Will I Be Paid My Bonus if I Terminate the Contract Early? | Bonuses

If I terminate the contract early, will I be paid my bonus? Well, I wish I had a black and white question. It depends on the language in the contract. Let’s walk through how the contract terminates. Then what kind of language to insert to ensure that if someone earns a bonus, they will get it. There are three ways for a contract to end. If there’s a fixed term and it’s not renewed, say it’s a two-year contract and no automatic renewal. Then it would just end at the end of the two years. The second one could be For-cause termination.

If one party breaches the contract, the other must provide them with a written notice. And then, usually, there would be a cure period where whoever is in breach of contract would have some period. Usually, it takes two weeks to a month to fix whatever the breach is. And then, if it gets fixed, the other party could not terminate For-cause. The other option would be without-cause termination. For-cause termination means either party can terminate the agreement at any time with a certain amount of notice to the other party. It depends on your industry. A set amount should say you must give us this much notice in advance. Then you have to work out what it is.

Considering How Often Bonuses Are Paid

Let’s say it’s 60 days. You must work out for 60 days. At the end of that, you’re free to move on. Now, how does this play with the bonus? Suppose a professional has a bonus involving either net-collections, commission, or something like that. In that case, you need to determine how often you should receive it. Is it paid monthly? Is it paid quarterly? Or is it paid yearly? If it’s an annual payment, that’s worse for the professional. This is because they terminate the contract in the middle of the year. 

Most places will not pay a bonus. You’ll have to wait until the end of the year, and then they’ll calculate whatever the bonus is, and then they will give it out. So, suppose you’re thinking about how to structure an employment contract. In that case, you want to ensure that the language states that any bonus earned will be prorated if it’s less or in the middle of the contract year. 

Even if you had the annual bonus if it says the professional terminates the agreement and they’re in month eight. Then whatever the professional earned will be prorated to that. So, 8/12 of whatever they would’ve earned. And then settle the payment upon termination of the agreement. Suppose the employer is unwilling to make any changes like that. In that case, the professional must think strategically about when to give notice. Suppose someone wants to leave a job, just unhappy, but you must be employed when the payment for the bonus occurs. In that case, you need to make certain that you give notice after receiving the bonus, or you could miss out on it. 

Would You Receive Bonuses During Notice Period?

I have had a couple of scenarios. There’s usually a language in a contract that states the professional must provide 60 days’ notice. But the employer has the option to tell them. It would help if you didn’t work here anymore.

They still must pay for those 60 days or whatever the base compensation generally would be. But it would say you’re not entitled to any bonuses. So, even if it’s the end of the year and so on, let’s say. The bonus is supposed to be paid out 30 days after the end of the year. You give notice on day one of next year, the employer could say, you know what? We appreciate you. We’re not going to make you work 60 days. We’re just going to say accelerate the termination. We’ll still pay you for those 60 days but go home. If the contract ends in that scenario, it’s possible. This is where the arguments would occur, but they would say, you’re no longer our employee when we gave out the bonus. 

And so, therefore, we’re just going to pay you the 60 days, but we’re not going to pay you the bonus for the rest of the year.

How to Secure Paid Bonuses When Terminated the Contract Early?

Once again, language must be present in the contract that protects the professional from that type of scenario. They waited until the next year to give notice until you get that check and that direct deposit. There are still shenanigans that the employer can use not to pay the bonus. It’s usually better to break up a bonus into months or quarters, just for that scenario. So that someone’s not stuck, say you’re in month two of a contract year. And you’re like, I must get out of here, but I still want to be paid whatever bonus I’ve earned. It would stink to wait for the entire year and finally get paid the bonus. Breaking up the bonuses into shorter segments protects the employee in the scenario where they want to receive the bonus that they’ve earned. Still, they also don’t want to wait for an entire year.

So, can an employee be paid a bonus if they terminate early? It simply depends upon the language in the contract. And that’s when I’m reviewing a contract for somebody. That certainly is one thing we go over. What are the payment obligations of the employer upon termination of the agreement? Most of them will try not to have to pay any bonuses. They’ll say, we’ll pay your base, and then after the contract ends, that’s it. Suppose someone is on pure commission, net-collections, or whatever else they use in their industry. In that case, the language needs to be tailored so that they receive whatever amount they should. Still, they’re not screwed by not getting any bonuses.

Other Blogs of Interest

• Consequences of Breaking an Employment Contract | Breaching Contracts
• Can an Employee Terminate an Employment Contract? | Employment Contracts Termination
• Breach of Employment Contract Examples | Employment Agreement

Will I Be Paid My Bonus if I Terminate the Physician Contract Early?

The first question is, what type of bonus is the physician thinking about? Like bonuses when you sign the contract, productivity bonuses are involved once the contract is ongoing. Let’s take the signing bonus first. Almost any physician will receive a signing bonus and relocation assistance when signing an employment agreement. Let’s say there’s a $20,000 signing bonus, and then the employer will provide up to $10,000 for relocation. Normally, there would be language that states if the physician leaves before the initial term ends.

The initial term is just how long the contract lasts. Let’s say it’s a two-year term. Normally, there would be language that states that if they leave early, they must pay back a prorated portion of that amount. Monthly is probably the most standard way of doing it. Let’s say the physician lasted a year, and then they have one year left on that two-year term, then they’d owe back half of whatever the bonus was. So, they’d have to pay back 15,000 in total. 5,000 for the relocation assistance, and 10,000 for the $20,000 signing bonus. It can be quarterly. Some places do it yearly. From the doctor’s perspective, the shorter forgiveness period and the shorter interval are more advantageous. If you stay for 11 months, then leave, and it was yearly forgiveness, well, you’re out of luck.

What Are the Productivity Bonuses of Physicians?

You just missed out on that whole year of forgiveness. Whereas if it’s monthly, no matter where you leave, it’s about as up-to-date as it can be. So, that’s one way of not getting your bonus. If you leave early, you have to pay a portion of that back. Now, the other bonuses are productivity bonuses that a physician would receive. There are different types of productivity bonuses, and there are different types of compensation models. The two most common productivity models are net-collections for private practice and RVU-based compensation, used mainly by hospital networks. Let’s say a physician had a contract for RVUs, and it said, any RVU generated over 6,000 in a year, you’ll make $45 per RVU, but it’s a yearly bonus. 

There’ll be language that states the physician has to be employed when the bonus is paid. So, there’s a possibility that there might be a window where the physician earned the bonus towards the end of the year they give notice. Then the contract is terminated before they receive the bonus, and they are out of luck. The physician wants to ensure that the language essentially states the bonuses. If they earn a bonus, they will receive the bonus no matter whether the contract is terminated early or in some way. It would help if you thought about that. If it’s net-collections, that would usually be a hybrid with a base salary. Then the physician would get a percentage of what the practice collects. Let’s say a physician has a $240,000 base.

The Benefit of Getting a Paid Bonus Earlier

One normal way of doing it would be the practice states, alright, after you’ve collected $20,000 monthly, which covers your base salary. You would get a percentage of net-collections after that. In that scenario, a normal percentage will be somewhere between 15 to 25%. And then it would state to pay within this many days of the end of the month, or perhaps it’s quarterly. It’s rare for it to be annual. But if it is, you want to make certain. 

Once again, just like with the other bonuses, the shorter period where you get paid protects you if you leave early. If you have a yearly bonus, as I said, and then you leave in month 10, even if you earn that bonus, if there’s no language there, you’re not going to get it. So, you want to tighten that interval. Preferably, it would be a monthly payout. You’d set the interval or whatever the level is where you’ll get paid so that you receive a monthly payment.

And that way, you insulate yourself from amassing a bonus but not getting it. So, those are the two main productivity ways. The RVUS, and net collection. And in the agreement, it’s going to have a termination section, and this will state what happens in the event either party terminates the agreement. 

What Happens to Payment Upon Termination?

And normally, there’ll be a section at the end of the termination section that states what happens to payment upon termination. You need to pay attention to that language. It will most of the time dictate if/when and how the physician will receive those bonuses. As I stated before, their timing is whether they get it at all, even if it’s earned but not paid out before they leave.

It would help if you gave specific attention to that section. I find some places try to kind of screw the doctor out of the money. This is because the doctor doesn’t understand the timing of the payment or how to earn the bonus. So, it’s something to think about. It feels bad to work hard, earn a bonus, and then, due to timing, not receive it.

Negotiating a Physician Signing Bonus

I’m going to talk about negotiating a signing bonus for a physician. In signing a bonus, there are some things to keep in mind and some industry averages as a signing bonus. First, when a physician is either coming out of training or switching jobs, it’s industry-standard for a signing bonus associated with the new employment contract. It’s also dependent upon whether the physician agrees with a hospital or healthcare network. Or if they’re joining a physician-owned practice.

Let’s take each one of those in order. First, let’s say you’re a resident or fellow coming out of training, and you’re going to join a small physician-owned practice. That is probably the level you’ll get the smallest signing bonus. Normally, in that scenario, I would say somewhere between 10,000 to 30,000 is standard. It is also specialty-dependent. The more specialized a physician is, the more leverage they have in negotiating. And therefore, they can get a higher signing bonus. Suppose you are a physician coming out of training or joining a hospital or healthcare network. I find the signing bonus for them is usually a little bit higher than if you join a physician-owned practice. 

So, what do you do to negotiate? Well, I would ask the people you’ve trained with, what are some other bonuses you’re receiving? Because those people in your specialty will have up-to-date information on the offer in general. However, I do find it is very geographic-specific. Suppose you are moving to a location that is hard to staff too. Maybe not desirable at the general level like other locations. In that case, you’ll have the opportunity to get a higher signing bonus. 

Smart Way of Negotiating 

Let’s say the employer says, hey, we’re going to give you a $10,000 signing bonus, but you want more. Let’s say you want 20. Well, you don’t ask for 20. In any negotiation, you don’t throw up the number you want. You go higher than that. So, if they’re offering 10 and you would like 20, the smartest thing to do is ask for 30 and then hope they’ll meet in the middle.

Another thing that needs consideration is relocation assistance. Some places will, well, most places will give a signing bonus and relocation assistance. Let’s say you get a $10,000 signing bonus. Then you’d also get 10,000 relocation assistance, which would aid in moving expenses. 

Sometimes, they’ll allow the physician to use that for travel to the city, to look for a place to live. So, airfare, hotel, whatever, and others will also allow it if it’s a short move and you’re not going to use all 10,000. Then you could also use the rest of that money towards a security deposit or a mortgage in some situations. 

It depends upon the employer and how they handle things. Physician-owned practices are much more flexible in using that amount for whatever you want. Big healthcare organizations usually have policies on what can and can’t be used, which is not flexible. It’s, this is what you can use it for. And that’s it. 

Student Loan Assistance

Also, the last part could be some student loan assistance beyond the signing bonus and relocation assistance. You seldom see student loan assistance from private physician-owned practices. It just doesn’t happen. If you’re going to get student loan assistance, it’s almost always going to be through a hospital or healthcare network. Those can be substantial 50,000 up to 150,000.

And how they’ll handle that is at the end of the year, they will usually pay. Well, that’s not true. Either monthly, quarterly, or yearly, they’ll pay a lump sum directly to whoever the loan provider is for the physician. Then it pays off over time. Those are best because, generally, there’s no repayment obligation. After all, it gets paid after the physician has worked a period. There is no repayment. Now, suppose you are getting a signing bonus and relocation assistance. In that case, there almost always will be a repayment obligation. Suppose the physician leaves before generally the initial term of the agreement. So, if you had a, let’s say, three-year contract. The employer would say that you will owe us back a certain amount if you leave before the end of three years.

It could be forgiven monthly, once again, quarterly, or yearly. Let’s say it forgives monthly. 1/36 of the amount forgiven each month. And then until the end of the three-year initial term. After that point, the physician doesn’t have to pay anything back. You don’t have a ton of leverage coming out of training. The only leverage someone would have from training would be their specialty. 

Negotiation is About Leverage

Once again, if it’s harder to staff, an area that’s difficult to bring in certain specialties. You have much more leverage than in a big metropolitan area, where many people want to live and have plentiful specialties. You don’t have as much negotiating power. So, can you negotiate a signing bonus? Absolutely. You can. It’s just a matter of whether the employer will meet you in the middle. Or whether they’re going to move at all from what the initial offer is. Any negotiation is about leverage. And if you don’t have it, getting the employer to move in any way is tough.

Negotiating a Physician Contract

In my mind, there are three different scenarios. One, you’re just coming out of training. Two, you’re switching jobs to an area of the country you’ve never been to, or three, you’re moving from somewhere within the area where you already live. So, negotiation depends upon leverage. Do you have it, or do you not? Let’s take coming out of training, for instance. The only leverage someone has when coming out of training is in a specialty that’s hard to recruit for. I mean, that’s just the truth.

You are not bringing in any established patient base. You’re also relatively new to being out on your own. So, a learning curve will go into moving into any position. If you are in an area that’s very difficult to recruit, that could apply to any specialty. Or you’re in a specialty that’s difficult to bring in and is super profitable. Those are two things. When you’re looking into it, how do I negotiate? And when people say negotiate, most of the time, they think about the bottom line, what is my base salary. But I think that’s a narrow mind. And this will apply to anybody. When looking at a job, at least in my mind, some things are more important than just the base compensation. One, what are the restrictive covenants?

Important Parts of a Contract

If someone lives in an area, they have family in the area. They have kids in the area. They absolutely cannot move after the contract ends. Sometimes, the non-compete could be the most important thing in a contract. A non-compete says you cannot practice for a period within a specific area. Another important piece is who pays for tail insurance—depending upon specialty. This could be an enormous part of a contract. If you’re an OB-GYN, you must pay for your tail insurance, and your underlying premium is $40,000 a year. Your tail insurance’s probably going to be around 80,000. So, who pays for tail insurance certainly could be the most important thing in an employment agreement for an OB-GYN. If you’re getting paid based on production, let’s say you’re in a contract that’s just pure net collection.

Like an average range for a physician is 35 to 40% of net-collections is your total comp. Is there language in the contract that states that when the contract terminates, you will be able to collect for a 60-to-90-day window after the contract terminates? If you don’t have that, you work for free for two or three months, which nobody wants to do. Going back to what is important, it depends upon the person. Having the numbers is important when you’re looking at base compensation. So first, they’re not always easy to obtain. Most places or most of the places use MGMA numbers. It’s a medical group management association. And most of the time, you must pay for that, and it’s expensive. So, no physician, at least most physicians, will not do that.

What Advantage Can You Get from Being an Established Professional?

You could find someone with access to those numbers or try to get them. Or if you kind of Google around on the internet, sometimes you can find them the average RVUs production, average compensation. It is specific to areas of the country. I honestly don’t think those are accurate when determining exactly how much and what part of the country. There’s just a feel for what someone is getting in this area. But then you also have to consider all the other things I just said. If someone has a base that’s $10,000 less, they don’t have to pay for tail insurance, or the non-compete is extraordinarily small. Well, that’s worth way more than $10,000 in some instances. Those are a few factors to think about.

Suppose you’re coming out of training. Let’s say you’re well-known in the community as a primary care PE or cardiology. You have an established space, and you’re just moving into a new practice. Well, this is the highest leverage you can have. There will be no, or at least there shouldn’t be much time needed to ramp up the practice. You’re just bringing people with you. Plus, when you have numbers in a community. These were my net-collections, the RVUs I produced, or the patient encounters I had every week. Those are absolute hard numbers you can use to negotiate compensation, moving to a different practice.

Physician Contract Negotiations

And in that case, you have the highest leverage possible. Then, you can negotiate all the ancillary things I’ve already spoken about. The last thing would be, if you’re moving, you’re out of training, you’ve been in practice for a while. And you’re moving from one city to another without an established patient base, which removes some leverage. There are two factors that kind of work for you. One, are you moving to an area of the country that’s difficult to recruit? Rural communities pay more simply because it’s harder to find physicians in certain specialties to come and move and live in those areas. Or two, if you’re in a specialty that is simply hard to recruit or extremely profitable. So obviously, surgeons are difficult to find, or some other GI subspecialties are always difficult.

If you’re moving to a different part of the country, then the same analysis applies to coming out of training. However, you benefit from having some numbers of what you produced in your previous position. You can tell them; that this was the net collection I generated in my last position. Now, it doesn’t always translate from one state to another or situation to another. Maybe you’re going from private practice into an employed group. But having any data to back up what your production was is essential in determining your new total compensation in a new position. So hopefully, those are some tips on things to think about. Honestly, I can think of breaking this into 10 different videos. But this is just kind of an overview of negotiating.