How are employee bonuses typically treated in an asset purchase?

searcher profile

September 07, 2021

by a searcher in Toa Baja, 00949, Puerto Rico

I'm close to wrapping up my first asset purchase of a business and the issue of employee bonuses came up. Since the business is transitioning mid-year, how are employee bonuses typically handled? Is this typically prorated in part to Seller or is the whole bonus obligation on me as the buyer?

This isn't a big line item that I'm worried about but I'd appreciate hearing from others more experienced in the matter. Thank you!

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commentor profile
Reply by an admin
from Stanford University in Honolulu, HI, USA
^redacted‌: I'm tagging a few folks who might have some experience for you as I think this is the first time I've seen this area covered on Searchfunder. ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌‌
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Reply by a professional
from University of Colorado at Boulder in Colorado Springs, CO, USA
I like to pro-rate and escrow (so if the business tanks) then I get the funds to offset the value drop... but the employees know the money is set aside if they DO make the number. I like the employees still working for their bonus all the way to year's end. I may change comp (but not in the middle of the year). I like to ride the old one out - and then do later. So it gives some consistency and isn't perceived and "changing things right out of the gate". By escrowing if they drop the ball I have something to work with - if I pay out then I'm stuck with nothing. I agree with it being a Liability (and the rest of the accounting)... I just hold the offset Escrow as Asset until the game is played (and not pay it out at half-time).
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