September 5, 2013

To Bonus, or not to Bonus?

performance bonuses work well, when handled correctly

I was talking about staff raises with several colleagues the other day, and one of them mentioned an alternative approach that he uses in his practice.  Instead of giving his staff raises, he uses performance bonuses that are challenging yet still attainable.

Do you know if anyone else does this?  In theory, it sounds like a great idea. Reward hard work and motivation.  But I know that most hourly employees want that “guaranteed” extra money each paycheck, regardless of how well the practice did that month.

How do you approach staff raises?  Do you employ a bonus system?  Is there any downsides to a bonus system?

Great question, and one that many doctors and dentists ask me about frequently. It all depends on you, the practice’s financial goals, and your team. Sometimes raises work better than a bonus system, and vice versa. You have to determine what you can afford and what will motivate your staff the best.

However, if you do decide to implement an “outcome-based” bonus system as described above, remember: whatever bonus system you choose to implement, you need a policy that supports and addresses the conditions of how the bonus will or will not be awarded. Not having one is asking for a LOT of trouble.

Some of the conditions

What happens if an employee quits or is terminated mid- bonus period?

Typically, the policy says they are not eligible.

If an employee is on medical leave, are they eligible?

Typically, the answer is “no.” This can best be addressed in your maternity/other leave policies.

If the employee has a formal write-up or has been tardy or absent for a certain number of days, how will it affect their eligibility?

Typically, the answer is that they will be excluded. Keep in mind that excluding someone from the bonus can have the reverse of the intended effect. Instead of them improving as a result of the punishment, they may actually get worse and act out.

Bonuses affect overtime calculations

If a bonus is awarded, it affects the employee’s base rate of pay. That means that if overtime was worked during the bonus period and the employee received a bonus, you will need to re-calculate their overtime rate of pay for that pay period and pay the difference. (I can send you the math to calculate their overtime rate.)

You can award cash, but still need to let payroll know the amount for each employee and have the taxes deducted. We always remind the employees of this so they don’t feel that their paychecks are too light.

There is a myth that you can award gift cards because it’s not an actual wage and relieves you of the overtime or tax obligation. False!

In the event of a DOL audit, the first things they ask for are time cards and details of bonus/commission systems. They are looking for overtime calculations that do not include the bonus amounts.

Personally, even though they come with additional obligations, I’m a fan of well thought-out bonus systems. I can recommend great resources to you, should you want or need help putting one in place in your practice. Just email me at

As always, if you have a question about what I’ve discussed, or if I’ve raised a concern for something happening in your practice, call us at 866-414-6056. We will help you at no charge.

Friendly Disclaimer: This article is general education and guidance and is not a substitution for legal advice. Employment issues are complicated and often require specific expert or legal guidance based on the circumstances.


Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.

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Please note: CEDR Solutions specializes in providing expert HR support to owners and operators of independently owned medical and dental practices.