The search for the perfect candidate is over, they’ve accepted the job, but there’s just one thing standing between them and the start date: their current location. They may need to move cities or even overseas to work for you. This is where an employee relocation plan – also often referred to as “global mobility” or “corporate relocation” – will come into action. Many companies hire an outsourced relocation company to help with the process.
This guide will cover everything you need to know about employee relocation including:
- What Exactly Employee Relocation is
- Understanding the costs
- Packages and Policies
- What is Employee Relocation?
- How Big is the Employee Relocation Industry?
- What are the Costs of Employee Relocation?
- What are the Different Types of Relocation Packages?
- Are Relocation Packages Taxable?
- What Should be Included in a Relocation Policy?
- What are the Challenges of International Relocation?
- What Questions will Employees have when Relocating (and how to answer them)?
- What are the Key Considerations of Employees Moving House?
- What are the Best Links and Resources?
- Should I Outsource my Relocation?
What is Employee Relocation?
Employee relocation is when a company chooses to move an existing employee, new hire or intern to a new location for work purposes. It allows you as the employer to source some of the best candidates from outside of your city, increasing the talent pool and staffing your business with the best people.
Employee relocation also includes covering all or part of the costs incurred to the employee.
How Big is the Employee Relocation Industry?
Varying from business to business, it costs on average $16.2 million per year to relocate employees and the relocation industry is worth a cool $25 billion annually.
According to MoveBuddha, 31 million Americans moved house in 2019, that’s almost 10% of the population! Stats from Moving.com indicated that of those who did move, 10.3% did so due to a new job or transfer.
The relocation industry is a pretty big one.
What are the Costs of Employee Relocation?
Relocating an existing employee who is also a homeowner, the costs can be anywhere up to $97,000 or more. If the new employee is a rental tenant, the costs are usually less than $24,000.
Here are some approximate example costs you can expect:
- Current employee: homeowner $97,166
- Current employee: renter $24,216
- New hire: homeowner $72,627
- New hire: renter $19,309
These costs are more than paying for a roof over someone’s head. There are multiple considerations to take into account when moving an employee – also covered below – and why it’s important to get the relocation right.
Did you know that a pet’s “airline ticket” can cost around $125 per pet each way? A collection of budgerigars, 2 cats and an Alaskan Malamute may need their own budget and section in the policy.
Yes, the thought of these costs could make your accountant’s eyes water. However, there are various options available for relocating an employee that can be done within a budget and suit both sides.
What are the Different Types of Relocation Packages?
When it comes to employee relocation, there isn’t a “one size fits all” approach. The four main packages used either in-house or by a third-party specialist are:
- Lump Sum Packages
- Tiered Packages
- Managed Budget Package
- A Fully-Covered Relocation Package
Lump Sum Packages, also known as a “cash only payment” are possibly the simplest option but don’t always achieve the best outcome.
Having been around since the 1980s, lump sums are provided to a new employee to assist with their move, and they get to keep any cash left over. Sounds straightforward and ideal for the employee, right?
Often the employee will keep relocation costs down and pocket the rest of the payment; this can lead to a bad move and many companies are moving away from these packages.
Tiered Packages are one of the most popular; they’re considered cost-effective for the business because the relocation package is matched to the employee, their level of seniority and their circumstances.
It’s also the option commonly used by many in-house and third-party employee relocation teams. The packages would be tailored to the employee relocating. It might look like this:
- Tier one: intern or entry-level employee with no mortgage, private tenant.
- Tier two: mid-level managers and long-serving professionals. Either has a mortgage or is a private tenant.
- Tier three: senior managers and high-level executive relocation packages.
Each tier or option will take into account whether the relocation is domestic or international, if the employee has a family and their living arrangements.
Managed Budget Packages are also sometimes referred to as a “capped allowance”. A business would use this model to set a limit on what they are willing to spend on an employee’s move.
It is an approach sometimes used when drafting in a professional third-party company to assist with the management of the relocation. It gives the service provider a ball-park figure to work with as well as having a set budget in mind for a relocation, which is always good news for your accounting team.
Fully Covered Relocation packages are also common. These are often used for higher-level employees as they can incur high, unpredictable costs compared to the other packages.
Having the relocation provider manage this would be beneficial; it limits the risk of the budget and benefits being used for unnecessary expenses.
The cost for five business class flights, plus all of those pets may come in a little bit higher than the actual moving cost…
Are Relocation Packages Taxable?
In short, yes. Before the Tax Cuts and Jobs Act of 2017, relocation benefits were not considered taxable income for employees. Employers could also deduct relocation expenses incurred when relocating their employees – win-win for both parties. Unfortunately, that’s all changed now. Employers have lost the ability to use relocation as a tax deductible, and employees have to pay taxes on any relocation benefits received.
To overcome this and keep relocation packages competitive, one option is to cover these additional taxes that employees incur by grossing up the benefits by the amount of extra taxes incurred.
If you are relocating employees internationally, then you also need to consider any tax implications in other countries. In particular, if you are relocating an employee outside of the US, US citizens must still file US tax returns regardless of where they are living and earning. However, the foreign earned income tax credit should minimise or eliminate the amount of tax owed.
It is often considered best practice to provide tax equalization if relocating employees abroad, so that they continue to pay taxes as they usually would and the employer picks up any extra.
For more information on taxable relocation benefits, take a look at our article on the Relocation Benchmarking Policy.
What Should be Included in a Relocation Policy?
You may have a single employee who rents their home or you may have a family-focused employee with a mortgage and pets.
With packages costing a company anything from $2000 – $100,000, the key is to ensure your package and policy suits everyone.
Most policies include:
Transporting the employee
Transporting their family and/or any pets
Long or short term housing – an employee could also require a short-term rental before getting their long-term home
Selling and purchasing fees
Spousal employment assistance
School location assistance
Integration and cultural assistance
As mentioned above, many of these can vary depending on the individual circumstances and which kind of policy is agreed upon.
We have an entire section of our website dedicated to benchmarking policies, as well as a helpful example of the policies with their approximate costs.
What are the Challenges of International Relocation?
Starting afresh in a brand new city sounds challenging enough but, starting a new chapter in an entirely different country is a whole other ball game.
It’s estimated that 40% of expat assignments and relocations end in failure and the country which American’s struggle with the biggest culture shock? The United Kingdom! A mix of culture shock and not acclimatizing can be held accountable for this.
You will have to consider the following for an employee needing an international relocation:
- Complex logistics: flights are the easy part, what about visas? Can this person legally work in the country they’re headed to? Is there a customs and tax policy that they have to adhere to in their home country and what impact does it have on them? There is definitely more of a need for hands-on support when dealing with an international relocation.
- Length of service: most international relocations are fixed-term contracts and this can impact the type of benefits and policy.
- Acclimatizing: making friends as an adult and acclimatizing within a new set up is hard. This is one of the reasons why global relocations do have a higher risk of failure with a costly impact.
We live in a world where there are many different social and cultural practices, having a policy in place to support an international colleague during their move can help to minimize the risk of failure.
We offer full guidance and an abundance of options when it comes to relocating an international employee. You can find full details of this on our Global Relocation Section.
What Questions Will Employees have About Relocation Packages?
As an employer, you need to be prepared to answer any questions your new recruit may have. Some of the most popular questions – and answers – that they may have are:
How does a relocation package work?
The new employer (or existing if it is a location move) will talk you through the types of relocation packages, policies and what is available to you. The process will then begin, it may mean that you visit your new city a couple of times to look for properties, book flights and start to pack!
How much are you given in a relocation package?
The full costs and figures can vary depending on the individual and their package however, as an example, payments are typically between $2,000 and $100,000.
How do you negotiate a relocation package?
Similar to how an employer determines your package, you need to work out the financial cost of a move, based on your current situation. You can then provide the employer with this, keeping in mind the lowest option you can realistically accept.
How are the relocation expenses handled?
Some of the common approaches with expenses include: lump sum payments, cost sharing between the employee and employer or, payments are made directly to your bank account to cover the expenses. Your new company or relocation specialist will reach out to discuss the process in full and this will include how the expenses are handled. Be sure to keep your receipts and invoices!
Does the company pay to relocate you?
Yes, and this can either be paid in advance or reimbursed. Packages will vary considerably.
How long do employers give you to relocate?
Most companies offer a one month moving period, a long time for the employer, a bit of a squeeze for the employee! Some companies do offer an extended period based on the role and seniority level.
How much money is given for relocating?
This depends entirely on the role, skill level, type of move and contract. Once an employer has totalled up the financial costs and benefits, they will then provide you with the budget for your relocation. The benchmark figures across most industries are:
Current employee: homeowner $97,166
Current employee: renter $24,216
New hire: homeowner $72,627
New hire: renter $19,309
Is the job worth relocating for?
Hopefully, you had this question in mind during the application process! But you still need to know if it is right for you and we have a list of considerations below.
What should I ask for in a relocation package?
You can ask for the following items, if it’s not already within your package or relocation allowance. However, a different version of these items could be included in the policy:
- Cost of a house-finding trip
- Temporary housing (hotels, apartments and short-term rentals)
- Transporting of pets
- Pack and unpack service
- If full cost is not covered, a partial reimbursement
- How is a lump sum package paid?
This is usually paid directly to you in the form of a cash payment or check.
All of these are valid and normal questions from employees when they’re considering relocation. It’s the handling of the questions, and the process, that makes all the difference to this process running efficiently.
What are the Key Considerations of Employees Moving House?
This can be one of the most complicated aspects of a relocation package. It can cause delays to relocations, stress to employees trying to sell their home, and incur tax costs from commissions and closing fees. ARC offers a variety of options to help with home sales as part of relocation:
- Buyer Value Option (BVO)
- Guaranteed Home Buyout Option (GBO)
- Amended Value Option (AVO)
- Affinity Rebate Program
While most relocation expenses are no longer tax deductible for employers, one tax protection does remain: the Buyer Value Option (BVO), and this covers what is usually the highest expense in a relocation process: home sale costs. While it is up to employers whether or not to assist with selling costs, for those that do, a BVO program will “tax protect” these costs by treating them as business expenses for the employer. This then eliminates the need to “gross up” the employee’s benefits package by the value of the home sale costs, as the employee never incurs these costs in the first place.
A Guaranteed Home Buyout Option (GBO) also provides tax protection against realtor commissions and closing costs. It removes the risk for the employee of selling their existing home. This can speed up relocation, as the employee does not need to wait for an offer on the open market. In a GBO, the relocation company purchases the house from the employee at fair market value, before later selling on to an outsider buyer.
If a relocation company is used to buy the home through a GBO and an outside buyer then offers a higher price, an Amended Value Option (AVO) can be used. The relocation company will match this offer, and then sell the home to the outside buyer, provided the higher offer is a bona fide offer made in good faith. This saves the employee time, money and a lot of work.
At ARC, to prove our commitment to our customers, we offer an Affinity Rebate on all eligible home sale transactions. This rebate is contingent on the value of the house, reaching up to $3,000. The cash rebate is paid within a week of closing, as a free program to help employers maximize recruitment and retention efforts.
What are the Best Links and Resources?
We have a whole library of resources and information available for free on our website including:
Our own helpful links cover all bases and any further questions you may have in mind.
Have children or dependents that will need to be taken into consideration when relocating? A house move, especially to somewhere new can be a stressful time for them too. We offer some resources for your children to use that allows them to have their input in the relocation process!
Think you’ve got everything you need and have asked every question? Check out this checklist to ensure your current and future living arrangements are catered for.
Not sure what kind of policy to offer or, if you’re the employee, which one is right for you? Take a look at our examples.
Real Estate and Relocation Terminology
Don’t get bamboozled by jargon and terminology, this quick guide gives you the definitions of some of the commonly used relocation words and phrases.
Government relocations can be complex and expensive. Understanding these can mean the difference between saving and losing thousands of dollars.
Want to know more about what we can do for you? You can always contact us to speak to the team.
Should I Outsource my Relocation?
Relocation is a completely different area of Human Resources; a relocation specialist can take the lead on ensuring a smooth transition for you and your new employee.
By outsourcing, and if you are considering ARC relocation company to help you and your new employee’s career journey, we have the advantage of:
- Working with key delivery partners
- A firm knowledge of the costs
- Compliance requirements
- Tax efficiency
- Understanding the obstacles and potential failures
- A single point of contact delivery model
- On the ground research, knowledge and resources
We’re specialists in this field, so why not put your trust into a team who can deliver exactly what you need via a stress-free process? It can make a big difference to yours and your employee’s transition period.
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”.