How can an employer prevent the nonrepayment of overpaid wages that may result if a new employee quits shortly after receiving a signing bonus and other benefits?

Author: Alice Gilman

An employer should protect itself by indicating the terms of a signing bonus and other benefits in the candidate's job offer letter (i.e., that the employee will have to pay back the bonus if he or she quits before working for the employer for a requisite period of time). The employer should also indicate how the overpayment will be collected from the employee's final wages (i.e., through wage withholding). The employee should be required to acknowledge the terms of the job offer letter.

The employer's payroll system should be set up with a code to handle this situation. Since current-year earnings cannot be adjusted to account for a previous year's repayment, the code does not affect the employee's earnings reported on the employee's Form W-2, Wage and Tax Statement, but it does allow the information to flow through to the general ledger for financial reporting purposes.