Blog

Even in a challenging economy with tight budgets, is a straight lump sum payment the best option for relocation benefits?

September 2, 2009 by MSI

In today’s business climate, many human resource practitioners are challenged with reduced budgets and increasing pressure to attract and recruit top talent. In the area of relocation, when the financial resources are limited, we often see more organizations trend toward issuing lump sum payments for their incoming recruits. While a lump sum program reduces the administrative burden for the company, it has both positive and negative repercussions for both the company and the employee in the long run.  

For the new recruit or relocating employee the overwhelming advantage is that they have personal control of how to spend the money, oftentimes they are able to net out a portion of the monies for their own savings or personal spend. While individuals are enticed by the freedom, when they actually begin the process of the relocation, especially if they own a home and have a family, they are often overwhelmed and longing for assistance with both the process and the vendor management.  

For the company, the primary advantage of a lump sum program is the reduced administration and overall time commitment from internal resources. On the flip side, the company has no record of where the money is being spent or how, so employees may and often do seek out additional financial assistance, especially if they are having challenges selling their existing home. Also, from a tax perspective, the employee may be benefitting twice, depending on how the lump sum is paid. Finally, there is an indirect cost to the company of productivity should the employee not be fully functional and working in the destination on time due to their own personal management of the move and the associated suppliers etc.   

So, what is the answer for your company? We recommend that each organization first determine the overall goals of the entire relocation program, in tangent with recruiting, retention and overall human resource business objectives. Then, we partner with companies to develop a structured relocation policy, often with multiple tiered benefit levels, to support the company’s overall objectives and goals. The following questions may be of assistance as you begin this process or re-evaluate your current relocation benefits.

• How is the lump sum amount determined? Is the calculation being done in a way that is equitable and based on the employee’s location, family size and salary/grade level?
• How is the lump sum being paid? Is the benefit paid through payroll with tax withheld at the time of payment or is the amount being tax assisted? If the lump sum payment is being grossed-up, should the policy include a reduced lump sum along with a household goods move and/or other deductible benefits?
• Who is tracking the lump sum payments to account for overall spend?
• Are exceptions being made to the program and if so, who is tracking them?
• Are other bonuses distributed, in addition to the relocation lump sum, which are intended to be used to offset relocation costs? 

We continue to watch the growing trends around lump sum relocation benefits and work with our clients to ensure that the lump sum is applied correctly and equitably, continuously reinforcing the overall program goals. Have you seen a recent change in the provisions of lump sum benefits? Do you have any best practice applications?