CapRelo Blog

Don't Confuse Reimbursed Moving Expenses with a Bonus

Posted by Nicole Overholt on Thu, Mar 02, 2017

accounting-resized-600.jpgMany employers offer bonuses or lump sums to employees agreeing to relocate. While this is a welcome benefit, it's important for employers to fully understand the difference between moving expenses and bonuses. Many moving costs are excludable (if paid by the employer) or deductible from the transferring employee's income, which saves them money.

The employer can also save money in payroll taxes. Conversely, bonuses are additions to the employee's taxable income, requiring employers to also pay standard payroll taxes such as Federal, State and FICA.

Our article, Understanding Lump Sum Relocation Packages, will help you make the best decisions on relocation packages for your company.

Moving Expenses

Reimbursements for many moving expenses related to transporting the employee's household goods and personal possessions as well as the family’s final move are excludable from the employee's income when paid by the employer. Common expenses that are excludable from income include:

  1. Moving company direct costs for transporting household and personal goods.
  2. Packing and unpacking household goods and personal property.
  3. Storage costs for up to the first 30 days after the move.
  4. Insurance on the household goods.
  5. Transportation from the employee's primary origin residence to the new location. The employer can reimburse employees that travel by car for any amount, but only the first $0.19 per mile in 2017 (varies each year) is excludable from income.
  6. In-transit lodging.

Bonuses

Employee bonuses are typically paid for one or both of the following reasons:

  1. Employer decides to offer a bonus as an incentive for the employee to agree to relocate.
  2. Employer recognizes that the cost of living is higher in the new location versus the employee's current area.

Bonuses as incentives or payments to defray increased cost of living must not be confused with reimbursing moving expenses. Bonuses, as one-time monetary payments for one of the noted reasons, are treated as additional taxable income. Usually, salary increases (which are more long-term in nature) are easier to understand and accept as taxable income, but what happens if the employee is then transferred to a lower cost of living location?

However, bonuses, even when generated by transferring an employee from one place to another, remain taxable income. Although these incentives or cost of living difference payments are related to the relocation, they are not eligible for income exclusion or tax deduction by the recipient.

Incentives or bonuses are taxable and subject to supplemental withholding regulations. Many companies choose to provide tax assistance (tax gross-up) to further entice an employee to relocation. This can add 45 to 70%+ to the total spent by the company. Management should adopt relocation policies that take advantage of available tax benefits, while offering reasonable, equitable and fair relocation programs for their valued employees.

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Topics: relocation benefits, Corporate Relocation Costs, employee relocation expenses

9 Measures to Control Global Assignment Costs

Posted by Amy Mergler on Thu, Sep 15, 2016

country_signs.jpgRecently, many companies have reduced, frozen or eliminated their relocation programs in an effort to save costs. However, to remain competitive, companies still need to place the best talent at the appropriate locations, and often that talent isn't available without a global transfer. In these instances, the proper management and oversight of relocation costs becomes imperative.

Learn more about managing global relocation costs with our free article.

How Can You Control Your Relocation Costs?

First, it's essential to actively manage expense packages. Though some companies prefer to set a standard relocation package across the board, when you're working with key talent, it's usually much more effective to be flexible. By compromising on certain points, you can keep your top talent happy and eliminate the risk of losing them in the relocation process.

With that flexibility scenario in mind, it's important to remember that no two global relocations are identical. Therefore, as a rule of thumb, whenever you're presented with a one-size-fits-all solution, you may wish to weigh it against some custom-fit solutions that take the bigger picture into consideration and can save on expenses in the long run. In addition, the measures listed below have proven to be effective in managing and reducing global relocation costs.

  1. Regulate cost-of-living allowances. There's often a significant difference between the costs of living in originating and host countries. Set allowances that are applicable to their respective locations, and recalculate cost-of-living subsidies regularly to reflect financial fluctuations in the host country's economy.
  2. Reevaluate host country housing allowance. It's reasonable for transferees to expect housing allowances in their host countries, but oftentimes the allowances represent high standards of living based on out-of-date data. To control these expenses, employ more conservative housing standards to determine host-housing allowances. Another approach is to set allowances that match home values in the localities transferees will be living and working. Also, review and adjust allowances each quarter to account for local real estate value and currency fluctuations.
  3. Avoid total lease payment. Unless absolutely necessary in light of the competitive environment, avoid providing zero-cost housing to transferees. Determine reasonable housing contributions that employees are responsible for. For some temporary positions, such as highly mobile postings managing the global rollouts of products and services, zero-cost housing may be the only way to keep employees productive. But in most corporate relocations, when transferees are accompanied by their families as well as household goods, a fair employee contribution to housing is usually expected.
  4. Employ a host-based salary system. By paying transferees salaries that are comparable to those of professionals in similar positions in the host countries, US-headquartered companies can save a lot of money without disadvantaging transferees. This way, transferees can maintain their standard of living in their new environments.
  5. Lower house-hunting trip reimbursements. It’s reasonable to reimburse transferees’ house-hunting trips to the host location, but international airfare, transportation at the location, as well as lodging and food can be expensive. Limit these costs by capping monetary reimbursement or reducing reimbursement levels for these trips. In many circumstances, when there’s flexibility based upon the transferees' needs, there will be opportunities to shorten or negate some costs associated with house-hunting trips.
  6. Reassess the costs of language training, cultural training services, home-finding and familiarization trips. Though these services are often crucial to a transferee’s successful relocation, there may be more cost-effective ways of providing them. Do some research and compare providers to see where and how you can cut these costs. Oftentimes, these providers offer different packages and levels of service. To assist you in making both responsible and cost-effective decisions, however, bear in mind service quality benchmarks that take into account client satisfaction. Rule of thumb: The best deal on paper isn’t always the best deal in practice.
  7. Utilize junior-level employees. According to a Worldwide ERC white paper, almost a quarter of companies predict the number of overseas developmental or trainee assignments to grow. That presents the opportunity to increase the ratio of trainee transferees vs. senior transferees when possible. Many trainees are willing to accept reduced relocation packages in exchange for gaining global experience and career growth opportunities.
  8. Cut hardship compensation and bonuses. Financial reimbursement on real estate losses, bonuses on fast home sales and additional compensation pertaining to host-country quality of life issues can all add up. Analyze these elements of your relocation package to see if you can cut or eliminate costs. Don’t forget the option of capping bonuses as a whole; so once a cumulative amount has been reached on bonuses, no further costs to the company accrue.
  9. Review your relocation program for other places to make adjustments and cut costs. There are likely to be numerous other aspects in your relocation package where you can make minor adjustments without negatively affecting transferees. For each possible adjustment, analyze how it will impact the relocation process and make your decision in accordance with its impact on the transferee’s happiness and productivity.

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Topics: Corporate Relocation Costs, international relocation expenses, global mobility, global relocation

Corporate Relocation Policy: Relocation Tiers vs. Employee Status

Posted by Amy Mergler on Thu, Jul 21, 2016

blocks-tiers.jpgIf you are in the process of creating a corporate relocation policy for the first time or restructuring your current policy, one of the questions you may consider is how to differentiate your employees in a tiered policy.

Find out more about how to save time and money by using tiered relocation packages in our free article.

Designing Tiered Relocation Packages

There are many variables to take into account when developing your company's tiered relocation packages. Start by deciding what kinds of candidates and current employees should receive the most extensive and valuable relocation packages and what types of employees should get the more basic level packages.

Your highest tier may apply to top-level executives. You could then create another tier for middle managers, followed by a base-line tier that applies to everyone else in the company. Examine your hiring practices and trends and decide whether you'd like to have an even more pared down level for new hires, or if you'd prefer to assign tiers to recruits based on the levels of their future positions.

Relocation Tiers vs. Employee Status

As you develop your tiers, it's also important to understand how those tiers differ from an employee's moving status. While a current or prospective employee's moving status can certainly influence which relocation tier they receive, the two are not interchangeable.

Moving status refers to the employee's needs during a relocation. For example, is the employee:

  • single or married?
  • a homeowner or a renter?
  • a new hire or current employee?

It can also address more specific circumstances, including whether the employee has children in school, pets that need transferred or elderly parents who require nursing care.

Relocation tiers are certainly related to an employee's status, but you shouldn't necessarily base them on moving status. Instead, you should base the tiers on the employee's standing, or prospective standing, within the company. Basing the tiers on the seniority, salary, job title – or a combination of all three – ensures that more extensive relocation packages are justified by an employee's current and future contributions to the company.

Whatever policy you put in place, you can prevent resentment among employees by maintaining consistency when determining which employees belong in each tier. While it's important to remain consistent with your initial offerings, make sure your relocation policies include enough flexibility for you to move up a tier as a negotiation tactic or for any special circumstances that may arise.

Save Time & Money Using Tiered Relocation Packages

Topics: Tiered relocation packages, Corporate Relocation Costs, corporate relocation program

Controlling Global Relocation Costs

Posted by Jim Retzer on Thu, Jun 09, 2016

Aditi-Sharma-Jan-2015-relocation-destination-shutterstock.jpgCompanies that provide global relocation assistance for their employees can expect the usual concerns from their transferees, including selecting a mover, providing help with selling a home, support in the new location, and so on. With a global relocation, however, there are additional concerns like visas, international taxes, housing allowances and replicating previous living standards as closely as possible.

Learn more about managing global relocations in our free eBook.

Typical Global Relocation Services

In addition to the few listed above, other typical services during a global relocation include:

  • Assistance with managing relocation expenses
  • Household goods moving
  • Destination and arrival support services
  • Spousal support and counseling
  • Cross-cultural training and language classes
  • Locating quality schools for accompanying children
  • Ongoing support while becoming oriented to day-to-day life in the new location
  • Security for employees and their families
  • Personal transportation, including car purchasing, leases or company drivers

Strategies to Control Global Relocation Expenses

All these services are important, but they also increase the complexity and cost of global relocations. Here are several strategies you can employ to help control your global relocation expenses.

  1. Establish a fair ceiling for housing and related costs for transferees, making sure to account for the area’s monetary and real estate market fluctuations.
  2. Consider the length of the relocation. The longer the transferee with stay in the new location, the more the compensation rates should be in line with those of the host country. However, it is important to keep in mind that compensation should not fall significantly below what was previously earned; no employee wants to lose money as a result of a transfer.
  3. Get quotes from several relocation management companies, if you decide to use one. Determine what services are available and check customer ratings to assist your decision making.
  4. Carefully estimate the cash and other out-of-pocket expenses and resources needed for a transfer. Underestimating is one of the most common mistakes made – be sure to prepare a list of actual and anticipated expenses in advance.

A comprehensive global relocation policy will keep many factors within your control, but other factors affecting cost – the value of overseas real estate or global monetary fluctuations, for example – are not. If you allow for surprises when planning your transfer budget, you will be better prepared to get your transferees off to a good start in their new locations.

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Topics: Corporate Relocation Costs, global mobility, global relocation

The Hidden Cost of Losing Key Talent During a Group Move

Posted by Rick Bruce on Thu, May 05, 2016

Office_Relocation-thumb_.jpgThere are many corporate relocation costs to consider before a group move. Typically, easily quantifiable, up-front corporate relocation expenses are foremost in the minds of management and HR staff. Rarely is the cost of losing key talent considered. 

Find out everything you need to know for an effective, low-stress relocation in our Low-Stress Relocation Guide.

Here are just a few of the added corporate relocation expenses you may face if your key talent refuses to make the group move:

  • Potential loss of intellectual property and human assets

  • Cost of key talent going to a competitor if a non-compete clause was not signed

  • Bad public relations if high-profile company leaders leave

  • Loss of company morale during and following the move when a company already in a state of flux loses well-respected personnel

Tangible Corporate Relocation Costs of Losing Key Executives

In addition to severance pay that has the potential to equal up to a year's salary for a top executive, there are other tangible costs associated with losing company leaders. These costs won't be considered part of your corporate relocation expenses because they'll be incurred after the company has settled into the new location. But if you are unable to keep the desired staff on board, you will find that these hidden expenses will add up. Even worse, these hidden costs are not tax deductible like some corporate relocation expenses.

  • The costs of hiring and training new employees, which can equal up to five times the amount of an executive's salary

  • Loss of productivity during ramp-up time with new employees

  • Potential corporate relocation expenses if you need to look outside your new region for talent

If your company is planning a group move, wouldn't you rather have your top performers make the move with you? 

The Low-Stress  Relocation Guide

Topics: talent retention, Home Selling and Purchase Assistance, Corporate Relocation Costs, corporate relocation program, talent management

The Hidden Costs of Employee Relocation

Posted by Amy Mergler on Wed, Dec 23, 2015

100-dollar-question.jpgHidden costs can surface to cause problems at the worst possible time – often right in the middle of an employee’s relocation – and may even prevent a successful transfer. These hidden costs can be monetary in nature or can be in human terms, and may not be readily apparent.

Monetary costs are what usually come to mind when examining hidden costs, including things like utility reconnections in the new location, extra fees for transporting large items and local fluctuations in real estate values if selling a home or buying a new home. However, there are additional costs that may not be as obvious, but that can impact not only your company, but also your transferee.

Learn more about developing relocation policies with our free guide.

The Human Costs of Relocation

Human costs occur when the employee is forced to focus on the time-consuming logistics of coordinating a move, making them less effective and less productive at work.

While it may seem to make sense to save money by cutting back on relocation services and allowances, on closer examination, cutbacks to relocation or using lump-sum programs can result in increased employee confusion, resentment and stress. This, in turn, will have a negative impact on your company’s bottom line.

Your employee will have to spend time communicating with real estate agents and moving and mortgage companies, as well as doing the house-hunting legwork – much of which will need to be done during regular business hours. The more time your employee spends on moving logistics, and the unexpected expenses that a lump-sum plan may not cover, means they have less time and ability to focus on the work of training and transitioning into the new position.

If your employee has a family, there are many additional concerns that need to be addressed. For example, a move will disrupt a spouse’s career and the family income, and if there are school-age children the employee will need to investigate and locate good schools in the new area.

The stress of tackling all these tasks often leaves employees distracted, exhausted and more apt to miss project deadlines – ultimately costing the company more money due to lost productivity than it would get back from the relocation.

In some cases, an overwhelmed employee may give in to the frustration and expense of trying to juggle so much in a short time and decide to leave your company, which will leave you with the additional cost of hiring and training a replacement.

Developing a thorough and effective relocation program can minimize these stressful issues. Your program can provide for assisting a spouse with finding suitable employment in the new location – boosting morale as well as the family’s income. Additionally, the plan could also include provisions to help your employee find good area schools and deal with other settling-in concerns, keeping your employee’s distractions and stress levels down, which in turn save you time and money.

Relocating Employees with Families

Topics: Corporate Relocation Costs, corporate relocation program

3 Ways to Reduce Your Relocation Costs

Posted by Amy Mergler on Thu, Dec 10, 2015

savings-resized-600.jpgCost cutting has become a way of life in the corporate world. When relocation costs are reduced, the bottom line increases. Relocation expenses can drain other resource spending. Cutting back and controlling these expenses – without compromising the relocating employees’ experience – should be the goal of every human resource department. Unfortunately for many companies, this goal remains an enigma. However, simple changes to the relocation policy can equate to substantial savings without compromising employee morale.

Find out more about developing relocation policies in our free article.

Set Clear Parameters in Your Relocation Policy

Policy ambiguities can result in additional costs for the company. Your relocation policy should be written in easy-to-understand, simple language. Take into consideration what is needed to facilitate a relocation smoothly and efficiently, without allowing wiggle room by the employee.

Put Expense Caps on Some Relocation Benefits

You would be surprised at how many companies ignore capping expenses like loss on sale. Loss on sale clauses for employees who own homes can be a major expense that should be capped. Many homeowners have experienced depreciation of their real estate assets. This makes loss reimbursements a major expense for relocating employees. Your relocation policy should clearly define a maximum amount that will be reimbursed. Additionally, it’s critical to consider capital improvements to the property when calculating its value.

Change the Way Relocation Expenses are Paid Out

If you’re currently using traditional expense reporting to reimburse employee expenses, you may want to consider if a lump sum payout method is best for your company. Numerous expense reports generated by the transferee will result in time and costs to review, approve and issue payment for each report. A lump-sum method may eliminate the headaches and costs involved with multiple expense reports and save your company money. There are a variety of types of lump sum programs. Take the time to research and evaluate if this kind of program would be beneficial to your company.

 

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Topics: Corporate Relocation Costs, corporate relocation program, loss-on-sale relocation policy

Three Strategies for Flexible, Cost-Conscious Relocation Management

Posted by Amy Mergler on Wed, Sep 02, 2015

cost-effectiveWhile flexibility and lower costs may initially seem at odds with each other, the two often go hand in hand in the field of relocation management. In fact, a recent survey found that companies are citing cost concerns as their top reason for adopting more flexible relocation packages

What relocation strategies can provide greater flexibility and lower costs, while leaving your employees with successful relocation experiences?

Learn more about developing relocation policies in our free guide.

Use Core/Flex Relocation Packages

While the standard pre-designed relocation packages may be easy to implement, they come with limitations. Because these programs already consist of set components, an employee might be stuck with a package that leaves out a key feature or includes benefits that aren't applicable to her specific situation.

According to the Worldwide ERC, about 25% of employers now offer core/flex relocation packages. Core/flex policies solve the problems with pre-designed packages by providing offerings that contain certain core components, but that also allow companies to add or remove benefits according to an employee's unique situation. This structure empowers HR professionals to save money by delivering exactly what their employees need and nothing more.

Take Advantage of Technology

Efficient, user-friendly technology helps relocations progress more smoothly – both for a company's HR department and for the employee. What many HR professionals don't realize, however, is that great technology also plays a major role in boosting flexibility and lowering costs.

When the HR team and relocating employees have quick access to real-time expense data, it's easier for them to stay within budget. This is the case whether a company is covering all the expenses as they occur or whether an employee is being reimbursed. If an unexpected expense arises during the move, HR professionals can quickly recalibrate the budget and keep costs low. 

Intuitive, real-time relocation software also gives HR departments the flexibility to assess an employee's needs throughout the process and determine whether other aspects of the relocation package need adjusting at any point during the move.

Turn to a Relocation Professional

Even companies that have handled their own relocations for decades can discover improved strategies and approaches. Joining forces with relocation specialists who are up to date on the latest developments and technologies helps employers enhance their processes while providing more flexible relocation experiences for their employees.

With relocations becoming more complex thanks to today's global economy, organizing a series of moves can easily command a large portion of an HR professional's time. Bigger companies may even need an employee or department that's fully dedicated to relocation needs. Working with a professional relocation company can greatly reduce the cost associated with in-house relocation specialists.

Relocation professionals also provide in-depth knowledge of legal requirements, tax considerations and regional concerns that allow companies to avoid expensive mistakes and benefit from volume-driven savings.

Whether you're making small adjustments to your relocation policy or overhauling it, taking these steps can yield significant benefits for your company's bottom line and growth. By delivering more responsive relocation options, you'll attract better talent and improve employee retention – all while saving money.

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Topics: relocation packages, Corporate Relocation Costs, relocation process

Controlling International Relocation Costs

Posted by Jim Retzer on Tue, Jun 03, 2014

global employees

Companies planning to provide international relocation assistance for their employees can expect to have the usual concerns from transferees: selecting a mover, help with selling an existing home, support in the new location, and so on. In addition, there are also visas, international taxes, housing allowances, and replicating previous living standards as closely as possible. Other typical services include:

  • Assistance with the management of relocation expenses
  • Household goods moving
  • Destination and arrival support services
  • Spousal support and counseling
  • Cross-cultural training and language classes
  • Locating quality schools for children who may be accompanying the transferee
  • Ongoing support while becoming oriented to day-to-day life in the new location
  • Security for employees and their families
  • Personal transportation car purchasing, leases or company drivers
While all these services are important, they help increase the costs and complexity of international relocations. Utilizing the services of a relocation management firm is an effective means of controlling relocation costs. Third-party relocation management firms work with a network of trusted suppliers and know how to make the most cost-effective use of resources.Whether you manage your relocation program in-house or utilize the services of a relocation management company, following are several strategies that have proven helpful in controlling international relocation expenses:
  1. Establish a fair ceiling for housing and related costs for transferees, taking into account the area’s monetary and real estate market fluctuations.
  2. Consider the length of the relocation. The longer the transferee will stay, the more the compensation rates should be in line with those of the host country. Keep in mind, however, that such containments should not fall significantly below what was previously earned; no employee wants to lose money as a result of a transfer.
  3. Offer the transferee financial incentives to reduce the amount of larger household goods to be moved. In addition to the extra expense, transporting some appliances, such as washers or other appliances may be counter-productive as power and other operating requirements in the new location may be incompatible with the appliances. This will spread some of the responsibility for expenses with the employee.
  4. Get quotes from several relocation companies to determine what services are available, as well as check any available customer ratings. As with movers, not all relocation firms are created equal.
  5. Carefully estimate the amount of cash and other out-of-pocket expenses and resources needed for a transfer. Underestimating is one of the most common mistakes made – be sure to have a full list of actual and anticipated expenses drawn up in advance.

While there is much within your control, other factors affecting costs – the value of overseas real estate, for example, as well as international monetary fluctuations - are not. Be prepared and allow for at least a few surprises when planning your transfer budget for optimum assistance in getting your transferred employee off to a good start in his or her new location.

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Topics: Corporate Relocation Costs, international relocation expenses

Hidden Relocation Costs

Posted by Jim Retzer on Tue, May 13, 2014

‘Hidden costs’ can be defined as expenses, either monetary or in human terms, that are not readily apparent, but which can surface to cause problems at the worst possible time: often right in the middle of an employee’s relocation – and may even prevent a successful transfer.

Monetary costs are what usually come to mind, such as utility reconnections in the new location, extra fees for transporting large items, such as appliances, and the local fluctuations in real estate values if selling or purchasing a new home. However, there are additional costs that may not be so readily apparent but which can have devastating results for your company as well as to the transferee.

The human cost to employees and their companies occurs when the employee is forced to focus on the time-consuming logistics of coordinating a move; these employees will not be effective on their jobs and productivity will suffer.

At first it may seem to make sense to save money by cutting back on relocation services and allowances. On closer examination, cutbacks to relocation or with ‘lump-sum’ programs can result in increased employee confusion, resentment, and stress – all of which will have a negative impact your company’s bottom line.

The employee will now need to spend hours on the phone interviewing real estate agents, moving and mortgage companies, as well as doing the leg-work of house-hunting – much of which will be on your company’s time and dime. More employee time spent dealing with the moving logistics, as well as the unexpected expenses that a ‘lump sum’ plan may not cover, means the employee has less time and ability to focus on the work of training and transitioning into the new position.

Spousal employment concerns also need to be addressed – especially if he or she has already moved up their own career ladder and the move will disrupt a thriving career as well as family income. If there are school-age children, the employee will need to locate good nearby schools in the new area.

The stress of tackling all of these tasks often leaves employees distracted, exhausted and more apt to miss project deadlines - ultimately costing the company more money from lost productivity than it gets back from the relocation.

In some cases, the frustration and expense of trying to juggle so much in a short time can result in the overwhelmed employee giving up and quitting the company altogether – leaving you with having to hire and train a replacement.

A professional, experienced relocation firm can minimize these stressful issues by assisting a spouse with finding a suitable replacement – boosting morale as well as the family’s income. These firms can also help with finding good area schools and dealing with other settling-in concerns, allowing you and your employee to prepare for the new job by keeping distractions and stress levels down and productivity up, saving you time, money and everyone’s sanity.

Topics: Corporate Relocation Costs, corporate relocation program

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