and, if so, the terms of the particular program, this article should provide a good starting point for issues to be considered.
Reference:
1Sorkin AR. Why It’s Hard to Hire Right Now. Dealbook. https://www.google.com/amp/s/www.nytimes.com/2021/05/22/business/dealbook/labor-shortage-causes.amp.html. Published May 22, 2021. Accessed August 21, 2021.
Paul J. Welk, PT, JD, is a PPS member and an attorney with Tucker Arensberg, P.C. where he frequently advises physical therapy private practices in the areas of corporate and health care law. He may be reached at pwelk@tuckerlaw.com or 412-594-5536.
Please note that this article is not intended to, and does not, serve as legal advice to the reader but is for general information purposes only.