During the pandemic, unemployment rates spiked as employers were forced to dismiss valuable employees. But over the past 12 months, employers are now facing one of the tightest labour markets ever, making it difficult to hire talent. To attract new employees, many employers are offering lucrative signing bonuses for the first time. While signing bonuses were historically reserved for senior management and executives, they are now frequently being offered for entry-level positions such as hair stylists or delivery drivers.
Signing bonuses may appear simple at first blush: they are an up-front cash incentive to accept an employment offer. However, one obvious risk is that a new employee receiving the bonus may choose to resign shortly thereafter with no obligation to repay any of the bonus absent an agreement. To avoid this, employers should:
- Carefully consider the timing of payment of a signing bonus; and/or
- Require the employee to sign off on terms and conditions for the signing bonus that ensure the employee sticks around for a minimum period.
On the first point, while the classic signing bonus is paid “on signing” to accept an offer of employment, prudence dictates that at least some of the bonus only be paid after the employee completes a minimum number of months of employment. For example, a $3,000 signing bonus could be paid $1,000 on the first day of work, $1,000 on successfully passing probation and $1,000 after 12 months of service. Make sure to address the effect of absences such as taking parental or sick leave on the dates of payment. We recommend against paying anything until the employee actually starts work, given the high incidence of employees reneging in offers currently.
As for terms and conditions, an alternative (or supplementary) protection against an employee leaving early after pocketing a signing bonus is to make a portion (or all) of the signing bonus repayable if the employee does not complete a minimum period of service. For example, an employer may state that the bonus is repayable, either in full or on a pro-rated basis, if the employee’s employment ends within a certain period such as 12 or even 24 months. An exception might be appropriate if the employer terminates without cause. As with payment over time, make sure only active service counts against any time limits for repayment. Employers need a signed agreement recording the terms of repayment, which should include a clause allowing the amount repayable to be deducted out of other wages or amounts owing on termination. Note, however, that a repayment obligation may be harder to enforce than deferred payment.
Employers should also be aware that their existing employees, particularly recent hires who did not receive a signing bonus, could become upset if they learn that new employees are receiving a signing bonus. Employers should include a term in the employment agreement requiring the new employee to keep the details of their signing bonus confidential. It could also state that the signing bonus is repayable in full if the employee breaches the confidentiality clause.
While the trend to offer signing bonuses may be temporary, we always encourage employers to seek legal advice in drafting signing bonus terms as part of a comprehensive employment agreement. A well-drafted employment agreement can save employers a lot of trouble, not only with signing bonuses but also with other key issues such as termination.
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