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Signing Bonus Trends & Tips

With the unprecedented talent shortages being experienced in just about every industry and geography, employers have been turning to less conventional approaches to enhance job offers. One such approach becoming more widespread is a signing bonus. While this is not uncommon for more senior level positions, it’s traditionally not as prevalent among entry level new hires. Recent examples include:

  • Amazon offered a signing bonus of up to $3,000 to warehouse and logistics applicants as part of its massive holiday hiring initiative. Bonus amounts varied based on geographic market, part-time vs. full-time status, work shifts, etc.
  • Cowan Systems, a trucking/transportation service company in Baltimore, is offering signing bonuses of up to $20,000 to driver applicants depending on type of job, experience, etc. Cowan is not unique in the trucking industry, according to an Indeed.com survey of driving-related job postings, approximately 16% of such postings were advertising a signing or cash bonus.
  • Earlier this year, the retail industry, which is not known for using signing bonuses as a hiring incentive, had turned to signing bonuses in larger numbers for just about every available job opening in an attempt to address massive labor shortages. According to a Korn Ferry survey of major U.S. retailers, 29% indicated that they had implemented a signing bonus to help fuel recruiting efforts. Ollie’s Bargain Outlet, Tops Markets and Sheetz are three examples of retailers that offered signing bonuses.

Signing Bonus Tips:
To analyze how a signing bonus may be structured, the following sample of a simple, straightforward signing bonus provision may be a good place to start.

“As discussed, we are pleased to offer you a signing bonus of [amount]. This bonus will be paid in one lump sum on the next regularly scheduled pay date after you complete the hiring process. This signing bonus is taxable, and all regular payroll taxes will be withheld. In the event that your employment with the company terminates within 12 months of your date of hire, you will be responsible for reimbursing the company for the entire signing bonus. By your signature on this offer letter, you expressly authorize the company to withhold [amount] from any final pay and/or payment you receive should your employment terminate on or before [date].”

As a general signing bonus provision, the above covers most of the basics but there are some important details missing. If omitted, they wouldn’t invalidate the bonus offer, however, the below suggestions may bring more clarity to the arrangement and may avoid misunderstanding or, worse, complaints or litigation.

Structure:
The above is drafted as a paragraph to be included in an offer letter. This is the norm, and as such it would be followed by a signature, accepting the entire employment offer including the signing bonus.  However, there may be occasions where an initial offer is rejected and a signing bonus is communicated later to enhance the initial offer. If this is the case, the above should be structured either as a revised offer letter or as an agreement with, among other things, a signature line confirming the candidate’s express acceptance of the terms of the signing bonus. Additionally, if structured as a separate agreement, language should be included clearly indicating that the signing bonus agreement is not meant to change the at-will nature of the employment relationship.

Amount:
The amount of the signing bonus is omitted for obvious reasons, given its variability based upon the conditions surrounding the employment offer. However, questions may develop regarding typical signing bonus levels and how much is appropriate to offer. According to an April 2021 Salary.com survey, the median signing bonus was $1,000 for hourly employees and $7,500 for salaried employees. Again, this is highly dependent on individual circumstances but may give employers a general feel for how much to offer. Other studies indicate that signing bonuses typically range from 5 percent to 25 percent of initial base salary with the higher end of the range offered to management and executive level candidates.

One other consideration, which may or may not align with norms in terms of amount or level, is the reason behind offering the signing bonus. If the reason for the signing bonus is to make up for a salary or bonus differential that the offering employer is unable to match due to internal equity and other considerations, the above metrics may not apply. There would presumably be an effort to match or come close to the lost salary/bonus amount and offer whatever equitable amount is needed.

However, if it is simply a good faith offering to sweeten an offer in a competitive hiring situation, the above metrics may have more merit.

When Payable:
The above sample indicates that the signing bonus is payable “in one lump sum on the next regularly scheduled pay date after you complete the hiring process.” Payment of signing bonuses after hiring is not uncommon, and, in this case, would presumably be consistent with all parties’ expectations. However, timing of payment should be carefully considered and clearly communicated during the offer process and then documented as discussed in the bonus offer language.

Considerations may come into play impacting timing where, for example, the employer and candidate have come to terms on an initial validation or introductory period. This may be followed by a formal or informal performance review and subsequent payment of the signing bonus.

As an additional consideration, note that the language “completion of the hiring process” is used versus “after the date of hire” itself given that the hiring process should include things like validation of U.S. work authorization, completing and signing new hire paperwork and possibly receipt of background check results. If date of hire is used as the trigger date, there may be complications with the onboarding process causing delays in fully validating work authorization credentials or clearing the background screening process which could create a premature payment obligation.

Minimum Period of Employment & Clawback Provisions:
Based on various state law restrictions and other factors, it can be difficult to clawback bonus money from employees. As noted in the sample provision, there is express language authorizing the employer to withhold money from the employee’s final paycheck if the employee leaves the company within 12 months of date of hire. This is a good first step. However, if your company is serious about getting your money back versus including language like this as more of a deterrent to an early departure, it will be important to seek legal counsel. Your attorney can provide more specific guidance on crafting particular language and any state law restrictions that may impede collection at termination and/or recovery thereafter.

Finally, there are general provisions in clawback language our sample leaves out which should be clarified, such as:

  • Whether a one-year clawback is appropriate. Depending on the amount of the signing bonus and level of position being hired, it may be necessary to evaluate a shorter or longer clawback period.
  • The type of termination for which payback is authorized. Voluntary only? Employer initiated? If the latter, for any employer-initiated termination or for-cause terminations only?
  • How much of the bonus is recoverable? All of it or is there a progressive payback schedule that diminishes over time? For example, 100 percent for up to six months then dropping ratably over the next six months.

There are several factors hiring managers looking to award signing bonuses should take into consideration, some but not all of which are covered in the above. As with any decision having potential legal ramifications, competent counsel should be engaged for guidance.

Managing the many responsibilities that fall to human resources coupled with challenges presented by the pandemic can be difficult. The HR Consulting Practice at Univest Insurance provides clients with a broad range of HR compliance, operational and payroll services. To learn more about how we can support your HR team, contact us at 267.646.4467or devinej@univest.net.

 

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