Know the terms, and the limitations, says employment lawyer
With the economy tightening, companies are offering new recruits lucrative sign-on bonuses to convince them to take up employment.
A popular bakery in Victoria, for example, is offering sign-on bonuses of up to $700 to attract staff while public hospitals in the same state are offering $5000 to fresh nursing and midwifery graduates in addition to their salary, according to the West Australian.
Other sign-on bonuses are ranging from $1,000 to $10,000 depending on the role, the company, and the industry.
Challenges to sign-on bonuses
But sign-on bonuses come with many questions regarding the terms for employees.
“Bonuses generally are widely used for a number of purposes, generally to reward or incentivise,” Robin Young, partner, Holman Webb Lawyers, said.
“Sign‑on bonuses are unique in that it is a payment merely for getting the employee in the door. As such, the employer may have little knowledge of whether the employee will be a good fit and whether they will be adequately qualified to perform the role.”
As a result, it is crucial that candidates are well-researched to ensure that the employer is not creating additional problems by bringing in employees who do not fit the bill.
“Most of the considerations that an employer has in relation to sign‑on bonuses are related to factors such as the impact upon market rate, organisational culture and the risk of the employee not being right for the job,” Young said.
“Legal considerations include ensuring that the terms of the arrangement are properly documented, agreed, and understood, such that the bonus does not form part of the annual remuneration packages and may be recoverable from the employee in circumstances such as the employee failing to fire or committing an act of misconduct.”
Potential impact on workplace culture
While a new employee will be ecstatic about receiving a sign-on bonus, it may impact other employees within the organisation if word gets out. So employers will need to be careful when offering sign-on bonuses as this approach may affect company culture.
Furthermore, if an employee leaves after a short period time and collects a sign-on bonus, that will also cause issues.
“There may justifiably be concerns about whether the candidate is right for the job and therefore the employer may decide to structure the bonus such that it is payable only upon the employee achieving certain targets or outcomes, such as achieving probation,” Young said.
The main influencing factor on this is market force, and whether or not the candidate is in such demand that he may consider an alternative offer which is more favourable, he said.
“That is an offer that is payable upfront and non-refundable as opposed to an offer which is payable after a set time or event and which may be subject to a clawback.”
Limitations around sign-on bonuses
There are no specific limitations around how a bonus may be structured, Young said, “subject to ensuring that the terms are clearly communicated, understood, and documented in a manner and in terms which are enforceable and clearly express the agreement.”
So, could someone quit on the first day and still receive a sign-on bonus?
“Only if the terms on which the sign‑on bonus was provided were poorly drafted,” Young said. “It is prudent to ensure that where bonuses are offered, that there are clear terms which express the obligations of both parties and warranties which an employer may rely upon in making such an offer.”
In looking to keep an employee in a competitive market rests, the employer should ensure the person has worthwhile, meaningful, and interesting work, he said.
“However, it would be prudent for an employer to pay a sign‑on bonus subject to an employee committing to a specific period of work or event, including terms enabling the employer to clawback the sign‑on bonus if the employee failed to meet those obligations.”
