Lump sum relocation packages offer benefits to employees and employers alike. For employers, it is not only easier to control costs with lump sum packages, but administration of these packages is also much simpler. For employees, it places more control over the relocation in their hands and allows them to shop around for the most cost-effective relocation options. These are four primary types of lump sum relocation packages you may want to consider.
1) Flat (Fixed) Lump Sum
These packages acknowledge that the moving expenses are the same for employees at all levels of experience within the organization. As such, the relocation package involves the same lump sum payment for entry-level employees as it does for executive-level employees.
2) Variable Lump Sum
These packages are unique to different employees and/or transferees according to standards the company establishes. These standards may include any of the following.
- Relocation distance
- Renting vs. buying
- Size of families
- Level of responsibility within the organization
- Salary level
- Typical relocating costs
With variable lump sum relocation programs, there isn’t a one-size-fits-all employees plan and the employer sets the parameters.
3) Alternative (Partial) Lump Sum
Employers can offer a lump sum payment for some of the relocation expenses and then reimburse the remaining expenses upon submission of receipts and supporting documentation the employer decides which expenses are covered under the lump sum portion and which will require receipts for reimbursement. Typically it is recommended to reimburse the employee for non-taxable relocation expenses such as final move and household goods shipments.
4) Managed Lump Sum
These programs allocate a capped lump sum amount to the employee. The policy will delineate the provisions covered and any individual provision limits and may require the employee to submit receipts for expenses. Additionally, the policy may be enhanced by authorizing the services of a relocation management company to assist them in spending their funds wisely.
How Do Lump Sum Relocation Programs Benefit Businesses?
Worldwide ERC conducted a survey in 2013 on lump sum policies. The survey results provide important insight as to why businesses choose to offer lump sum payments for relocation expenses. According to the survey, 46 percent of companies offer lump sums to pay for specific components of a relocation policy. 28 percent offer a lump-sum-only policy to some of their relocating employees, while 9 percent offer a lump-sum-only policy to all relocating employees.
The primary reason for offering a lump sum was stated as concerns for employee flexibility. The second most commonly stated reason was cost control.
The record-keeping aspect of relocation packages should be considered. Traditional packages do offer some tax benefits for the business, but the complexity of record keeping involved for expenses at all levels is unwieldy and difficult to manage. Examples of these expenses could include:
- Temporary living
- Return trips while living in temporary quarters
- House hunting trip
- Final move
- Home Sale and Home Purchase Closing Costs
- Lease breaking assistance
Lump sum relocation packages allow employees to prioritize needs and expenses according to the money available to them in the package. This can make it easier for businesses to control the costs and reduce the record-keeping and expense tracking burden on the employer.
Relocating employees is a large expense for many businesses. Any of these lump sum relocation packages could help businesses keep these expenses in check, while allowing transferees the opportunity to take more control over their relocations and related relocation expenses.