Overview
Often there are innumerable doubts in the minds of people regarding the salaries and their components. Before understanding the concept of signing a bonus and whether it is a part of the salary, it is first essential to know the basic structure of a salary.
CTC
CTC (Cost to Company) refers to the cost that a company spends on its employee. It has three major components that include-
Cash Component
The cash component of CTC is the monetary part of the salary that is usually taxed. It forms the crucial part of the remuneration of an employee. It includes the basic salary, signing bonus, and performance bonus.
Stock Component
The stock component is another category of CTC. It includes the stock, debentures, and equity shares that are often given to the company’s employees.
Other Benefits and Allowances
Many big companies are taking care of the employees provide many other perks and benefits to their employees apart from the cash and stock components. Some of these allowances include health insurance to its employees and their families, free food, education allowance, etc. to name a few.
What is a signing bonus?
A signing bonus is an amount that an employee is given, once the person has accepted the offer letter. This tactic is usually used by companies to make the CTC more attractive to job seekers, especially those who are experts in their fields.
It is usually 10% of the CTC which the company pays to the newly hired employees as a signing bonus.
When is a signing bonus paid?
A joining or signing bonus may be paid at different intervals depending upon the company’s policy. It may be a single-time payment or a payment made at regular time intervals (for instance, yearly). It may also be paid in the form of a stock component. However, the company doesn’t need to pay the bonus every year.
Signing bonus is paid
- Once the employee accepts the offer letter
- Along with the first pay
There are instances when the company gives the signing bonuses after the employee has worked a considerate period. This period may differ from company to company that may be 4-6 months.
Often, there are times when the employees have to return the signing bonus. There is a fixed minimum period for which an employee has to work. If there is a breach due to any reason, the company can recover the amount.
This period varies and depends upon the company’s policies that may range from two to five years. Therefore, it is usually advisable that the employees should not spend their signing bonus until they serve for the minimum required period as stated by the company.
Why do companies give joining bonuses?
With the growing number of companies and awareness regarding the employees’ care, people now look for various benefits and allowances apart from the basic salary that used to attract earlier. There are many reasons why companies offer signing bonuses to their employees:
Hiring Experts
With the growing demand and need for experts and professionals in various fields, many companies offer signing bonuses. This is because many companies are looking for talented people to grow their businesses. When companies see that they can hire talented people by paying a bit extra, they see no harm in losing their pockets a bit.
Relocation Allowance
Often, joining bonuses are paid to employees who are shifted or transferred to another branch that may or may not be in another country or city. It is usually given to the employees to settle in a new atmosphere.
Making Salaries Lucrative
It is one of the biggest reasons behind giving a joining bonus. With the increasing awareness of rights, employees now look at all the components of CTC while accepting an offer letter. Therefore, to attract employees and make salaries look lucrative, companies often give joining bonuses.
Conclusion
In the end, it can be concluded that a signing bonus is a part of the salary an employee receives. It is an amount that is received upon joining.
It does not matter what the reason may be that a company offers a signing bonus; it can be a significant amount for many as it forms approximately 10% of the CTC. However, it may be not as significant to many as it may be to others.
A signing bonus may be given after an employee accepts the offer letter or maybe along with his first paycheck. Further, it may depend on the company to give it as a single payment or pay after regular intervals.
It is however advisable for the employees to think before they spend the signing bonus amount as it is a recoverable amount. They should keep in the mind the minimum working period or should not spend it.
