What are signing bonuses?

A signing bonus is a lump sum you offer a new hire for accepting the position. They’re used as incentives to encourage more job seekers to apply to your opening, and they can help lure your top pick into accepting yourjob offer. Signing bonuses can range from a few hundred to thousands of dollars, depending on the position and your budget.

How sign-on bonuses work

You can implement these bonuses in various ways. Some companies offer one large payment once the employee starts working. Others wait until the employee has worked for a month or two before paying out the bonus. They might also break it up over two or three payments throughout the first year to help keep the employee longer. It’s also common for companies to require new hires to pay back the bonus if they leave before a designated period.

Pros of offering sign-on bonuses

Signing bonuses add to your hiring costs, but they have some attractive benefits for you as the employer. Here are some reasons to consider offering a cash incentive for applicants who accept a job with you:

• More competitive: When you offer a bonus, you stand out from other companies seeking the same type of talent. If other details of the job are similar, the cash could make your preferred candidate go with you.
• Alternative to compensation gaps: If a candidate wants a higher salary or more benefits, a sign-on bonus could be an alternative if you can’t offer what they want. It could overcome the lower salary or fewer benefits.
• One-time expense: You only have to pay the sign-on bonus to an employee once, so it’s not an ongoing expense. If you can’t offer a higher annual salary, the one-time payment may be more manageable and could be enough to get the candidate to accept.
• Employee retention: Since bonuses often come with the requirement of staying a certain length of time, they can help with employee retention rates. Employees will likely remain at least through the designated period to avoid paying back the money.
• Flexibility: You can start and stop your sign-on bonus program at any time. Employee shortages are often temporary. You might use the bonus option during those difficult hiring periods and skip it when you have plenty of applicants.

Cons of signing bonuses

While those perks are great, there are also some cons to consider before you offer a sign-on bonus, including:

• More cash up front: While the payment is a one-time thing, you need to have the funds available when it’s promised. This can cause a budget crunch if you don’t have a lot of extra money available.
• Disappointment in future years: The extra cash in the first year can be attractive, but the employee might feel like they’re being underpaid once that payment is done. This can be especially true if the candidate wanted a higher salary but settled for a sign-on bonus instead. You could find your new employee looking for higher-paying opportunities or switching to a competitor to get a sign-on bonus from them.
• Taxable: Signing bonuses are taxable, so the candidate won’t take home the full amount. This might make the bonus less attractive.
• Resentment: Current employees might be upset that you’re giving new hires extra money if they didn’t receive a hiring bonus when they started. It can also cause tension if you only offer the payment for certain new positions and not others.

Who offers signing bonuses?

Research by Indeed shows that 5.2% of Indeed’s July 2022 job postings included sign-on bonuses. That number is over three times as many postings with signing bonuses as in July 2019. The peak was in December 2021, when 5.5% of job ads on Indeed advertised a signing bonus.

The largest sector among those ads was healthcare, with nursing jobs representing almost 20%. Other top careers offering bonuses included driving, veterinary, dental and medical technician job postings.

Regardless of the industry, many employers offer these payments when they have hard-to-fill job openings. This might be a highly paid professional position with specific requirements and very few candidates with the right qualifications. It might also be a lower-paying job if you have a high volume of positions, such as hospitality jobs.

Should I offer a signing bonus?

Whether or not to add a bonus program to your hiring process depends on your circumstances. Consider how difficult it is to fill your vacancies. If you’re in an industry that has high competition for talent, a cash incentive could sway job seekers to choose you over your competition. If it’s relatively easy to find employees with the right skills and qualifications, you might not need to offer a bonus.

Also, consider your financial position. If your hiring budget is already stretched thin, coming up with the cash to pay bonuses might be difficult. If it isn’t a major financial burden, adding a bonus to your hiring perks could help speed up the process.

Tips for offering hiring bonuses

If you want to try offering a bonus for new employees, plan your bonus program thoroughly before implementing it. These tips can make it easier:

• Establish a budget: Your bonus should be competitive, but it also needs to be affordable. Calculate how much you can afford within your hiring budget to help you come up with a number.
• Identify eligible positions: You don’t have to incentivize every job with a sign-on bonus. Many organizations only offer bonuses for difficult-to-fill positions. Review your hiring history or evaluate your current openings to identify which jobs should receive bonuses. Consider eligibility and bonus amounts for full-time versus part-time as well.
• Decide on the details: Be specific with the terms of your bonus program. Decide if you’ll require a minimum time commitment to your company. Choose when the new employee will receive the money and if it’ll be one large payment or multiple smaller payments.
• Advertise the bonus: Your cash payment is more effective when job seekers know about it. Make the details prominent in your job ads to ensure job seekers know what they’ll receive. Specify requirements for length of employment and when hired employees will receive the money.
• Monitor the success: Keep track of the numbers related to your bonuses. Compare the number of applicants you get, how long bonus recipients stay with your company and other relevant data to evaluate the program’s success. Use this data to improve the program.
• Get feedback: You can also determine how well your bonuses are working by asking for feedback from the people who receive them. The feedback can tell you if the bonus was a deciding factor, how happy they were with the bonus and other information that could influence the program.

Experimenting with signing bonuses could help you improve your hiring processes. Take time to plan the program and adjust it as necessary to make it an effective recruiting tool.