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What is a Signing Bonus?

A contract of employment must be signed in order for an employee to receive a signing bonus.
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  • Written By: Sheri Cyprus
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 September 2014
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A signing bonus is an amount of money that a company offers a prospective employee as an incentive to join the firm. It's name comes from the fact that an employment contract must be signed with the terms agreed to before the bonus money can be paid to the new hire. These bonuses are usually only offered in middle and upper management positions.

The company offering the bonus often wants a top candidate for a key position. A large cash bonus is of course very attractive to those qualified applicants looking for a new management position. If they are thinking of several companies they would like to work for, but one has a great signing bonus that could be the deciding factor in which job they'll accept. After all, everyone can use a large lump sum of cash to spend, invest or save as they wish.

Studies have shown that most signing bonuses for upper management positions in the United States are over $10,000 U.S. Dollars (USD). The terms of each vary widely from company to company, however. Sometimes, only part of the flat amount is given at the time of hiring and the remaining amount is given at a specific date or dates specified in the contract. Potential employees need to read the contract thoroughly to be sure they understand the terms surrounding the bonus.

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In some contracts, employees who leave the company have to pay back all of or part of the money. It is understandable that a company wouldn't want hire someone and invest a good signing bonus only to have the new employee leave the company after only a short time. Some companies may also reduce or eliminate the amount of other bonuses such as a regular performance review bonus when they offer a bonus at the time of hire.

The potential employee should consider all aspects of the signing bonus before accepting the job. Split bonuses are fairly common and are not always 50% on hiring and 50% after six months. Some contracts may state that the new employee only receives 10% of the money upfront and then the rest in 10% increments a few times per year. A large lump sum is usually preferred by most potential employees.

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GreenWeaver
Post 3

@Sneakers41 - I wanted to say that even though the NFL has a salary cap in order to make the teams fair, they do get around this with the NFL signing bonus.

The teams may have a salary cap of $30 million dollars, but there is no cap on the signing bonus. For example, a player on this team could get a salary of $500,000 and a contract signing bonus of $15 or 20 million dollars.

The player gets the signing bonus right away and this is how they get to attract top talent. So in reality there are ways around the salary cap and the sign in bonus is the key.

sneakers41
Post 2

@Icecream17 - That makes sense. I know that the military uses a sign on bonus in order to recruit potential soldiers. In fact the army's signing bonus can go as high as $20,000 but it is taxed so after taxes you really only have about $10,000.

I think that you get the bonus once you complete basic training and it really depends what specialty you have because there are many soldiers that are offered considerably less. It really depends.

icecream17
Post 1

I just wanted to say that when I worked in the staffing industry we used a sign in bonus as a way to get a job candidate to take a position that did not offer a higher salary. A lot of time the applicants would want our client to offer a higher salary, but if we could negotiate a one-time sign on bonus then most applicants would accept the job.

The problem is that not only are the taxes higher on a bonus, but it is not factored in when the candidate is up for review the next year.

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