Blog: Industry Research
Top Ways Companies Waste Relocation Dollars
by Taryn Kramer | January 11, 2017
According to the Worldwide ERC, companies spend on average $25billion on relocations each year, with $9billion alone spent on US domestic assignments. While that figure seems enormous, it is worth remembering all the support components and services that comprise a mobility program. Relocating an employee, whether a new hire, existing member of staff or VIP can be a costly and complex process. Striking the right balance of investment and return is a vital element of any overall talent management strategy, so it is important for organisations to get it right – for the employee and the company.
There are a number of key areas where companies often overspend – and conversely underspend – with regard to maximizing the potential of their mobility investment.
The success of any relocation and/or assignment is dependent upon choosing the right person for the role. A candidate who is the right fit for their current role in-country may not be the best fit for the demands of relocation, whether those reasons are professional or personal. Companies can also sometimes overlook exploring options for internal or external local talent in favor of talent mobilization.
Where organisations do not have a comprehensive policy framework, or in instances where there is a lack of program governance, program spend related to exception management can have a negative impact on the overall mobility program. For example, an employee may make an exception request related to an adjustment to their housing contribution/norm that is deemed reasonable for the specific employee. However, when considered in the context of the entire mobility population, approval of a similar exception request for the total population or even a subset of the population may result in significant increases in total program spend.
Tax Equalization Payments
Temporary assignments will typically include support for tax equalization to minimize the financial tax impact to an employee who relocates temporarily from one location to another. Companies will engage with tax services providers to manage the annual (or monthly) filing requirements for eligible employees, including the calculation of a tax equalization settlement to determine any under/overpayment of employee withholding with regard to their stay-at-home tax liability. Where companies fall short is in the management of collection of underpayments due from the employee to the company, and this can translate to a substantial loss of funds for the company. There are controls that can be implemented to ensure that payments are collected while the employee is on assignment (e.g., withholding of bonus payments to cover equalization settlements), however it becomes more difficult to collect the settlement once the employees has left the company.
Hidden Costs in Household Goods Moving
It would be fair to assume that the cost of a home removal is a set cost without much room for movement. Most Relocation Management Companies charge a fee for managing household goods and as you might expect, these are marked up which creates a margin on margin scenario for customers. However, due to the differing ways companies can engage a household goods mover, this means that both the service model and pricing can vary.
There are three standard pricing and service methods in the moving industry: direct, blended and bundled as a well as a recent fourth vertically integrated bundled model. The model used can have a significant impact on total relocation cost, so it is worth taking time to ask your RMC the right questions and understand the different services available. You will of course wish to choose the best fit for both your employees’ needs but also establish if and where savings could be made.
Managing your relocating population can be demanding and complex. It is hardly surprising that few companies are able to dedicate headcount to the multiple specialist issues involved such as tax and immigration and legal compliance. While your HR team may incorporate mobility expertise, resources can be thinly stretched by business as usual. While outsourcing to an RMC can seem like a big step, it can in fact result in overall cost savings for the longer term, and may enhance the employee and internal customer experience by providing specialized expertise for a very complex (and costly) process.