Is your organization looking to hire new employees? Join the club. The U.S. unemployment rate hit a historic low this past April, according to a Bureau of Labor Statistics household survey. It fell to 3.6%, the lowest rate since December 1969 — that’s almost 50 years! April also marked the 14th consecutive month of the unemployment rate being at or below 4%.

With so many people employed, the competition for those out there looking for work or considering a job change is fierce. Hiring and retaining the best candidates will call for more than just competitive salaries, benefits and paid time off.

Many employers are finding that signing bonuses pay for themselves by giving them a competitive edge in winning over high-quality recruits. It’s a strategy well worth considering but, as always, you’ve got to be careful with your money.

The Basics

A signing bonus is supplemental cash awarded — on top of salary and benefits — to selected new employees. Although amounts vary, signing bonuses often equal 5% to 15% of an employee’s starting salary and are based on a clear expectation of not only retention of service, but also future performance.

Signing bonuses may appear to benefit only the new employee. But, when prudently and effectively deployed, a bonus can provide your organization with a better return on its hiring investment.

For example, you may be able to hire a great employee at a relatively lower initial salary amount by winning him or her over with a one-time, immediate payout. Bonuses are also often a good solution to finding employees for difficult-to-fill positions. There’s a certain prestige that comes with receiving a hiring bonus and some candidates may leap at the opportunity.

Important Details

If you plan to offer hiring bonuses, you need to think it through carefully and exercise risk management. The best way to do so is to codify the terms of any bonus in a contract.

That is, write up the details and payment plans before you cut your first bonus check. Include details such as:

• The total bonus amount,
• How it’s to be paid (for example, as lump sum or scheduled payments) and
• Any other related stipulations (such as a “forfeiture disclosure” to guard against a new hire taking the money and quitting).

Embed this language in your organization’s formal employment agreement and ask your attorney to review it before anyone signs. Having a written, concrete bonus agreement will protect your organization while motivating the employee in question to perform well.

Benefit or Headache?

Signing bonuses can either provide substantial hiring benefits or inflict serious headaches. Our firm can help you identify the potential risks and advantages, as well as anticipate the tax and financial implications.