When it comes to relocating an employee – a new recruit or existing staff member who will be sent to a new location – choosing the right employee relocation allowance and policy can make or break the relocation and the company bank account.
In this article, we’re going to take a look at some different approaches.
Employee Relocation Allowance – The Cost of Moving
No two relocations – or house moves – are the same. Depending on whether your employee is a domestic or international move, the costs can be as much as $97,000.
The kind of costs a relocation allowance should cover are:
- Moving Costs
- House-Hunting Trip
- Travel – employee and if applicable, their partner, children and/or pets
- Temporary Housing
- Home Sale and Lease Breaking Fees
- Spousal Support
- Children and Dependents – some relocation packages also include assistance and information on local schools
- Cultural Support – including language lessons and assistance with adapting to a new country and culture
- Relevant Documentation – visas and work permits
The Different Types of Employee Relocation Allowance
Lump sum payments are simple. You pay your employee a cash amount; it is then up to them to manage their move with that money.
Janet’s Lump Sum:
- Janet has been successful in looking for a role on the East Coast despite being a West Coast resident her whole life.
- Her new employer has offered her $10,000 to relocate.
- She doesn’t have a mortgage; she’s a private tenant but, she has a partner, three children and two cats.
With this money, she needs to arrange her entire move, and move her family too. This could go one of two ways: she manages to do it cost-effectively and pockets a large sum of the remainder for herself – which she can do. Or, the amount isn’t quite enough and it’s added stress to the process.
Many businesses like the lump sum approach, it’s the “quick and easy” approach, they hand over the money and all of the responsibilities to the employee.
There is a downside for both parties to a lump sum. These include:
- There isn’t much control over how/what the money is spent on.
- Moving costs can be hard to predict, especially if finding a home is harder than anticipated.
- The amount paid is taxable, and this can take quite a chunk of money out of the lump sum.
You want your employee’s relocation to go well, and you certainly want to uphold an excellent reputation as an employer. In the interest of keeping things running smoothly, you can gross up the lump sum or, take a look at a more structured option.
Capped Budget Allowances
A capped allowance is similar to a lump sum; however, rather than handing an amount of money over, the employer sets an amount for the employee to spend. They can also set a policy on what kind of items the employee can spend money on.
Return flights for a house hunting trip? Yes
First-class flights for the employee, four friends and a couple of pets? No
The most significant difference between a lump sum and a capped budget allowance is that if the employee doesn’t spend the whole of the allowance, they don’t get to keep the remainder.
Tyler’s Capped Budget Allowance:
Tyler is a new recruit for a company and will be moving to a new country for the role.
His new employers have agreed a capped allowance. He needs to source his flights, accommodation and removal. The company has provided Tyler with a relocation specialist to assist him with the move, and they also offer guidance on preferred flight companies and moving suppliers.
This approach keeps the company wallet happy and a good relocation company will keep the employee happy, by keeping them engaged every step of the way and raising issues with the employer to avoid dissatisfaction.
Flexible allowance plans are another plan similar to lump sums, but there’s more structure.
The employer will break down the different relocation costs into sections, and assign a maximum amount to spend per section. For example; you may be given up to $500 in flights and $6,000 in packing and transportation.
Much like a capped budget allowance, if an employee doesn’t spend the whole amount assigned to the section, they don’t get to spend the remainder or keep the cash. It goes back to the company.
Clara’s Flexible Allowance:
Clara has worked for her employer for ten years. Recently, they opened a new branch in another state and have offered her a position there.
Her employer has offered a relocation package and is using a flexible allowance model. Within that, she could spend up to $1,000 on flights; however; the ones she needed came to $500. This money cannot be used elsewhere in the relocation, and Carla cannot keep it.
The type of allowance is at the discretion of the company and what their relocation specialist would advise. Taking a look at the pros and cons of the allowances, applying it to your unique cases and running the numbers will undoubtedly give you a good idea of which approach to take.
In his role as Director of Business Development at ARC Bill oversees all aspects of the growth initiatives for both government and corporate clients, domestically and globally. Bill graduated from George Mason University with a BA in Psychology and has been in the relocation industry since 2000. Bill has earned both his SCRP and GMS designations from ERC. Bill is the former President for the Greater Washington Area Employee Relocation Council (GWERC), ERC content committee member, ERC Ambassador, the recipient of the ERC’s “Meritorious Service Award” and “Distinguished Service Award”.