Year-End Bonuses: Do's and Don'ts

Welcome to Accountants LawPod, where accounting professionals and law firms converge. Hosted by Lynda Artesani, Sarah Prevost, and Stephen Libhardt.

Well, hi, how are you?

Hi there.

I'm sorry, we were all just chitty-chatting, and so I said, time to start. The Fearless Legal Speaker says time to start.

We all went quiet.

Little bloopers. Well, Tiara's like, get going. And all of a sudden it's like, hi.

We haven't seen each other in a long time.

That's funny. Well, how are you two this morning or afternoon?

Good.

Good. We're just coming out of the Thanksgiving week when we record this, and it finally went from 70 degrees in Denver to 19, you know? So I went out. I had been in the house several days 'cause I just like hunkered down, and I went out yesterday and I was like, oh my God, it's so cold.

So is that your way to segue into partner bonuses? They could be chilly or hot.

They could. They could, couldn't they?

It could be known or unknown to us. They should say. We sometimes don't find out until the check is cashed and then we're like, what is this money for? And that could be in the next year. And it's like, okay, where this— what is this for? And you know, when you look at it, it's just a partner bonus. But then there's no, like, no one told us. Yeah.

Well, obviously this is our topic today is friend bonuses. Partner bonuses is one huge segment of it.

Do some of those things. Like the employee bonuses.

Yep, yep.

Partner bonuses, do tell the accountant on your file or the bookkeeper on your file that you're doing that. And maybe have a discussion about whether they should go through payroll.

Precisely.

Now Lynda, what, come on. Why would we want to put 'em through payroll?

Because we only have like 7 days once the new year comes where we can actually go back and edit the prior year payroll. So if you do something like that and don't tell us and then the people don't cash their check and we find them, We're sitting there with bonuses that should have had payroll taxes taken out.

And they're taxed at a different level because they're a bonus.

Well, the other thing too that you just brought up, Lynda, is you can't make— you can't retroactively run one either. So if you have run one and changed it, that's what Lynda is referring to. You cannot just say, oh, it's the 2nd, I want to go ahead and do this and try and backdate it. Sorry, that's not going to tell her.

That's something that we hear too. I mean, that's one of the— yeah.

But do you feel the least popular thing I see, I feel like is probably the most popular thing that might— I mean, I— it's a great idea. I don't know that everyone does it. It's the profit share style with the 401(k). 401(k). It's the least utilized and the least—

And the easiest to calculate.

But it's also like such an amazing thing to do when you're doing it.

Firm-wise, it is.

Yeah.

But then it doesn't— a lot of the bonuses are done more on per partner by how hard they work. So if you have a couple of partners that don't have the same work ethic and don't work as hard, and then if you do the profit one at the end of the year, that kind of screws over the one that worked.

Exactly. Yeah, that's true. I think the other part too is when you're talking about team members and associates and stuff, it's expected. And then we see the opposite end of that, which, Steve, you talk about.

You bring up a lot, Steve, how they leave right after the bonus.

You know, bonuses can be an emotional situation in a law firm. And the emotion being from the, from the leadership side, almost sometimes depending on what's going on in the firm, they're feeling obligated to give a bonus instead of rewarding with a bonus because maybe they haven't kept track of their KPIs through the year or whatever. And quite often, and I've seen this over the years, where— and to your point, Lynda Artesani, I've mentioned it before. They hand those bonuses out and then a whole chunk of the staff leaves in January because they got their bonus. They'll compare, they'll talk to each other and find out how much each other got. And that can cause problems too.

Even if they say they're not going to.

Right, right. So, you know, when you take the emotion out of it and you make it more of a business transaction and you have reasons for giving the amount of bonus that you're giving and also in the partner level, you know, when there's those discrepancies between how much time partner A billed as opposed to how much time partner B billed. And, you know, maybe partner B is more of the rainmaker and that's why he doesn't, you know, produce as many billable hours. So you have to really look at the puzzle that makes it all come together.

Which is why what Sarah said, that the profit sharing ones for us is a nice one, right? That's easy peasy for us. But we see a lot more eat what you kill. I think that's more of the bonus structures that we see. And some people do quarterly bonuses and some just do year-end. And when the year-end ones come, they usually come along with a Christmas party or some sort of party where those get passed out. And like I said, they sometimes get passed out and then they— we don't know about them. They're handwritten because they want to write a nice little card. I mean, it's nice what they're doing, but we do need to know about it. Yeah.

It's the emotional side that's fun. I mean, there's two things I was thinking about when you were talking, Steve. One, like what Lynda said, and then they come back and say, "Hey, I handed these out," or we see these checks getting cashed.

We're like, "Well—" Yeah, that's usually what happens.

Some of them are big amounts. I mean, they're not little amounts either.

And it costs the firm a lot more money because you've given technically what's considered a net check out. So let's just use the simple example you gave, $1,000. That's net. So now when you go to process it through payroll, you have to gross it up. Well, now the employer is paying for the employee and the employer.

Oh, I'm glad you mentioned that.

I mean, that getting caught up in the emotional side of it, right? The other part I was thinking about, Lynda and I don't do this as much in our firm. I think you do, Steve. There's some of the planning that goes into the partner bonuses separate from the team bonuses. We get more involved, I think, in the team side of it. But the partner side, we're not as involved. And I feel like in the years past, you have been more heavily involved, right, in, in doing that work. How does that work for you? What is that?

It, it, I get, I have been more involved in the split between the partners just because I like to really coach them along throughout the year on what their numbers mean and, and how we provide those numbers to them and make them think that way. You know, in all fairness, because I think it helps tamp down any, again, of the emotions involved in operating a firm if they have all that information throughout the year. And then perhaps one partner wants to retire, maybe one partner just wants to pull back and have a better family life, or maybe they've really gone gangbusters this year and they want to look at the comparisons between people comparing hours billed, revenue brought in, you know, those sort of things.

Okay. See, I think like for us, a lot of times what will happen for the accounting firm side is we're just informed. This is how we do things as a partnership and this is how we divide it up. They don't— the secret sauce behind it doesn't always—

Exactly. Exactly.

But it sounds like you work slightly different depending on the firm because not all firms work like that where you are doing a little bit more of a guidance approach, but a hybrid model of an eat what you kill with their— is that—

Yeah, I like to, I like to dive deeper into it and find out why they're thinking the way they're thinking. And, you know, you've heard me say before, I like to keep a scope creep file. Yeah, you know, in, in my firm. Yeah, I do the same with the law firms, is I keep a folder of milestones that happened in the firm so you can go back through that folder at the end of the year and say, oh, you know, this employee did this, this, this lawyer did this or that, and they really deserve to be recognized for that. And maybe the other one who didn't quite pull their weight, you have in your mind why maybe you need to talk to them and explain you're going to get a bonus. But, you know, next year you probably could get more if this or if you do that. Mm-hmm. And between the partners, I like to even though we're out here, not in the law firm, we're providing a remote service, but I'm involved in their firms heavily. And I think that comes from my background in working in law firms for so long. I continually remind them I'm part of the team, I'm here, you know, but I'm not in your office.

I think that's a smart idea though, Steve, is why I'm kind of asking these questions because it is an underutilized, idea to have a conversation with, say, yes, like ourselves, to reaffirm, does your current bonus structure, maybe the one that you've been doing for X amount of years, actually—

Another way.

Is that a supportive thing that you should be doing, or is there another way to look at it?

Well, that, you know, we started out the podcast where I said, you know, are you feeling an obligation to give bonuses, or are you really analyzing them and they mean something based on whatever they mean? Yeah, yeah, yeah. Especially nowadays with, with the world the way it is and the, you know, the type of cases that people are getting and, uh, that the way that they're billing clients and their cash flows. And there's so many different things that are different from the traditional old-fashioned law firm where they just walk up, hand you a $2,000 check, take you out to a restaurant, and you're done.

You know, like in the old days. Yeah, I know. You know, the funny thing is the way things were done years and years and years ago. When you think about it, they were— you, the longer you were there, the longer the tenure, the more you got for a bonus. And the younger people don't want that anymore, which is so funny to me because you should get more the longer you've been working at the firm, right? I mean, it should mean something, but nobody stays at firms that long anymore. I mean, we see it happen in the law firm. So—

That is so true, Lynda Artesani. That is like that tenure kind of style of like profit share. You hear that on profit shares and the tenure, you hear those things. Us seeing them in modern day right now, I don't feel like has been the focus for a lot of these firms.

No.

And that's the hardest part is getting— I think, Steve, to your point at the very beginning, is it obligation? I mean, if you think about it, yes, everyone earns a spiff or something if you've done great work, or if you've built in totality, if the firm is growing and you're part of that cog in the wheel that's in a positive benefit. Yes, absolutely. I do think it needs to be a rethought-out process because there's a lot of ways that people— Yeah.

Well, you know, if you think it out and you pay attention to it throughout the year, at the end of the year you can come back and say, okay, we made this much more revenue because— or our collections increased by this percentage because— or Sarah, you're an attorney and we brought in an intern, okay? And we assigned that intern to you and you just were stellar in training that intern and we see results. Because of it. That's something to reward in the bonus structure. That's just one example.

Exactly. Sometimes those bonuses are more effective if they're not landing on that time when you—

Exactly.

If you give bonus, they just become a thing that's expected. I can remember back in a million years ago with my husband's firm, and I worked there and I sat there. It was first year I was there and I watched him. It was a Thanksgiving thing and he always brought turkeys and handed out bonuses. He gave money for Thanksgiving and the—

I remember the turkey days. Yes, we got turkeys. I forgot about that.

You gave turkey and then you gave money. He gave money for the rest of the stuff that goes with the turkey. And I watched all the guys come in and he had a construction firm. So all the guys would come in to get paid and he'd give them the turkey or maybe the end of the day, here's the turkey, here's this or that. And thanking them and gratitude. And then not, actually it wasn't not one, there was one man who said, thank you, this means so much. Nobody said anything. And after he left, I remember, because I'd worked at like Blue Cross and other firms, we got nothing. You know, we got $25 at Christmas. That was it. And I remember saying to him, "Wow, nobody said thank you to you." And that was the last year he did it. And they all wanted to know the next year, "Where's the turkeys? Where's our turkeys?" Oh, well, you know—

A gift is not to— don't expect a gift, earn it.

No one said thank you. And he did make sure that the one guy that said thank you got a turkey and the money that year. But everybody else he didn't give the turkey to because he said that—

Well, you know what? You know what else? This really reminds me that you should involve everybody in the firm with what do they really earn. You know what I mean by that?

Yeah. Oh, I know. I know what you mean. Like—

You know where I'm going with that?

With the 401(k) 401(k) match and all the things that we do.

What do you guys know what my real salary is? You guys are my mission. My mission. And I've said this.

Yes, I know your mission.

On Gusto Council when I was on there and my biggest mission, and it's going to be a hard thing to do, but the value of your pay stub really should not just be one thing. I really feel strongly it needs to be realigned. I get it. It's for tax purposes, but there really needs to be like a little summary at the bottom of like what you're truly—

Yes, I'm so passionate about that.

I, and it's, I don't feel the need as an owner to have to constantly remind somebody how much you're paid and how much I value and how much this. It's nice for you to know where you sit and, and your value in the company. But we're, it's by, it goes both ways. And you, I mean, yes, your employee is your biggest asset. It's a two-way street too. You have to show the same gratitude back in I mean, yeah, Sarah, this is music to my ears.

Yes, you know, you might— you have a salary of $75,000 a year, but it really, on your behalf, Employee X earned $90,000, or whatever that total comes to with what the firm contributed. And so let's take that, and then here's your bonus. And so now your $70,000 or $75,000 just turned into $100,000, or whatever it is. And you know what? They never, they never balk at that. They're like, oh, wow, I didn't—

I didn't think about it. Like the health insurance in particular, right? Right. Another story was I worked at a place that one of the employees came in again, construction, and the employee quit. And the owner said, can I ask you what you've got? Because you never came to me and said you want a raise. I didn't know you were looking. Obviously somebody came to you and wanted—

Oh, wow. Yeah.

Wait, so what are you, what are you getting for a raise? I'm getting a dot. And this is going years back. I'm getting a dollar more an hour. Okay, a dollar more an hour. Wow. Okay. That's interesting. Are they paying your Blue Cross? Right. Right. And the guy's face turned white. He never thought about that. He was so focused on the dollar. He ended up making less money because it wasn't including the Blue Cross. And back then, Blue Cross didn't cost like today's fucking money. Right. But that's the other thing, because if you're not paying for it and you're offering to cover health coverage, the health coverage— what did it go up recently? One of your employees, one of your, one of your clients.

Ridiculous. So there was what? 60% to 110 or 120. A lot, a huge amount. Monthly. And to be honest with you, like, what do you?

Okay, you know what? Let's stop right there. Let's stop right there. For you small, smaller law firms out there that are listening or watching this podcast, this has a whole bunch of value for you right here, what we're talking about. If your health insurance has skyrocketed because of what's going on in our country right now, This is a great time to take what Sarah was just talking about with Gusto, what she wanted to do with Gusto, and show them what they're really earning and say, "You know what? This year, I'm— we can't afford as much of a bonus, but we can afford this much of a bonus, and this much more is going into your health insurance to take care of you and your family," or whatever. This is huge to really stop and think about this. Yeah.

Yeah, I wonder, I mean, I guess you'd have to ask somebody if you actually did that and ask the employee if that had any effect on them. Did they realize, 'cause I think sometimes people are like you just said, they might be up into that $100,000 range, but they don't feel it as monetary. But when you look at the health coverage that you get and all the other benefits, like even what's it called?

Benefits. Benefits, you're gonna get benefits.

I'm gonna get you a bone.

This year you get benefits.

Bones for everybody.

I love it. We mix the two together. I do think that in total—

Wait, we need to trademark that. I'm sorry, we got to trademark that.

No, but I know Tia is going to cut that little clip and make a little clip thing, and I'm going to be walking around going, "Bonafides." But you pay for the state bar dues, you pay for the continuing education.

Well, that too.

Yeah, we have a client that is so freaking generous, we have to reel him back in because it's like, okay, great.

Do they? There are some very generous—

Because they don't realize. They think they're just being nice.

They pay 100% of medical dental, and then you pay if you want to add your additional spouse. There's a difference there. But there are firms out there that do that. And I don't know, I wished it would be more sustainable given our current climate, but I don't feel like it is for some.

And the train's still rolling down the tracks.

Well, that had a lot to do— those things are— because there was government subsidies that finally ended. And now that's what's happening. It also has to do with the fact that the insurance companies aren't going, okay, we had all this free money coming in. They haven't adjusted because they don't— nothing goes down.

There's a lot of stuff going on that we don't know in totality. I mean, what we're given as, as ideas of what could be is probably not always what health insurance should not cost what it costs.

And then you have to fight Fight, fight if you need it. And you shouldn't have to do that either.

For employers, when you're looking at, you hear, I mean, there are people that pay phone stipends, that's understood.

Yeah.

When you give a computer, that's expected, right? You have to have a computer device, a place. There are work environments, there's negotiated things. If there's a hybrid method, a non-hybrid method, there's other ways to kind of look through the lens of what the value is. And when you're looking at bonuses, when you look at it through, like you said it early on, Steve, what is the need for the bonus? Is it a gift to give or is it an actual earnings gift?

Right. Just stop for a minute and think about that.

So, yeah, I don't know. It's kind of a, it's a loaded thing and it's individually. It's an individual firm decision, but I do think it's important to maybe reevaluate it or look at it differently. I can say when you see a bonus given at a non-year-end thing and just given out of a thank you, I feel like has more of a weight possibly.

Because you want to thank them. I mean, you want to thank them for working hard. We're very fortunate with our team care so much about the clients. You want to thank them for it. And a lot of them go above and beyond. You know, help and get things done and jump in when they could be having family time sometimes. And they're like, I'm going to do this to get it done. I really want to help the person. I mean, they care about what they're doing. And I think that that should be rewarded. I mean—

Those are the sort of things you keep track of throughout the year, you know, so that, that means a lot on top of the bonus when you sit down with them and you say, you know what, here's this $10,000 bonus or whatever. And I wanna say thank you to you for when you did this in July and you did this in May and this client said this about you and so on because they feel really valued then.

It's your side spreadsheet. The what?

What? Side spreadsheet, inside spreadsheet.

Right. But even like— Inside spreadsheet.

We've given gifts during the year just randomly because we wanna thank them. And we're lucky we have Tiara. Nobody can steal her, but she's an amazing gift person, so.

She's awesome.

She finds things and like, oh, I found this. What do you think if we got it branded or whatever? And everybody seems to like it. I mean, our gift bag that we had on our retreat was incredible. And those are the little things. And then they can wear their hats and things like that when they're on a plane. And then what is the proper trust, you know?

And you know, a bonus doesn't have to always be money, cash in the hand. If you have an operation where when you bring a new employee in and you have a questionnaire or you talk to them, you know, what if you had the most Biggest desire in the world to go somewhere, where would that be? And you keep track of that when they say, I wanna go to Thailand or whatever. And you keep track of that. And if they go way above and beyond—

Sarah, I wanna go to Thailand.

You send 'em to Thailand. That's their bonus. Think about it. That means more to them than anything.

Yeah, I know.

Bonuses don't always have to be money.

I know that you are a very—

You're good at that though, Steve, 'cause you get the details. You know how to pick up, like Sarah, like Tierra, She's, she's just good at picking, you know, picking up little things that she hears and then she finds like, oh, that person like this specific kind of tea. And then next thing you know, we're doing a gift thing. She's out there picking out the specific tea that she paid attention.

You know, another way to look at a bonus, if another way to, to view this is when you're looking at a bonus and let's say, yeah, it's not above and beyond. But you're— let's— I see firms do this. They close the office at the end of the year for 2 weeks but still pay the staff. That's another form of a bonus.

It is.

I mean, to be honest, like, that's another way to look at it. So I feel like when you're thinking of these ideas of ways to do this, and we've kind of gone from partners to staff, is it sounds like from the dialogue that we had earlier with you, Steve, it is a good way to involve or re-engage an outside perspective to align it. The part that I tend to see, and I'll just speak from my own experience, you do it one way and then the firm grows. That's not sustainable.

Correct.

So the expectation is shifting and that's a very hard thing. And I feel like when you're thinking about planning these out or looking at that growth trajectory, it's also maybe that's where you start having the dialogue of like, the structure of like, if we hit these revenue goals, we'll make this. Maybe that's how the firm needs to share it because it is an ever-evolving thing. Law firms, the way they used to be to where they're going, are not one in the same.

Night and day compared to what it used to be.

Yeah. Yeah. So it's interesting for sure. To me, it's a way to say thank you in a different way. It just depends on what it speaks to you. As thank you. So that's how I see it. I've always been appreciative. I mean, every time I got one in years past as an employee, it was important to me. But people also make decisions to work for small firms because they don't want to be a cog in a wheel in a big firm and vice versa. And what does that look like? The flavor of what that looks like.

I used to love it when I was in law firm accounting in-house. They'd come to me and say, okay, here's the bonus list. And I would get everything prepared and stuff and people would be coming to me Am I getting one this year? And I'd be like, I don't know. And they go, you know. And I'd be like, I don't know.

Yeah. I have one group. I kind of liked this idea. This was a nice idea. They sort of look at how much time, because the employees are paid by hours worked. They do an average of that, and then that's equivalent to what the bonus would be for them.

Oh.

Okay.

That's another way to look at it. So it's not based on gross top line revenues or anything like that. It just has a different flow to it. I'm like, oh, that's an interesting way to do that. And it's not a bad way to think about it.

Well, you know, are you in a firm that has an AR clerk, an accounts receivable clerk that actually collects all the past due, or are the attorneys responsible for it? You know, that takes down their productivity time, then their billable time. So. There's a lot of different factors that go into it.

So many pieces. I just, I guess in the end, how do we wrap this up? Because it's really individualized.

It is. I mean, it's just, you should plan for it. I mean, that's number one, plan for it. Look at the money, have the discussion with your bookkeeper, your accounting team to see if you have the money to do what you're planning on giving. You're not going to want to make yourself cash poor starting off the next year for sure. You don't want to do that.

Well, you know, better yet, Lynda, you have that conversation and then you make sure, like, is that something sustainable? And then you plan cash flow-wise starting January 1st of next year, dedicated account for it. So it's not this big overhaul undertaking that you have.

Put it in the budget in the fall. You should be budgeting the next year and put the— but put budget bonuses, keep that confidential, and then watch it throughout the year and see if you can make it grow. Because if it grew, something good happened.

Hey, Bugs Bunny, buh-buh-buh-buh.

We're getting new words out of the two of you. I know. Bonus, buh-buh-buh-buh.

Like, what did Steve say to us when we first met? It's almost New Year's Eve. Like, it's, I mean, New Year's Day is, it's a month away. It's like, ugh.

I know, I can't believe it.

This is a joke because it's December 1st. Hello.

No, it's not. Yes, it is.

Oh my God. Well, this was a good conversation. We went everywhere. We stayed on topic. So I guess the question is, for those of us that are solopreneurs or entrepreneurs and we have our businesses, do we give bonuses to our significant other partners or spouses?

My dog gets one. My dog gets one because he lives under my desk and he has to listen to me all year long.

Oh yeah. Does Fiona get a bonus, Steve?

No, no, she doesn't. Fiona's my AI agent. She does not get a bonus. So I get, she has to give me bonuses and make my income grow.

That's going to be an interesting. Yes, it is. Future topics. Yeah. Interesting. Well, thank you both. This was good, I guess.

Yes, it was.

Do we just end with goodbye?

Well, no, Tiara's going to do her thing.

We have to get real quiet and then say bye.

If you liked what you heard today and you want to give us a little bonus, be sure to like, share, and leave a quick review. It's the easiest way to help other accountants and lawyers discover our little corner of the podcast last world. And while you're at it, hit subscribe so you never miss an episode. Do you have a question or a topic that you'd love us to cover? Drop us a line at info@accountantslawpod.com or send us a message through our website, accountantslawpod.com, Instagram, TikTok, YouTube, wherever you find our episodes. Your idea might just make it to a future episode. And if you want to go beyond listening, an extra big bonus. Sponsor an episode and connect with our community of accounting and legal professionals who love learning, laughing, and leveling up. And don't forget to join the conversation inside the Accountants Law Lab Mastermind Group at accountantslawlab.com, where collaboration meets inspiration every week. Consider it a bonus for yourself.

We have a good one this week too. We're doing a special guest this week. We're having the educators from Xero who's been doing Xero Nice. Who's been doing a whole educational series and they're coming specifically and helping the Law Lab members this week.

Which is great. We've had a lot of interest in learning Xero and considering that as an alternate and maybe moving clients to it because this is the time of the year that's a great time to just kind of done with QuickBooks, start with Xero.

Yeah.

It works great with Clio.

Yeah, it works great with Clio. We love it. So, and it's got SIFT reporting in there.

Yeah, it's just a good, nice reporting system too. Yeah.

I think we should celebrate something real quick before we sign off here. I think a couple weeks ago Tiara told us we hit the 11,000 mark on downloads. Oh, are we way past? Are we way past again?

I don't know. They gotta be. Lynda's just spouting off.

So if you want a bonus before we say goodbye, if you want a bonus, Lynda, Sarah, or myself, we're gonna set up a GoFundMe. So, we'll let you know about it.

No, a sponsor would be great. That would be helpful.

That would be a nice bonus.

Sponsor would be a great bonus. Yes, it would.

But, uh—

Thanks, everybody.

11,347.

Oh, see that? 11,347.

11,347. That's awesome.

Way past 11,000, Steve. Way past. Way.

Lynda's like down the road.

That's good for us, right? Well, that's what happens.

It's like a snowball, right? It keeps getting bigger.

Yep. And thank you to everybody who enjoys our podcast.

Yes. Absolutely, thank you. So now we can just go, bye.

Bye.

Bye everybody.

See ya.