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Sign-on bonuses—also called signing bonuses or recruiting bonuses—are used by employers to recruit prospective employees and entice them away from other job opportunities. A survey by WorldatWork, a human resource association, revealed that 76 percent of employers use signing bonuses to attract key employees. These bonuses can be five to 25 percent of the base salary, depending on the company, the industry, and how desirable the applicant’s skill set.
If you’re job searching and have several offers on the table and one of them includes a sign-on bonus, is it something you should take? First things first: know how the bonus works.
How the bonus works
The goal of a signing bonus is to create a more attractive total compensation package. This can be done in other ways, too, like offering commuting reimbursement, more vacation time, or a more flexible work schedule. If a company offers a signing bonus to you, here’s how it works.
A signing bonus is a short-term financial incentive a company can pay out in several ways: in your first or second paycheck; half at the start and half midway through your first year in the new position; after you’ve worked a certain number of months at the company; or in a larger sum up front with additional payments made once you have met specific performance targets.
To help ensure you don’t take the money and run, most contracts with signing bonuses attached also include a “clawback clause.” This says you must give back any bonus money the company has already paid you, under certain conditions—like leaving the company before one year.
A sign-on bonus is taxable the same as your salary because it’s part of your total earnings for the year. Both federal and state income taxes will apply.
Four things to consider before accepting or walking away
Now that you know how this type of bonus works, here’s what you need to consider before accepting or rejecting an offer with a signing bonus.