Relocation Policies: They Are Not One Size Fits All

Relocation policies come in all shapes and sizes. Consequently, this can create challenges and confusion for those writing and overseeing the policy as well as for the end recipient, meaning either the existing employee or new hire who is being relocated (the transferee). There are many facets to consider on both sides. The employer needs to consider the costs to be incurred by both the transferee and then the costs that the company wishes to incur, including not only the relocation benefits to be paid to the transferee, but also the administrative costs and tax implications.

Certainly, not all policies are created equal. Companies that relocate high level executives to college graduates will likely have a different policy or benefit offering for each position or tier of job grades.

Transferees need to consider the costs of the relocation and to what extent the company has offered to cover those costs, in whole or in part, and the tax implications of those benefits.

These company policies and the method for covering expenses can also differ. There can be direct reimbursement – which is payment to the transferee after submission of allowable expenses and appropriate backup documentation. These expenses might be reimbursed in full, or there may be a cap (up to maximum amount) applied.

There can be a supplier direct bill – which provides payment directly to the supplier for the allowable services and expenses such as travel, temporary housing or household goods moving. Or, the company may have a combination of these policies, or a simpler, lump sum policy.

Additionally, regardless of policy type, relocation benefits paid to a transferee are taxable income and must be accounted for accordingly. This means that the payment received by the transferee will have taxes withheld or the payment has been grossed-up, meaning that the transferee receives an amount that is net of taxes. Companies will need to decide which method they will use. Moreover, there are certain relocation benefits that can be excluded from income and are not considered taxable.

Lump sum policies are certainly not new. They are considered to be a viable and market-competitive relocation policy and therefore growing. Lump sum only policies are a typical industry practice and highly effective for entry-level new hires such as a university recruitment program or for one to three year, experienced professionals coming into an entry-level management trainee position. Lump sum policies are also common for small to mid-cap companies that have infrequent relocations, want flexibility and do not want to “get involved” with any aspect of managing the relocation process.

As with any company policy – whether it be a new one or revamping of an existing one, your current situation, needs and objectives, require evaluation and discretion to determine what is the best fit for both the company and the transferee.

For a more in depth information, included the pros and cons about the types of policies available, including Lump Sum Only, Lump Sum Plus and Lump Sum Provisions within a Traditional Policy Tier click below for our Relocation Policy Review.