A job interview can be nerve-racking, but once you’ve aced it and gotten the job offer, your excitement may have to be delayed again until you’ve completed the salary negotiations.
There is so much to consider to ensure that the job move is worth your while and that you’ll be compensated fairly. And now, there’s one more thing to think about when negotiating—a signing bonus.
A signing bonus is a payment given to employees when they accept an employment offer. A growing number of employers are using bonuses to attract key talent, according to a 2016 survey by WorldatWork .
Signing bonuses are particularly prevalent in the manufacturing, finance, and insurance industries, according to the study, but are gaining favor in other areas as well. This bonus is usually made as a one-time payment, and yes, you will pay taxes on it. Also, if you voluntarily leave during your first year of employment, many companies will ask you to return the bonus.
While these payments are typically higher for executive and upper-level positions, often ranging from $10,000 to $50,000, they’re becoming more common for clerical or technical positions, where they are typically in the $5,000 range.
While most companies budget for signing bonuses , there’s a good chance the human resources department may hold out on offering one unless a candidate specifically asks. So, even if your initial job offer doesn’t include a signing bonus, it might be worth it to simply ask for one. Here are some tips on how to ask for a signing bonus and what to do with your windfall.
Make Your Case
Signing bonuses are gaining steam in industries such as technology, engineering, and nursing, where there is more competition for the best job candidates. You are also sometimes in a better position to ask for a signing bonus if the company did not meet the salary you asked for when interviewing—a signing bonus is an opportunity to recoup some of that difference. Regardless, it never hurts to consider asking for more money.
Just be sure to do your research first. For instance, perhaps discreetly ask your contacts whether the company might be open to offering a signing bonus and be sure to look at comparable salaries on Glassdoor, Indeed, and Salary.com to see how your job offer stacks up.
If the salary they’re offering is lower than what you requested or what their competitors are paying, you can make a case for a signing bonus to make up the difference.
Don’t Be Surprised by Taxes
There is a signing bonus tax, so be prepared. A $5,000 bonus doesn’t necessarily mean you’ll see an extra $5,000 in your bank account. The IRS has specific rules for taxing bonuses and the amount that will be withheld depends on whether your bonus is given to you as a separate check or if it’s added to your regular paycheck.
If your bonus is given to you in a separate check, the IRS considers that supplemental wages and it will be taxed at a flat rate of 22% (in 2018), provided the bonus is under $1 million.
For most employees, this is a higher rate than their typical withholding, so if possible, you may wish to try to negotiate to have your signing bonus added to your regular paycheck. If that happens, it will be taxed at your typical withholding rate, allowing you to hold onto a larger portion of your bonus.
Get It in Writing
If a signing bonus wasn’t part of your original job offer, and you’ve negotiated for one, make sure you receive an updated contract with the bonus included.
The agreement should spell out the amount of the bonus, how it will be paid (separate check or part of your regular paycheck), and the terms of the bonus. The contract should note how long you need to stay employed at the company to retain your bonus (typically one year).
How to Use Your Bonus
The next question should be: What do I do with the extra money? If you have credit card debt, your best move might be to pay that off. You also might consider using the extra money to create an emergency fund—at least three to six months’ worth of living expenses saved up—in case you lose your job or get hit with an unexpected bill.
Consider Investing Your Bonus
If you are caught up with your credit card payments and you already have an emergency fund, you might think about investing your bonus.
This could be a great financial move when you consider that a $5,000 signing bonus isn’t as lucrative as negotiating a $2,000 increase in your annual salary. If you can’t negotiate the higher salary, you can at least use your bonus to invest. Investing can be a good way to build wealth over time.
Investing Your Signing Bonus
Investing a portion of your bonus can allow you to take advantage of compounded interest over time. It’s okay to start investing without much money. With a SoFi Invest® account, you can start investing with as little as $100.
Then you can use your account to save for your financial goals, whether that’s buying a house, traveling the world, or starting a family.
Choose how you want to invest.
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