Sign-on bonus agreement template with a repayment clause that holds up in 2026

A sign-on bonus agreement is a short document, signed with the offer, that says how much the bonus is, when it is paid, how long the new hire must stay to keep all of it, how much they repay if they leave early, and which kinds of exit trigger repayment. Best practice, and in California the law for agreements signed on or after January 1, 2026, is a separate agreement, a prorated repayment with no interest, a retention period of two years or less, and repayment only after a resignation or a termination for misconduct (AB 692, Business and Professions Code section 16608, as of October 2026). The bonus itself is supplemental wages, taxed through payroll.

Below: the decisions to make, a copy-ready agreement with [bracketed] fields, three variants, the offer-letter wording, what happens on each kind of exit, the state rules and the tax points, and an invented worked example. Whether a sign-on bonus is the right lever at all is covered in how to hire when you can't match salary. Not legal or tax advice.

What should a sign-on bonus agreement include?

• Amount and form: gross amount, paid through payroll, less withholding.
• Payment timing: first paycheck, after a set period, or in installments.
• Retention period: how long the person must stay to keep the full bonus (for example, 12 months).
• Proration: how the repayable amount falls month by month.
• Triggers: which exits require repayment (resignation, termination for misconduct) and which do not.
• Repayment method: deadline, how to pay, no interest, no payroll deduction unless lawful and authorized.
• Review time: notice of the right to consult a lawyer and the time given (at least five business days in California).
• Relationship to the offer: at-will employment unchanged; the agreement is separate from the offer letter.

The sign-on bonus agreement template

SIGN-ON BONUS AGREEMENT
Between [Company legal name] ("Company") and [Employee name]
("Employee"). Position: [title]. Expected start date: [date].
This agreement is separate from, and does not change, the offer
letter dated [date].

1. BONUS
Company will pay Employee a one-time sign-on bonus of $[amount]
(the "Bonus"), less applicable taxes and withholding, [with the
first regular paycheck after the start date / on (date)].
The Bonus is not tied to any job performance target.

2. RETENTION PERIOD
The retention period is [12] months from the date the Bonus is
paid (the "Retention Period"). [Not more than 24 months.]

3. OPTION TO DEFER
Employee may choose instead to receive the full Bonus at the end of
the Retention Period, with no repayment obligation, by ticking here
before signing: [ ] I choose to defer the Bonus.

4. WHEN REPAYMENT IS DUE
If, before the end of the Retention Period, Employee
(a) resigns, or
(b) is terminated by Company for misconduct, meaning [definition,
    or "as defined in (state) law"],
Employee will repay the prorated amount in section 5.
No repayment is due if Company ends Employee's employment for any
other reason, including a layoff or position elimination, or if
Employee's employment ends because of death or disability.

5. PRORATED AMOUNT
Repayable amount = gross Bonus x (full months remaining in the
Retention Period / [12]). [Alternative: the net amount Employee
received after withholding x (months remaining / 12).]
No interest, fees or other charges apply.

6. HOW TO REPAY
Company will send a written statement of the amount within [15]
days of the last day of employment. Employee will repay within [60]
days of that statement, or under a payment plan agreed in writing.
Company will not deduct the amount from wages or final pay unless
the deduction is lawful in Employee's work state and Employee
authorizes it in a separate signed writing at that time.

7. RIGHT TO ADVICE
Employee has the right to consult a lawyer about this agreement and
has at least [five] business days to do so before signing. Company
delivered this agreement on [date].

8. GENERAL
Employment remains at will. This agreement applies only to the
extent permitted by the law of Employee's work location; any term
that law does not allow is removed and the rest continues.
Governing law: [state].

Signed: ________________ (Employee)   Date: ________
Signed: ________________ ([Name, title], Company)   Date: ________

Section 3, section 4's limits and section 7 are there because California's exception for sign-on bonuses requires them; outside California they are still fair, and they make the clause easier to defend if challenged.

Three variants

Installments instead of repayment

Company will pay a sign-on bonus of $[total] in two parts, less
applicable withholding: $[amount] with the first regular paycheck
after the start date, and $[amount] with the first regular paycheck
after Employee completes [6] months of employment. If employment
ends before the second payment date, the second payment is not
made. No part of a payment already made is repayable.

This avoids collecting money from someone who has left. It suits candidates whose main need is to cover a bonus they give up by moving.

No repayment

Company will pay a sign-on bonus of $[amount], less applicable
withholding, with the first regular paycheck after the start date.
The bonus is not repayable for any reason.

Net-of-tax repayment

Use the bracketed alternative in section 5. It costs the employer the withheld tax on early leavers, but the repayment matches what the person actually received, which is the usual objection to clawbacks (see the tax section below).

What should the offer letter say?

You will also receive a one-time sign-on bonus of $[amount], less
applicable withholding, paid [with your first regular paycheck].
The terms, including a prorated repayment if you resign within
[12] months, are in the separate Sign-On Bonus Agreement enclosed.
You may take at least [five] business days to review it, including
with a lawyer, before signing.

Say the repayment condition out loud on the offer call too; a condition the candidate first reads after accepting is the one they dispute. The offer letter template has the surrounding wording, and the offer approval form has a line for the sign-on and its clawback terms so finance approves both together.

Which exits should trigger repayment?

What do state laws say about sign-on bonus repayment?

• California. AB 692 (Chapter 703, Statutes of 2025) makes it unlawful, for contracts entered into on or after January 1, 2026, to require a worker to pay a debt, or any "penalty, fee, or cost," if employment ends. The exception for a "discretionary or unearned monetary payment, including a financial bonus, at the outset of employment that is not tied to specific job performance" applies only if all five conditions are met: a separate agreement; notice of the right to consult a lawyer with "not less than five business days"; no interest and proration over a retention period that "shall not exceed two years from the receipt of payment"; an option to defer the payment to the end of the period with no repayment; and separation by the employee's own choice or for misconduct. Labor Code section 926 sets liability at actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and attorney's fees (AB 692 text).
• New York. The Trapped at Work Act is marked "Effective December 19, 2026." Section 1052 permits repayment of a "financial bonus, relocation assistance, or other non-educational incentive" not tied to specific job performance, except where the employee was terminated other than for misconduct or the job's duties were misrepresented (NY Labor Law section 1052).
• Collecting by deduction. Federal law requires wages to be paid "free and clear," so a deduction for the employer's benefit cannot cut into minimum wage or overtime (29 CFR 531.35). California's Labor Code section 221 makes it unlawful for an employer to collect back wages it has paid. That is why section 6 of the template uses a statement and repayment, not a deduction.

Other states have their own wage-deduction and contract rules. Ask counsel to approve one version per state you hire in. As of October 2026; not legal advice.

How is a sign-on bonus taxed?

• Withholding. IRS Publication 15 (2026) lists bonuses as supplemental wages and says the withholding rate on supplemental wages remains 22%, or 37% if supplemental wages paid to an employee in the calendar year exceed $1 million (IRS Publication 15 (2026)). Social Security and Medicare taxes also apply.
• Repayment in a later year. The employee has already paid tax on the bonus. IRS Publication 525 says a repayment of $3,000 or less of income included in an earlier year cannot be deducted, while a larger repayment may qualify for an itemized deduction or a credit. A new hire who repays a $2,000 slice next year gets no tax relief for it, which is the strongest argument for the net-of-tax variant.
• Repayment in the same year. Payroll can usually adjust the year's wages; involve your payroll provider before sending the statement.

Agency recruiters: what to check

Placement fees are often calculated on first-year compensation including guaranteed bonuses, so confirm whether the sign-on counts in your fee, and what happens to the fee if the client claws the bonus back. Both points belong in the placement fee agreement, not in an email after the start date. If the candidate resigns inside the clawback period, they are probably inside your placement guarantee period too.

A worked example

Common mistakes

For relocation money, which raises the same repayment questions plus its own tax rule, use the relocation assistance policy template. General information as of October 2026, not legal or tax advice.