How your signing bonus can trap you - and 3 ways to escape

One of the most alluring perks when you start a new job is a signing bonus — a cash incentive you receive soon after you start.

Nothing says “Welcome aboard” like cash.

Here’s what you should know before you accept and spend it. 

It’s potentially dangerous because you may not see its true impact on your freedom and peace of mind until the trap has sprung… with you in it. 

Whether you tuck a bonus neatly away in your 401k or savings account, pay off credit card debt or purchase a treat for yourself, know there are troubling strings attached.

This company-supplied cash infusion is a great ego booster and tastes ever so sweet after the long hard slog of the job hunt.

Your job is to get the honey and avoid the trap.

In the event that things don’t work out and you may want to leave, a signing bonus is designed to keep you in place, even if you’re unhappy. (In a study of 1000 workers by Bamboo HR, 31% leave in the first year.)

The signing bonus does a few things for the company, not all of them immediately apparent.

“Money blindness” is real. Lump sums of cash are rare in life. 

Suddenly, things that were out of the question are possible and easily dazzling you into not seeing the potential danger. The signing bonus may appear to be nothing more than the premium they’re paying for your amazing talent (and who wouldn’t want to believe that?) You probably are talented, which is why you got the job, but there’s another side of the coin.

That signing bonus is how the company increases the likelihood you’ll stick around for two years, even if it’s the worst job in the world with the most dysfunctional culture imaginable. 

Here’s why:

If you leave within 18 to 24 months (the specific payback term will be dictated in your payback agreement), you have to reach into your pockets and give that money back.  And if you’ve spent the bonus, you’re faced with stroking a check for many thousands of dollars. 

You will not want to give that money back. You may not have it to give back.

Why would they want to keep an unhappy employee around? 

Three reasons:

#1 Companies are evaluated on how long employees stay. It's called retention.

Companies use this cash incentive to keep you in the job long enough to give them better employer turnover statistics, which they use as a public relations angle in the business press.

When you’re being wooed during the interview process, it’s difficult to see what day-to-day life with an employer will be like. It may take a few months to discover the culture is toxic or your boss is a nightmare. 

#2 Good retention numbers attract better candidates.

Experienced candidates seeing high turnover rates know it means trouble and are less likely to apply. 

#3 When you leave, they have to start the hiring process all over again. 

It’s expensive to hire people. Departures are usually bad for morale, too.  Companies usually pro-rate the payback over time, the longer you stay the less you pay. It still stings.

Three things you can do to protect yourself: 1.     Have the payback reduced to “less taxes.” If you’re taxed 30% on a $10k bonus, and you resign, you’ll have to pay back the full amount not the taxed amount.  The tax burden is on you. And bonuses may be subject to an even higher tax. 2.     Request half of it be rolled into your annual salary or ask them to let you take half in a severance package.  3.     Negotiate your payback period down or have it removed. If it's a year ask for four months. And check the agreement carefully to see what other strings are attached. Most employees don’t read the fine print on their signing bonus contract until they’re faced with repaying it. (You can view one here. )

Options to consider, if you find yourself trapped by a signing bonus. 

Build a case and ask them to forgive all or part of whatever you owe. All they can do is say, "No."

Going to a new job? Ask your new employer to cover your payback amount as a show of “good will” to an incoming employee.

Ask for an interest-free deferment for 6 months or a year. 

If things get ugly, don’t hesitate to hire a lawyer. (If you're considering signing any contract you should have one already. It will pay for itself many times over. )

A lawyer can assess your situation and send a letter making the request on your behalf.  Employers tend to pay more attention when you do this.

One of my clients requested signing bonus forgiveness when she was forced out of her job - also known as “Constructive Dismissal” -  after reporting her boss to HR for being verbally abusive.

Her initial request was denied.

The same request sent from her lawyer ended the matter in her favor.

The letter cost her $250.