The relocation industry is big. Around $25billion a year big.
Roughly 10% of those who do move in the US are moving for work purposes.
It’s a huge and important market for US businesses – many are surprised at the costs involved. As such, we’ve built this guide to help you understand what a relocation package includes and what relocation expenses to expect.
Relocation Packages: What is Covered
There’s more to a relocation package than just financial assistance.
To give you an idea of what it can cost to relocate an employee, we have laid out some basic examples of how much it can cost.
- Current employee: homeowner $97,166
- Current employee: renter $24,216
- New hire: homeowner $72,627
- New hire: renter $19,309
A package can include the following:
- Moving Costs: the shipment of household goods, packing and unpacking and the storage of any items that cannot be moved right away.
- House-Hunting Trip: there could be more than one trip, and accommodation and travel need to be factored in.
- Travel: not just for the house-hunting trip but for the final destination trip too. This also includes any airfare for their spouse, children and pets too.
- Temporary Housing: hotels or rental properties may form a part of the allowance if the permanent residence is not ready yet.
- Home Sale and Lease Breaking Fees: relocation allowances can cover the fees to arrange the current property to be put up for rental or sale. If the employee is in a tenancy agreement, the allowance may also be used to cover any early termination fees.
- Relevant Documentation: visas and work permits, especially if your employee is moving out of the US or you are hiring an overseas recruit.
- Miscellaneous Costs: these kinds of expenses can include, but are not limited to, driving license fees, pet registration, cleaning services and setting up utilities at the new home. It is worth noting that these costs can add up. Depending on the type of package, you may wish to include a budget limit.
Other Relocation Expenses
We also have a section of our website dedicated to benchmarking policies, including examples of the policies with their approximate costs.
Some of the other expenses you can expect to cover for relocation include:
- Temporary Living Expenses: this is usually covered if an employee has to live in a hotel or short-term rental before moving to their permanent residence. Or, another reason could be that the job start date is before the move date.
- Spouse Support: your employee’s partner will need to be factored into their move, and many allowances include support for their job hunt, a business venture or financial aid.
- Children and Dependents: some relocation packages also include assistance and information on local schools. We offer a resource pack to parents to help to include their children in the move. It’s a big change for them too!
- A Loss On Sale Allowance: if the sale of the employee’s house is less than what is owed on the property, you can include an allowance to cover this. House prices fluctuate regularly and facing financial hardship due to the move is something that needs to be avoided.
- Cultural Support: one of the biggest obstacles for a relocation is a culture shock for an employee. Cultural support can include language lessons, an introduction to the culture of the new home country and as mentioned above, support for spouses and children.
These are not necessarily “must-haves” for a relocation policy, but small details can make all the difference to employee morale.
Different Types of Relocation Packages?
There’s no such thing as “one size only” for relocation. You can tweak a package based on what your company can offer and what your employer needs.
As a standard, there are the following packages:
- Lump Sum Packages
- Tiered Packages
- Managed Budget Package
- A Fully-Covered Relocation Package
Lump Sum is the oldest and most common approach to relocation. It is what it says; a whole cash payment to the employee. They are then responsible for arranging their relocation. This package is also not to be confused with a lump sum relocation bonus.
The main advantage of using a lump sum package is the convenience to the employer. It also puts the onus on the employee to arrange all aspects of their move.
With that key benefit, there are some negatives to the lump sum.
- The employee can spend this money however they like.
- If the move costs less than the payment, the remaining money does not go back to the company; the employee keeps this.
- A lump sum payment is a taxable amount, the employee could end up with less than they thought once their tax bill arrives.
- Moving costs are unpredictable, is the amount sufficient? Could this cause some tension between you and the employee before they’ve even begun their new role?
You can look at using a lump sum signing bonus as an addition to another package, especially if you have agreed upon a reimbursement plan.
Other packages may not look as efficient as a lump sum on paper, but they certainly keep the employee happy during an exciting but stressful time.
Tiered Packages are seen as the cost-effective approach by companies. It’s also the option commonly used by many in-house and third-party employee relocation teams.
These packages are bespoke depending on the individual and business too. For example:
- 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: high-level executives and senior managers.
Each tier would consider the above expenses depending on the living arrangements and obligations of the employee.
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 and also, set a maximum limit.
These are similar to a lump sum in the sense that an employee is responsible for spending the allowance themselves. The main difference between them is that the package is broken down into sections, how much they can spend per section and, if there’s any money left over, this goes straight back to the employer.
While this can be seen as an ideal approach for the employer, it may leave a bitter taste in the employee’s mouth as the maximum spend per section may not be adequate for certain moving costs.
Fully Covered Relocation packages are often the preferred approach if you’re looking to manage your employees’ moves. Relocation specialists also work with this package to assist with the move of a high-level employee, and it can help to manage those large unpredictable moving costs.
The downsides to a fully covered package are few and far between. The main one from the employee’s point of view is that they can’t keep any remaining money, much like a capped budget.
The main benefit of a flexible allowance is that it gives the employee more direction with the spending. From a business point of view, you have more control over where the money is spent, any remaining allowance goes back to the company and they can be tailored to each employee.
You can also contact us to discuss your requirements, and we can talk you through the list of options and packages that can work for you.
There is so much more to consider with a relocation than just bricks and mortar. The upheaval of someone’s life for work requires a lot of time and careful planning.
You’ve spent the time acquiring the top talent in your field and now you need to retain them and prove that your company is worth moving for!
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 Services.
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”.