Lynda ArtesaniLegal Accountant and Data Migration Specialist at The Proper Trust

Is There A Financial Planning Alternative To Year End Bonuses?

25 Oct 2023 · 1 min

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In this brief dialogue, two speakers discuss the customary year‑end cash bonuses that law firms distribute to their staff, noting that these bonuses are heavily taxed. They highlight the problem for senior attorneys who have substantial cash reserves and wish to minimize tax liability. The conversation sets up a sales pitch to offer more tax‑efficient compensation alternatives that could provide greater net benefit to employees and improve long‑term satisfaction, suggesting that firms should consider options beyond traditional cash bonuses and basic 401(k) contributions.

So we're coming into the time of the year when law firms typically prepare to pay out bonuses to all of the employees, the year-end bonus. And that's one of the rites of passage in a law firm. What would we say when we see that they've all of a sudden got $50,000, $60,000 in bonuses coming out? What's our sales pitch to them to get them to you guys where they're going to get more bang for their buck and their employees might be happier in the long run?
So the problem with bonuses is that one is going to be taxed heavily. But there are plenty of people, especially your more senior attorneys, they got plenty of money in the bank and they really don't want the tax.
Mm-hmm.
So what if we could give them a choice and have a more tax-efficient way to access that? Now, typically law firms are doing the basic stuff like a 401, but there's so much more that you can do there. The second piece is that half of your people are gonna be unhappy with the bonus they receive.