An employee got a signing bonus last year, but has left the organization. We want to ‘claw back’ the bonus. How do we do this?
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Signing bonuses can be a helpful tool when hiring employees in difficult job markets or to fill jobs requiring very specific skill sets. The biggest issue with a signing bonus is the one identified in your question, which is how to handle a situation where the employee decides to leave the company after receiving the bonus.
It isn’t clear from your question how the signing bonus in this case was structured. In some cases employers pay a signing bonus in 2 installments, half at hire and half at the 1 year anniversary for example. This encourages the employee to complete the first year.
In other cases, employees are paid the full signing bonus at hire and agree to pay the company back if they leave before their 1 year anniversary. For purposes of this answer, I will assume that you are looking to claw back a bonus that was paid in full at hire.
It also isn’t clear if there was a written agreement with the employee providing that if he or she left the company within a certain period of time, he or she would have to repay the money to the company. Generally, employers do have a written agreement in place with the employee and the agreement may have a provision that only provides for a claw back if the employee leaves the company voluntarily.
The written agreement may also have a provision regarding how the bonus will be paid back. Having the agreement in writing is helpful as proof that the employee received and agreed to pay the bonus back.
Now we get to the gist of your question, which is how to get the money back? Deductions from pay are governed by both federal and state law.
Your question indicates that you are located in Connecticut. Under Connecticut law, an employer may deduct from an employee’s wages only charges required by law, permitted by law, or authorized by the employee on a form approved by the state labor commissioner (CT Gen. Stat. Sec. 31-71e). For more information on deductions under Connecticut law, see http://compensation.blr.com/analysis/Payroll-Processing/Deductions-from-Paychecks/Connecticut/.
As noted above, a deduction may only be made if the employee gives written authorization on a form approved by the Labor Commissioner. It seem unlikely in this situation that the employee will voluntarily sign a form authorizing a deduction, even assuming that the DOL would allow such a deduction in the first place. If you wish to pursue making a deduction from the employee’s final paycheck, it would be prudent to consult local counsel first.
There are other options for recouping the signing bonus. If there is a written agreement, you may provide the employee with a copy of the signed agreement and formally request or demand that he or she repay the bonus. If the employee refuses, you might send a demand letter for repayment and, if necessary, pursue legal action against the employee. A local attorney can assist you in the collection effort and make sure that any steps taken to collect the debt are lawful.