Answers to the 7 Sign-On Bonus Questions

Nobody likes to pay a candidate. But sometimes that’s the only way to get one to interview or accept an offer.

If you’ve thought about the idea but were concerned about the legality, here are the answers to the seven questions most frequently asked:

1. ARE RECRUITER-PAID SIGNON BONUSES LEGAL?

Yes. While you might be tempted to hold your nose with one hand and your wallet with the other, this is a perfectly legal way to do business.

Simply stated, you can do whatever you want with your money. Paying it to a candidate as an inducement to accept a job is no problem. Just don’t couple the payment with any secret deal regarding the length of the candidate’s employment or other items that could damage the “client.”

Applicant-pay fee statutes typically prohibit any reduction of the scheduled fee or “other consideration” to be paid. So if the candidate pays any part of your fee, check your local laws carefully before proceeding.

2. SHOULD THE BONUS BE A PERCENTAGE OR FIXED AMOUNT?

I suggest you use a fixed dollar amount rather than a percentage of the fee received. This moves away from the idea that the candidate is receiving a commission, and therefore is participating in getting your fee.

3. HOW MUCH SHOULD THE BONUS BE?

Whatever works for you to pay your bills and make more placements.

These bonuses tend to be a fixed fee that approximates 20% of the fee charged. But as with recruiter compensation, fees, and everything else connected with the business of placement, there is wide variance in the bonuses paid. The amount of the bonus does not matter legally.

4. IS A WRITTEN AGREEMENT WITH THE CANDIDATE REQUIRED?

No. I don’t recommend it unless:

a. You’re concerned about the candidate mischaracterizing the deal to the employer using legal-sounding words like “fraud” and “conspiracy.”
b. The candidate insists on it.

If you transmit anything in writing, make it a simple letter. The candidate’s signature is not required.

Don’t agree to do anything except to pay him a specified amount at a specified time as sign-on bonus if he accepts a job with an employer you present.

If you use a CAA (candidate Acceptance Agreement), keep it separate from this informal letter. Don’t even reference it. The payment of money is all you are doing in exchange for a benefit to you.

5. CAN THE PAYMENT OF THE BONUS BE CONDITIONAL UPON RECEIPT OF THE FEE?

Yes. However, if you can afford it, I wouldn’t do it that way.

As with using a fixed dollar amount rather than a percentage (as covered in the answer to Question 2), you don’t want to have the bonus appear to be a commission.

I’d wait 30 days after the start just to be sure you have a deal.

6. MUST THE EMPLOYER BE NOTIFIED OF A BONUS?

No. There is no specific legal requirement, and it’s a real stretch to find a “fiduciary duty.” You know the employer’s response is likely to be:

a. Don’t do it, or
b. Charge us less.

However you can conjure up scenarios where not disclosing the deal could cost you future business or the charge that you misled the employer.

If I were still working a desk, I’d probably leave it up to the candidate (and not include anything about confidentiality in the letter). Candidates have all sorts of reasons for accepting jobs, and few tell them all to prospective employers.

Treat the bonus as a separate deal from the placement fee. It has different parties, is a different amount, and will occur at a different time.

7. CAN I USE THE SIGNON BONUS AS A COUNTEROFFER COUNTERATTACK?

Yes. You can wait to see whether there’s a counteroffer before attempting to save the placement with a payment to the candidate.

Now you know the answers. If sign-on bonuses will make additional placements for you, do the math!

Jeff Allen, J.D., C.P.C. may be reached at: Law Offices of Jeffrey G. Allen, 9601 Wilshire Blvd. #1400, Beverly Hills, CA 90210. (310) 5596000 [http://www.placementlaw.com/] The Placement Strategy Handbook and other publications can be purchased through http://www.searchreserachinstitute.com/.