Everything You Need to Know About a Sign-on Bonus

by Agro Accounting CPA Accounting for Artists, Freelancers & Creative Com

A sign-on bonus is also known as a hiring bonus or a signing bonus. It is a financial award offered to a new employee when joining the company. New hires find it very attractive and exciting to get an incentive at the beginning of a new job. But, there are specific reasons for getting a sign-on bonus. In this article, we will learn various things about the signing bonus, including how a sign-on bonus works, who gets it, and why is it offered. So, without further ado, let’s get started.

Reasons for Offering a Signing Bonus:

First, an employee should know all the conditions under which companies offer sign-on bonuses. After all, isn’t it strange that you are being awarded financial incentives for no special achievement? So here are a few major situations in which companies would offer a bonus to a new joinee:

Competition – A bonus may be offered when a company finds that the person is also considering other job offers. This is especially true if the person has the potential to deliver exceptional services or if other companies needing the same job role are a tough competitor. In this case, the company might offer a bonus to attract the ideal candidate.

Salary Negotiation – Most companies don’t want to lose an ideal candidate for a specific job role. But what if the salary demand of the person is higher than the budget? In such situations, when the expected salary is out of the company's salary range, the company might offer a signing bonus in order to negotiate with the candidate.

Other reasons - Apart from these two primary reasons, there are a few other reasons for getting a signing bonus. This includes if a person is moving to a new place for the job or if a person is leaving a prestigious company or designation to join their company.

How does a Sign-on Bonus Work?

If a company offers a sign-on bonus, there is no harm in accepting it. But the candidate should read all its conditions before accepting. Usually, a sign-on bonus is 10% more than the base salary. The next important thing employees should know is that the bonus amount is taxable. So the employee might have to pay a large amount to the Federal and corresponding State government in taxes. But if they seek help from tax professionals, they might save some money or reduce the tax withholdings on the bonus.

The Final Word

As an employee, getting extra financial benefits might excite you, but it is essential to know the associated terms and conditions. One should know the pros and cons before accepting any bonus. When employees accept a bonus, they should also have enough knowledge about the bonus’ taxation. Considering a tax preparation guide for entrepreneurs is also an effective way to tackle tax-related issues. Experts can answer all your queries related to bonus taxation.