Common Pitfalls in Contract Negotiation: The Forgiveness Period

You worked hard for your degree, and whether you’re landing your first job or looking to make a career move, contract negotiation can be a mentally taxing process. Your potential employer is looking out for their best interest, so it’s paramount that you look out for yours in securing the best possible terms for your career and lifestyle.

Thoroughly reading the proposed contract terms is vital, and one aspect that can be particularly sticky is the pesky “forgiveness clause”.

Forgiveness Periods

You’re an early-career physician and your potential employer is offering you tuition reimbursement as a benefit. It may seem tempting to take the lump-sum amount up front – say $100,000 – but keep in mind that money will be taxed as income. Additionally, if you decide to leave the position before the forgiveness period of your contract term, you could end up owing money. If you don’t absolutely need the money up-front, the better decision is to take a payout – for example $20,000 at the end of every 12 months of service. That way you’re not taxed on a big lump sum, and if your life circumstances change you won’t be expected to pay back what they’ve given you.

Sign-on bonuses are another popular contract benefit, but the same “forgiveness period” pitfall can happen, depending on the language in the contract. If you need the lump-sum amount up front, make sure the forgiveness period is no more than two years. If you take the sign-on bonus it turns into a retention bonus that you’ll owe back if you don’t stay longer than the forgiveness period.

The other place this issue frequently occurs is in moving expenses. If your potential employer is covering moving expenses – which is common – make sure there isn’t a forgiveness period. This is one situation you should be able to negotiate into clause removal.

Weigh Your Options

Make sure you know if any up-front money you receive will be expensed against your employment to the practice. Oftentimes bonuses and benefits are constructed as short-term loans, so make sure you do the math. Because of the forgiveness clauses, doctors can sometimes be on the hook for a loan for more time than their contract is drawn to accommodate. (Example, they would owe four years, at a 1% interest loan for $100,000 tuition reimbursement, when their employment contract was only for three years).

The employer’s goal is to hire you and retain you. You’re easier to retain if you owe them money, so watch out for the forgiveness period. It’s one potential pitfall of contract negotiation you can avoid. For more information on contract review savvy, visit our contract review services page.

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