Lump Sum Relocation Plans: What are the Challenges?
Join us for an informative webinar that will offer companies valuable guidance
Lump Sum – defined as a cash payment to a relocating employee that is intended to cover all or a portion of relocation services that would otherwise be delivered directly to the employee – is a popular term used by the relocation industry. According to SIRVA’s 2018 Annual Mobility Report, Talent Mobility for Business Growth – Aligning Practices to Drive Organizational Impact, 64% of companies offer a lump sum component as part of their mobility programs and 37% offer only lump sum plans to their employees. These plans are intended to be beneficial to all parties, providing financial support to a relocating employee and potentially minimizing the administrative needs of a company, all while providing greater predictability of anticipated relocation costs. However, the delivery of relocation support via a lump sum may come with several challenges that should always be taken into consideration. We encourage you to read the information below and invite you to join us at our upcoming webinar for further guidance on this significant topic.
A lump sum delivery approach can be administered in a variety of ways, depending on the nature and level of support a company wants to provide. The lump sum may be intended to cover relocation costs in their entirety or only specific costs designated by the company (with other core services either delivered directly or excluded from the program). Requirements around accounting for spend of the lump sum may be strongly prescribed or highly flexible. Employees may be expected to research and implement their own relocations via a self-service model or they might be provided with company-approved services, referrals and guidance. Regardless of the delivery approach, there are some common challenges associated with lump sums when evaluating the best “fit” for your organization.
Lump sum payments are taxable for the employee, while relocation expenses paid by a company on the behalf of an employee may not be. This depends on a variety of factors, from move type and destination location to the intent of a relocation or assignments and any treaties associated with it. Companies must also consider that large lump sums provided in lieu of a full program can impact an employee’s tax bracket, with potential downstream impacts on considerations such as eligibility for financial aid for any school-age dependents.
Allocation of Funds
With any lump sum approach, the intent is that the employee will use the funds provided for the relocation expenses that will be incurred. Additional guidance and education that the employee receives may drive the employee to allocate funds in a manner that will ensure a smooth relocation, transition and integration to the new location – all crucial to a successful relocation.
A lump sum delivery approach places the burden of sourcing, coordinating, managing and paying for relocation services on the employee. New hires have the added financial burden of waiting until they have been added to their company’s payroll before they will be eligible to receive funds to cover relocation expenses in instances where it is not possible to process the payment prior to the start date. Maximizing the opportunity for an employee to successfully navigate through the relocation process is critical to the success of a lump sum approach and for the relocation as a whole.
The Balance Between Employee and Business Productivity
When an employee manages his or her own relocation, the process typically takes longer due a lack of experience; the relocation may be the first and only time he or she ever moves. Even in cases where an employee may have relocated before, it’s important to note that new destinations provide new challenges that may not be anticipated (e.g., compliance, housing availability). Ultimately, company stakeholders should always consider the balance between the time (and stress) that will be incurred by the employee (and accompanying family) during a self-managed move vs. the money that may or may not be saved as a result of reduced administration for a corporate-managed relocation.
How Can Companies Meet the Challenges Associated with Lump Sums?
The numerous challenges and choices associated with implementing a lump sum approach for delivering relocation support can seem daunting, but they don’t have to be. SIRVA experts are available to offer guidance on your company’s mobility program, from its design to implementation. For more information on the current state of lump sums and how to address the many challenges associated with this type of delivery approach, please contact us at SIR-Consulting@sirva.com, and join us on January 10, 2019 for an informative and educational webinar on this topic. We look forward to hearing from you.