What is Relocation Assistance?
A good place to begin a discussion on defining relocation assistance is to briefly discuss why companies relocate employees. Most organizations relocate employees for one or more of the reasons listed below:
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- To attract new talent
- To fill key positions in different geographic locations
- To support business expansion
- To enhance organizational efficiency
If an organization needs to relocate an employee permanently or temporarily, offering relocation assistance can help ease the transition. Relocation assistance programs are designed to reduce the emotional and financial strain that often comes with moving to a new city or country by providing services and guidance throughout the process.
These services and guidance are either coordinated in-house by the HR/Mobility department or through a relocation management company like WHR Global.
Relocation benefits may also be offered to help an employee transition to a new role that requires specialized skills or to enable them to work in high-demand markets.
How does a company decide what types of benefits an employee will receive?
Most companies have developed a formal relocation policy (or policies) that outline the specific guidelines and benefits available to an employee in conjunction with a job-related move or assignment. This policy typically details the types of relocation packages available, the scope of services offered, and the eligibility criteria for receiving assistance. Employers may offer different types of relocation packages based on the employee’s level, job role, or distance of the move.
Common relocation packages include the three options below, including: comprehensive full-service relocation plans, lump-sum payment and direct reimbursement.
1) Full-Service Relocation Package:
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- This comprehensive option may cover all aspects of the move, from hiring professional movers to providing temporary housing and helping with home-finding services. For high-level employees, this can also include additional support like spousal job search assistance and school placement for children.
2) Lump-Sum Payment:
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- A lump sum payment provides the employee with a set amount of money to cover their relocation expenses. It offers flexibility but places the responsibility on the employee to manage their moving costs within the given budget. The employee is responsible for any costs over and above the lump sum provided.
3) Direct Reimbursement:
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- This type of relocation support is not as common as those listed above. With a direct reimbursement package, a company will reimburse the employee for their moving-related expenses. Spending limits and the types of incurred costs covered for reimbursement are defined in the relocation policy. These costs are paid by the employee up front and reimbursed by the employer.
- For U.S. Domestic assignments, benefits included in these packages might include travel allowances, home sale assistance, and the cost of temporary lodging until the employee finds a permanent residence.
- For an international assignment, benefits may also include immigration assistance, destination services, and cultural/language training assistance.
- This type of relocation support is not as common as those listed above. With a direct reimbursement package, a company will reimburse the employee for their moving-related expenses. Spending limits and the types of incurred costs covered for reimbursement are defined in the relocation policy. These costs are paid by the employee up front and reimbursed by the employer.
Cost Perspective and Tax Implications:
- When receiving relocation assistance, being aware of the potential costs involved is essential. In many cases, employees may be required to sign a repayment agreement. This means that if the employee leaves the company within a certain period after the relocation (usually a year or two), they may be required to pay back a portion or all of the relocation assistance provided to the employer.
- From a tax perspective, relocation benefits are generally considered taxable income, and employees may need to account for the associated tax burden. Employers may offer a Gross-Up on relocation packages to cover the additional tax cost. A Gross-Up is an amount added to the relocation assistance to help employees offset the taxes owed on the benefit. The specifics of how the Gross-Up works will vary depending on the company’s policy, but it typically ensures that the employee doesn’t have to pay out-of-pocket for the additional tax liability.
Interactive Employee Relocation Reports
U.S. Domestic Relocation Cost Estimator
Interactive Repayment Agreement
Domestic Relocation Policy Designer
Relocation Benchmark Comparison
RFP – Relocation Request for Proposal Generator