How To Properly Structure A Signing Bonus
In the increasingly competitive job market, more and more employers are offering “signing bonuses” to secure new hires. These are often substantial lump sums. However, if the new hire does not work out, the employer faces the risk of having wasted the money. Employers therefore need to carefully consider how they structure any signing bonus and consider adding terms that require employees to repay the signing bonus in some situations.
Here are a few tips on how to structure a signing bonus:
- Make any “signing bonus” payable no earlier than after successful completion of probation: at a minimum this ensures you have had a reasonable chance to confirm the employee is a good hire;
- Consider making the bonus payable in instalments with second and/or third instalments only due if the employee remains employed for longer periods of time such as 6 months or a year. This makes your signing bonus function as a retention tool;
- Stipulate that all or a pro-rated portion of the signing bonus is repayable by the employee if the employee terminates employment prior to completing a defined period of active employment e.g. 24 months. This reflects the economic reality that employers paying signing bonuses expect they will get a minimum period of service in return. Many employers only require repayment if the employee resigns or is terminated for just cause but it is open to employers to make the bonus repayable even if the employee is terminated without cause.
- If you want to be able to deduct signing bonuses from other wages owing to the departing employee, you will need to document the bonus as forgivable “loan” to comply with Employment Standards restrictions on deductions from wages.
While in practise many employers may not seek to enforce repayment provisions in signing bonuses, there is no question they act as a deterrent to early departures, thus as a useful retention tool.
About the Authors
Geoffrey Howard is the founder and principal of Howard Employment Law where he provides strategic and practical advice on employment and labour law matters and represents clients in employment-related litigation.
Geoffrey has extensive experience representing both employers and employees in all aspects of the employment relationship, including employment agreements, termination of employment, and human rights issues such as discrimination and the duty to accommodate. Geoffrey also has considerable experience advising employers on benefit plans, including pension, disability and group insurance coverage and regulatory compliance issues. He advises companies and owners on shareholder disputes arising out of termination of employment.
A senior advisor to multi-national and regional employers in respect of their Canadian workforce, Geoffrey Howard helps clients solve workplace issues in a practical and cost-effective way.
Geoffrey’s clients come from industries ranging from high-tech, health care, biotech, and mining, to travel, retail and professional services. They stay for his expertise in managing relations between employers and non-union employees. He frequently advises on stock options, restricted stock units (RSU), pensions, bonuses, shareholder agreements and constructive dismissals. He also advises and represents clients in disputes over post-employment competition arising from non-compete agreements and restrictive covenants.
Sebastian Chern is an Associate with Howard Employment Law. Practicing in employment and labour law, Sebastian provides strategic and practical solutions and advice for workplace issues to both employers and employees.
He represents clients in employment-related litigation and disputes in the BC Supreme Court and Small Claims Court, the Human Rights Tribunal and the Employment Standards Branch, where he has appeared as counsel numerous times. Sebastian provides cost-effective service at HEL, particularly for employee clients.
Prior to joining Howard Employment Law, Sebastian practiced at Chilliwack boutique civil litigation firm Sorensen Smith, advising and representing a diverse range of clients with employment law problems and claims. He also represented parties in real property, construction, and corporate commercial disputes and litigation.