When it comes to relocating employees, your company has a few different choices for how you compensate them. Lump sum relocation packages have grown in popularity because of their simplicity on the books and for operations managers.
Considering the fact that it offers more flexibility for employees and it’s much easier to manage from an HR perspective, a lump sum relocation makes sense for a lot of companies. If you’re unsure about what a typical relocation package lump sum amount is or what this all means, the following will cover it in detail.
What is a Lump Sum Relocation Package?
Lump sum relocation occurs when a company provides the relocating employee with a bonus that is intended to pay for their relocation wherever that may be. The company will use previous relocations, experience, and research to determine how much this will cost and they will then issue that amount to the relocating employee.
The employee has the choice of using as much of the money as they’d like. Naturally, most relocating employees will try to spend as little money as possible so they can take some off the top for themselves.
Of course there is nothing wrong with the individual wanting to keep some of the money but it can create bottlenecks in the relocation process when the employee is trying to scrape up every penny possible and cutting corners.
What Does a Lump Sum Relocation Package Cover?
In the case of a lump sum relocation, what types of expenses does it cover? It will pay for most general moving expenses such as:
- Moving company expenses
- Temporary rental home
- Security deposits
- Breaking of the lease
- Purchasing a new home
- Closing costs
- …and more
In many cases, employees will be involved in the negotiation process when an employer decides on a number for the package. There are a few relocation lump sum calculators out there to help you determine if you’re getting the money you deserve.
From an HR perspective, it’s important that you’re open and honest with your employees. There should be plenty of dialogue during this time and all factors should be taken into consideration. HR departments should even consider expenses like:
- Child care
- Private school costs
- Vehicle wear and tear
- Food and drink
- Economic difference from place to place
Types of Relocation Lump Sum Benefits
There are a few different types of lump sum relocation benefits. Here are the different options and some of the details to go along with it.
A self service lump sum relocation package is the simplest that it gets for the employer. The employee receives all of their money in one lump sum and this amount is intended to cover the entire relocation process from start to finish.
Right off the bat, there are some red flags here. This requires a lot of trust on the part of the employer. On one side, you’re trusting that the employee will actually use that money for their relocation. On the other hand, you may not care, and the relocation sum could act as a severance package if they don’t want to use it for its purpose.
This method also doesn’t require any support from the employer. Many employers will offer consultation and help working through the steps of finding a new place to live, coordinating the move, and so on.
Supported or Managed
For this method, the employee still receives one lump sum but now the company will offer support and guidance to help them manage the money. The employer or designated relocation assistant can help employees with selling their home, coordinating transportation, packing, etc. This is often done through a relocation company because it takes a lot of the work off the back of the employer so they can focus on a smooth transition.
4 Benefits of Lump Sum Relocation for Businesses
As you can likely tell, there are plenty of reasons why a company would offer a fixed, lump sum benefit to relocating employees. Here are the four biggest reasons:
1. Flexibility for the employee
No one likes to be told what to do with their money and where to spend it. Employees would often like to take matters into their own hands, hire the moving companies they want, and portion out the money to spend themselves. This offers a lot more flexibility to the employee but it comes with some apparent dangers like we talked about previously.
You may be handing someone a large sum of money to relocate and that individual has no experience with relocation. In that case, they could end up delaying the process or never making it to their destination at all.
This is one reason why it pays to have a company like ARC manage the relocation for you. As the business owner or HR manager, you still have the peace of mind in knowing that you don’t have to coordinate everything but you’re also not putting the move into the hands of an inexperienced employee.
2. Simplifying administrative work
Lump sum relocation packages put a lot less pressure on the HR department to handle everything in-house. You can still help guide employees however you like but you don’t have to manage the ins and outs of every little detail. This is especially true if you’ll be doing a global relocation for an employee to another country. Tax laws, customs, and regulations can be a nightmare and putting it on the back of the employees is beneficial for the employer. That said, pawning it off isn’t always the right answer either.
3. Cost transparency
A lump sum is clear and concise. Instead of having to tabulate every individual expense as they occur and record receipts and all that, you can put together one flat-rate number that should apply to a majority (if not all) of the employees that you’re relocating. It’s also nice from an employee perspective because they can see the numbers and see that they’re getting enough money to cover everything.
4. Lower upfront costs (maybe)
Whether or not a company saves money with a lump sum package is up in the air. It may seem like you’re saving money on labor and resources in the short-term but you’re offering far less benefits to the employees on the back end. What a lot of companies don’t see is the cost of failed assignments and how quickly that can add up.
There are so many factors that come into play beyond the obvious costs of transportation and buying and selling a home. Employees and employers need to factor in relocation tax costs, visas, and many other individual case-to-case scenarios.
One of the most expensive aspects of moving is the actual process of finding and hiring the right moving company. Cross-country or even regional movers can vary dramatically in price and your employees need to find the lowest price to ensure they have enough money to fund their move.
Agoyu Can Help
That’s why ARC Relocation has partnered with Agoyu, to help your employees find the best movers for the most affordable price. The app lets you take a picture of all your belongings and they provide you with quotes from the most affordable moving companies in your area. This takes some of the strain off of you in the HR department and the employee as well.
If this all sounds like a lot, it’s because it is. That’s why we’re here. ARC Relocation specializes in corporate relocation and it’s all we do. Click here to let us take some of the weight off your shoulders.