Published on June 27, 2011

Employee Relocation: The Cost-Effective Alternative

If you are relocating your business, you probably want to keep some of your existing employees. It turns out, with the right support, employee relocation can be the more cost-effective alternative to new hires.


Find out more about developing relocation policies with our free guide.

The Cost of Hiring

Let's explore some of the costs involved with new hires:v--crs-kristins-blog_posts-blog_photos-falling_money_around_person-resized-600-4

  • Advertising/recruiting
  • Signing bonuses
  • HR staff time (interviews, setting up benefits packages, etc.)
  • Pre-employment screening (credit checks, etc.)
  • Training
  • Loss of productivity as new hire gets up to speed

Employee Relocation Costs

Employee relocation costs are rising as it becomes harder to sell a home. Loss-on-sale benefits, quick-sale bonuses, and other costs associated with real estate sales increase the bottom line on employee relocations. But the benefits of retaining current employees with a desirable employee relocation package are still greater than hiring new talent.

Some of the costs associated with employee relocation include:

  • Home sale assistance, which may include quick-sale bonuses or loss-on-sale benefits 
  • Moving people and household goods
  • Scouting trips for employee and family
  • Loss of productivity immediately following the move

The Hidden Costs of Employee Relocation

100-dollar-question-12Hidden 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.

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.

You can minimize several of these costs by working with a professional relocation management company. CapRelo's experience, knowledge and established processes help make every employee relocation low-stress for a faster return-to-productivity. Since this is one of the most nebulous “hidden costs” of relocation, your company can realize substantial savings.

Keep your top talent with a desirable relocation package and low-stress relocation process.

Tiered Relocation Packages

An emerging trend concerning employee relocation is tiered relocation packages. These packages are tailored to each level of employee and offer benefits according to those levels. Corporations have started utilizing tiered policies to provide more flexibility for hiring managers and to cut the overall costs of relocations.tiers-resized-600-18

Learn more about cutting costs using tiered relocation packages.

DESIGN YOUR TIERS

To organize a tiered relocation policy, first you must assign each transferee into categories. The options and benefits will be different for each category. For example, consider a corporation with a tiered relocation structure and four categories, or tiers, of employees being relocated. The first tier, Tier One might include a relocation package specifically for executives. Tier Two packages may apply to middle managers and Tier Three for all other employees. The fourth Tier might apply to college recruits and new hires.

How to Categorize Your Employees

In this tiered approach, the benefits allowance and options available in each category will directly correspond with the transferee’s position or level within the company. This is how the company uses the tiered approach to cut costs while still providing for the needs of each group of transferees.

Some companies devise tier policies according to whether an employee has been with the company or are a new hire. This approach would only save on over all relocation costs if the company has a regular stream of new hires coming in. If new hires are the minority, then the company would still be paying the full amount to relocate existing employees, i.e. fewer savings.

Relocating Homeowners

Costs to move a home-owning employee are considerably more since homeowner transferees require assistance for closing costs on their sold home (direct reimbursement or Buyer Value Option) as well as reimbursement of the purchase costs of a new home in their new location. The company’s goal is to keep real estate out of company inventory whenever possible, but holding onto a house in order to hold on to a key player in the company is sometimes the better choice.

Buyout vs. Lump Sum

Recent college graduate new hires logically will require minimal pay out, as compared to a relocating executive who would most likely require a much more substantial package. Lower level employees or middle management might qualify for a Buyer Value Option (BVO) program which puts the pressure to sell the home quickly onto the employee. However, in today’s real estate market a guaranteed buyout may have to be offered as a last resort to ensure the sale of the home. Many companies have started providing lump sum payments for lower tiers/new hires since their relocation needs are typically much less.

What You May Not Know About Lump-Sum Employee Relocation Packages

There's a lot to think about if your company is considering changing to a lump-sum employee relocation package rather than reimbursing moving expenses for relocating employees. Here are a few factors you may not have considered.

Employee satisfaction may be lower when employees are left to manage their own funds, as with a lump-sum relocation package. Employees hoping to save money (and pocket the difference) when they receive a lump-sum relocation package to pay for their moving expenses may end up unhappy with the service they receive if they shop by price for relocation service providers. This could result in a slower return to productivity as well as a lower employee retention rate following the move.

Employees who are busy organizing and managing their move will not be fully focused on their job. Moving can be a stressful time. When employees are left to fend for themselves when selling their home, lining up household goods movers, and even finding a new place to live, their minds are not on their job. This could result in lost productivity.

A lump-sum employee relocation package may not save your company money in the long run. Letting employees manage their own move can result in relocation delays if a house won't sell, and can lead to lost productivity. While lump-sum packages save your company money in administrative costs and time, they may not represent the significant cost savings you believe, especially if employee relocation packages that reimburse expenses lead to all-around greater employee satisfaction and low-stress relocations.

We're not specifically advocating one type of program over another, but it's a good idea to evaluate your situation – or call on a relocation management company to help – if you are thinking of changing your employee relocation policy.

7 Keys to Employee Relocation: A Cheat Sheet for HR Managers

sold_home-resized-600-5Your relocation program can help or hinder your efforts to hire and/or retain talented employees. A competitive relocation package is a necessity, as there is often a natural reluctance for some employees and/or their families to move to a new location.

The Human Relocation Factor

It is imperative that you design a relocation package that addresses and minimizes employee and HR personnel stress. Write your relocation policies to be attractive to transferees at all authority levels on the organization chart.

Including valuable relocation features reduces or eliminates the common "fear of the unknown" involved in a major move. Try to understand that, often, the employee's family members exhibit more stress than the transferee himself/herself. If possible, address this potential with features that instill positive feelings in the transferee's family members.

Our free article addresses the special considerations associated with relocating employees with families.

Providing home selling advice, along with financial incentives, can address this natural human factor in a positive manner. Connecting the employee with a real estate agent familiar with relocation necessities and familiarity with mortgage loan sources often removes transferee concerns about housing issues.

Keys to Competitive Employee Relocation Programs

Consider components to make your relocation package equal to or better than your competition when you want to hire and keep the best employees. You can use these suggestions as a guide or checklist to ensure your company is offering what talented employees want most.

  1. Equitable compensation adjustments if the new location cost of living is higher than the transferee's current home base.
  2. Using a top professional relocation firm to work with you and your transferee to ensure a low stress, successful change of location.
  3. Loss-on-sale reimbursement benefits for the sale of the transferee's home.
  4. Paid house-hunting trips, preferably two, enabling the employee and his/her spouse to view appropriate homes and become familiar with acceptable new location neighborhoods.
  5. Professional assistance by a relocation savvy real estate agent, and up-to-date resources for competitive, professional mortgage loan options. .
  6. Moving and travel expense reimbursement so the transferee's personal property is moved professionally and minimizes expenses for the family to travel to the new location.
  7. Compensation for time off needed to house hunt, for moving days and to get settled in the new location.

If feasible, consider offering financial assistance to transferees to assist with qualifying for a new mortgage or making the required down payment. These key components reduce transferee stress and result in more successful relocations.

You should also be totally positive when discussing relocation with all potential new hires and transferees, to help them adopt an equally positive feeling about the upcoming move. These keys help HR staff and companies enjoy consistent success in hiring and retaining valuable employees after a relocation, discussed in detail in our article on employee retention

Tips for Selling Relocations to Employees 

It's rarely an easy task to convince your employees to relocate—even when the advantages seem obvious to you. Whether you're opening a new office, staffing a remote location, or moving your entire company, relocation can be a tiered_relocation_agreements-25tough sell to even the most loyal of employees.

That doesn't mean it's impossible, however. And offering an increase of salary or benefits isn't the only leverage you have (although it is as powerful as ever). Here are three ways to convince your employees that relocation is the right move for them.

1. Validate Employee Concerns

This is the step that most relocation consultants fail to teach you. Listening to your employees' concerns about relocation should be the first thing you do after you bring the subject up--even before you sell them on all the benefits of moving.

That doesn't mean you have to agree with them. It does mean that you should listen to their concerns without saying the equivalent of, "Yes, but that won't matter once you understand the benefits," in your reply.

Let your employees know that it's a tough decision and a tough process; also let them know that it is a decision well worth making!

You'll find that they'll make the decision you want them to make, more easily and more quickly, if you first listen to their fears and concerns--and don't try and write off those fears and concerns.

2. Offer Equity in Your Company

Offering stock or other equity in your business can give you a lot of leverage when you want to convince your employees to relocate. In fact, equity is a great incentive for your employees to work harder and stay with your company longer.

Some owners and board members of non-publicly traded companies object to this on the principal that they don't want the employees making executive-level decisions for the company--something that can happen when employees own enough voting shares.

The easiest way around this is to offer non-voting shares to your employees. That way, they share in the profits (and are encouraged to work hard for your company) while you keep control of your business.

3. Offer a Pay Raise

Salary is a vital issue when it comes to employee relocation. A pay raise is the top incentive you can offer to any employee to relocate! The pay raise doesn't necessarily have to be substantial--although that can certainly be persuasive.

Since salary is typically the number one motivator of all employee motivators, it will have the most leverage when you want to convince your employees to relocate. At the very least, you shouldn't offer to cut their salary if they move!

Believe it or not, that's not as uncommon as you may think. After all, when an employee is moved from a location with a high cost of living (Boston, MA, for example) to a place with a much lower cost of living (Heavener, OK), a small pay cut can actually represent a substantial raise, once the cost of living is factored in.

Chances are, your employees won't see it this way. Even if they understand it intellectually, their gut feeling will pay more attention to the threat of a smaller number on their paycheck.

So when you can, offer a raise to encourage your employees to move. This will make it easier to talk them into relocating. And it will strengthen their loyalty to your company as well!

This checklist represents the minimum valuable features you should consider for your relocation program. Your industry or competition may indicate the inclusion of one or more additional components to ensure relocation success. The increasing popularity of top relocation firms is testimony of employers' desires for a cost-effective, low administration, stress free and productive employee or new hire move.

 

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