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What You Need To Know About Signing Bonuses

Question: Please explain signing bonuses to me. When I’ve changed jobs in the past decade, I’ve gotten excellent offers and companies compete to get me. This is the first time I’ve been offered a signing bonus. I have a few questions.

  • What is a signing bonus?
  • How is a signing bonus paid out—cash or salary check?
  • Is a signing bonus taxable? If yes, at what rate?
  • When is a signing bonus paid out typically, after a job offer is accepted?

Thanks for your answers.

Nick Corcodilos: In a competitive job market, companies do all they can to attract the right kinds of people. If a company really wants to hire you but fears a competitor might snatch you up first (or that you’ll stay with your current job), it will pony up a bonus to get you to sign on. Or it may offer a one-time bonus to compensate for something you’ll be forced to leave behind at your old job—like an imminent raise or sales commission.

That’s what a signing bonus is: a one-time inducement (though it may be in multiple payments) to get you to take the job.

You’re right to look into how signing bonuses work. Here are a few things to consider.

You Get Paid The Bonus Once
Be aware that the bonus probably won’t affect your salary, or a review and raise, or the basis for any life insurance coverage, or your 401(k) program. That is, if you accept a salary of $100,000 and a signing bonus of $20,000, and you’re given a 5% raise next year, the raise will be $5,000—not 5% times $120,000.

Any benefits you get that are based on salary will not be affected by that bonus because it’s usually not considered salary.

Companies love that because it’s a short-term, one-time expense to them. Don’t let anyone convince you that a $100K salary plus a signing bonus of $10K is the same as a $110,00K salary without a bonus. Long term, there can be big differences.

There’s Usually A Catch
Signing bonuses can be paid out any way the company wants (and you agree). I’ve never seen a bonus paid in advance or in cash. It’s likely to be paid out over time.

That’s because your new employer wants you to stick around. After all, you could accept the job, pocket the entire bonus, and quit six months later. They’re probably going to spread the payments out or make you sign an agreement saying the bonus is recoverable if you leave the job in, say, less than a year.

In some cases, they won’t make any payment on the bonus until you’ve been on board for an agreed-upon period of time. Read the fine print and negotiate.

Tax And Legal Consequences
I don’t give tax or legal advice, so you should check with a CPA and perhaps a lawyer. A signing bonus is typically taxable as income. It’s considered part of your total earnings, and whatever your income tax rate is, that’s what you’ll pay on the bonus.

The only way around this expense is if the company factors it up to cover the tax on the payment—but you still pay the tax. (Factoring up makes for an interesting negotiating gambit.)

Whether or not there’s a signing bonus agreement separate from the employment offer, it may be worth having a lawyer review both. That might seem obvious, but in the thrall of a great new job and offer, I’ve seen otherwise smart executives make enormous mistakes.

For example, the terms of the bonus might bind you in surprising ways. One employer hired a hotshot sales person and made the signing bonus contingent on the new hire turning over his book of business to someone else in the company. It was a nasty surprise because the new hire didn’t read the agreement carefully.

Settle It Before Accepting An Offer
You should get all your questions about a signing bonus—and all aspects of your compensation—answered before you accept a job offer. If what you’re told is not reflected in the written offer or agreement, insist that it be added.

Don’t be left wondering about any of this because the terms of signing bonuses vary from situation to situation. If an employer offers a signing bonus, settle all the details.

Negotiate
Finally, remember that a signing bonus is just as negotiable as any other part of an offer. In fact, if no signing bonus is suggested as part of your job offer, you can ask for it.

Here’s another gambit. If the employer absolutely won’t budge on salary, and you won’t accept what’s offered, suggest that a one-time signing bonus could close the deal without breaking their salary rules and scales. Of course, keep in mind that this won’t have the effect of a higher basis for raises and other benefits—but it’s more money for you.

See also: “When Considering A Job Offer, How Does Stock Equate With Salary?”

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