Again, like any other travel nursing pay variable, contract bonuses must be viewed as part of the compensation package pie. However, bonuses are quite unique. To simplify our discussion, we’ll break down bonuses in to 3 distinct categories (click here for referral bonuses).
Hospital Provided Travel Nursing Bonuses
The first category is the “hospital-provided bonus.” These bonuses are offered by the hospital and are in addition to the bill rate. They are sometimes offered as sign on bonuses, but more commonly as completion bonuses. Hospitals typically shy away from sign on bonuses for travel nurses due to the risk that the assignment won’t be completed. When the labor market was tight, hospital-provided bonuses were offered more often. These days, they’re rarely offered and when they are offered, it’s for assignments that the hospital is having a difficult time filling.
There are several things travel nurses must know about hospital-provided bonuses. First, the bonuses are really offered to the travel nursing company with the expectation that they’ll be passed along to the travel nurse. However, in many cases it’s not required that the bonuses be passed on to the travel nurse. Despite this, you should anticipate that the company will pass these bonuses on to you when they are offered by the hospital. Companies don’t want to risk negative publicity if you find out that a bonus was offered for the assignment but not offered to you.
Second, hospital provided bonuses often have strict stipulations for collecting. The stipulations often require that 100% of the contracted hours be worked. And yes, you may get dinged even if the hospital calls you off for a shift, or sends you home early. They may argue that it’s the travel nurse’s responsibility to make up the missed hours.
Third, your company may withhold payment of the bonus until it’s actually paid to them. Remember, companies have to bill hospitals to collect their money. Hospitals tend to pay on normal business terms like Net 30, 60, or 90. This means the hospital may not deliver the bonus payment for 30, 60, or 90 days after the assignment was complete.
Travel Nursing Agency-Added Bonuses
The second category of bonus is what we’ll call the “agency-added bonus.” We call this an “added bonus” because for all intents and purposes it represents additional money that the company doesn’t factor into its original compensation calculation. There’s a fine and confusing line here. As mentioned previously, agencies typically have compensation calculating programs that account for all costs related to the travel nurse. These calculators help travel nurse recruiters determine the compensation package for any given travel nursing job by accounting for how changes in the various compensation variables affect the company’s gross profit on the deal. An “added bonus” is one that is not factored into this calculation.
In this regard, the company is willing to take a hit to their bottom line. Obviously, they have a reason for doing this. For example, they may offer these bonuses for extending a contract or taking a new contract within a certain number of weeks of the previous contract’s end. They’re doing this because it’s cheaper and easier to retain their current travel nurses than it is to hire new ones. Like hospital provided bonuses, these agency-added bonuses will typically have strict requirements for collecting.
Travel Nursing Agency-Factored Bonuses
The third category of bonus is the “agency-factored bonus.” In this case, the company factors the cost of the bonus in to the compensation calculator, which can potentially reduce the value of some other variable in the pay package pie. Companies may do this to mitigate risk. If they are on the line for a large volume of costs (housing, travel etc), they may use the factored bonus to reduce the compensation paid during the contract, making up for it when the contract is completed. Companies may also use this as a sales strategy, or what I like to call a sales gimmick. They’ll toss out a bonus as bait in hopes that an unsuspecting traveler will view the bonus as a variable that makes one pay package better than another and bite on the sales gimmick.
As you can see, we’re back to square 1. Just because a bonus is offered, don’t assume that it’s an extra. You must incorporate the bonus into the entire pay package to determine if the deal being offered is a good one.
Taxes on Bonuses
Finally, it’s always important to consider how taxes will be calculated on a given bonus. With travel nursing bonuses, there are two primary issues to consider. The first consideration is the “employer match” on payroll taxes. All compensation is subject to payroll taxes. The employer and employee pay matching amounts for FICA taxes. The employee sees their portion of the taxes on their pay stubs, but they don’t see the employer’s portion.
Under typical circumstances, when an employer offers a bonus, they offer it free and clear of the employer match. For example, if an employer offers a $2000 bonus, then they’ll pay the employee all $2000 and pay the employer match separately. This way, the employee is only taxed for their own portion of the taxes. This is usually how it works with agency added bonuses and agency factored bonuses because agencies are able to factor all the costs into their compensation calculators.
However, hospital provided bonuses are often subject to the employer match before they are paid out to you. For example, when a hospital offers a $5000 completion bonus, the agency is the one that is paying it as compensation so they’re the ones subject to the “employer match” taxes. And remember, the only source of revenue for an agency is what they’re able to bill the hospital. So the cost of the employer match is typically deducted from the bonus itself, which reduces the amount for the traveler.
The second consideration is the method that your agency uses to tax the bonus. There are two methods, the aggregate method and the percentage method. With the percentage method, the employer taxes the bonus separately from your income. This way, you get taxed a flat 25%.
With the aggregate method, your agency will add the bonus to your income and treats it all as one lump sum. Of course, this will increase your annual income estimate in the payroll tax calculator making it look like you’re making way more money than you actually are. This will result in a higher tax rate for that particular paycheck.
For example, let’s say your agency pays you weekly and your typical taxable income is $900. You’ll be getting taxed at the applicable rate for that income bracket. Then, they add the $5000 bonus to the weekly paycheck. Now, it looks like you make $5900 per week. So you’ll get taxed at the applicable rate for that income bracket which is significantly higher.
You can always attempt to iron these issues out prior to receiving the bonus. Just ask for the percentage method.
As always, please share your experiences with this topic and/or any questions you may have in the comments below!