Retention bonus clause: sample wording and repayment rules

Sample clause

Written for retention letter from Canyon Health IT, a fictional Phoenix software firm, to a lead engineer during a hospital system go live.

Retention Bonus. (a) Amount. The Company will pay the Employee a retention bonus of $15,000, less required withholdings, in two parts: $5,000 on the first payroll after 31 March 2027 and $10,000 on the first payroll after the Go Live Date, if the Employee is employed on each date. (b) Leaving early. If the Employee resigns, or is terminated for Cause, before a payment date, any unpaid part is forfeited. Parts already paid are not repayable. (c) Termination without Cause, death or disability. If employment ends for any of these reasons before a payment date, the Company pays any unpaid part within 30 days, subject in the case of termination without Cause to a signed release. (d) Delay. If the Go Live Date has not occurred by 30 September 2027, the second part is paid on the first payroll after that date if the Employee is still employed.

Sample wording, not legal advice.

Variants

What to negotiate

• Leaver cases decide the value

  Employees should ask what happens if they are laid off, become disabled or die before the date; paying the bonus in those cases is common and fair, because the employee did not choose to leave. Employers usually forfeit the bonus on resignation and for cause, and the definition of cause becomes important.

• Repayment and state wage law

  Bonuses paid upfront and repayable on early exit raise questions under state wage payment laws, which limit deductions from final pay, and some states now restrict stay or pay arrangements. A repayment clause should be in writing, agreed in advance and subject to applicable law, and deductions from final wages should be checked against the state's rules.

• Delay protection

  Milestone based bonuses can be undermined if the milestone slips. A long stop date, after which the bonus is paid anyway if the employee is still there, as in the sample, stops the employee carrying the risk of delays they do not control.

The risk of leaving it out

A retention bonus promised in a meeting or an email without written terms leads to disputes when someone leaves just before the date, is laid off, or the project slips. The employer may end up paying people who left, or the employee may lose a bonus they reasonably thought they had earned, and both sides argue from vague words.

Leaver cases against payment

Resignation before the date: unpaid parts forfeited. Termination for cause: forfeited. Termination without cause, death or disability: unpaid parts paid within 30 days, with a release for termination without cause. Still employed on the date: paid. This table is the core of a retention clause, and writing it out avoids most disputes. Parts already paid are not clawed back in the sample, which keeps it clear of repayment questions.

Tax treatment

A retention bonus is taxable wages. For federal income tax withholding, IRS Publication 15 treats bonuses as supplemental wages, and an employer paying one separately from regular wages may withhold at the flat supplemental rate of 22 per cent, or 37 per cent on supplemental wages above $1 million in a year. The rate of withholding does not change the tax actually owed, which is settled on the employee's return. Law checked on 21 October 2026. This page explains how the law works and is not legal advice.

Final pay rules

When employment ends, state laws set when final wages must be paid, and the US Department of Labor notes that there is no federal requirement to pay final wages immediately. Whether an earned retention bonus counts as wages due at termination depends on the state and the clause's wording, so stating the payment timing for each leaver case, as the sample does, matters.

Where the clause sits in a generated document

Retention letters, offer letters and employment agreements carry this clause, often as a short standalone letter during a sale or project. When asking the AI document generator for one, give the amount, the payment dates, the leaver cases, any release and the long stop date.

Documents that carry this clause

Bonus letter template that shows how the amount was calculatedA bonus letter that gives only a figure invites the one question it cannot answer, which is how that figure was reached. This one shows three components with their target, their actual and the dollars each produced, totals them to $4,250, names the pay date and says plainly that the bonus is discretionary.Job offer letterAn offer of $98,000 plus $11,760 of superannuation, with the three checks it depends on and a clear instruction not to resign until they clear. The letter also names what is not in the offer, which is the part candidates most often assume.

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