RECRUITMENT - 26.08.2021

Offering new hires retention incentives

Retention incentives

A retention incentive , which is sometimes called a retention bonus or a retention package, is a sum of money that an employer pays to an employee to encourage them remain in employment for a period of time.

They can be offered to existing employees or to new hires, and are usually put on the table to discourage someone from taking their skills and/or knowledge elsewhere. In a challenging recruitment market, such as the one we’re in now, their use becomes more commonplace.

Driver shortage

Over the past year or so there’s been an increasing shortage of HGV drivers. To encourage HGV drivers to join them and remain in employment, the delivery business Gist has decided to offer retention incentives of up to £5,000 to its new hires.

Gist’s new recruits receive a sign-on bonus of £2,000 and up to three additional retention payments for continued service.

Other options

This is just one way that a retention incentive can operate. Alternatively, they can be paid in quarterly, half yearly or yearly instalments. There’s also no requirement to pay any amount when an employee starts working for you.

One downside of paying a sizeable amount of money upfront as a retention incentive is that the employee could still leave soon afterwards. However, if they aren’t offered something on employment, or soon after starting employment, they may accept an offer of work elsewhere.

At the end?

Some employers only pay a retention incentive after a period of time has elapsed, e.g. one year. Whilst this protects their money, the length of time the employee has to wait for it can become a disincentive.

One option that can suit everyone is 15% in the first payroll, the equivalent amount at the half-way point and the bulk of the incentive at the end of the retention period.

The main drawback with this approach is that it won’t attract employees where there are serious skill shortages (which is why Gist might be paying 40% upfront).

Tip. Whatever retention incentive scheme you decide upon don’t pay the entire sum upfront, otherwise you’ll need to have specific contractual terms requiring repayment if employment is terminated prior to the retention period ending.

Tip. You can make payment of the retention incentive subject to the employee meeting certain targets or objectives and deem that it will be withheld if they receive a disciplinary or performance warning or they have handed in their notice. We’ve created a retention bonus letter which you can use (see The next step ).

Tip. As they are classed as earnings retention incentives they are subject to tax deductions in the usual way. They can’t be offered tax free.

For retention bonus letter, visit https://www.tips-and-advice.co.uk , Download Zone, year 23, issue 15.