Why does it cost so much to move an employee?
Keep reading to find out! Plus, you'll learn tips on developing the best employee relocation package that reduces costs while improving the employee experience, and you'll learn pitfalls to avoid at the same time.
When do companies need to offer an employee a Relocation Package?
A company should utilize a relocation package is when a company wants to move an existing staff member more than 50 miles from the current office.
Why would the company offer an employee a relocation package only if they are moving more than 50 miles away?
The short answer is taxes! The IRS provides businesses and their employee's certain tax benefits when they move from one location to another for work BUT, that is only the case if the employee is moving more than 50 miles away from their old office and home location for work. Relocation Experts generally refer to this as the "50-mile rule".
What is a relocation plan or package?
A Relocation plan or package generally covers the employee's reasonable moving and other relocation related expense. By providing transferees a relocation plan, employers provide comprehensive monetary and other relocation assistance to alleviate the staff member and their family of the anxiety related to the move's cost. A relocation plan developed on best practices provides comfort and incentive to accept the job offer for the transferring employee. Plus, it reflects positively on the business's credibility for drawing in top talent in competitive fields.
What is Relocation Assistance?
Relocation assistance happens when a company supports new hires or current staff members with relocating for work from one location to another, whether it's a brand-new city, state, or country. It is a benefit created to reduce the monetary concern of moving and get the employee to begin in their brand-new position as rapidly as possible. The relocation assistance plan might cover many aspects of the moving process, including packing and unpacking services, moving services, temporary lodging, selling a home, acquiring a new house, home mortgage assistance, cultural training, and language training. A relocation policy and program can provide peace of mind to a prospective employee who would otherwise have to pay the expenses of a move. Furthermore, investing in an employee's relocation will reap the company rewards long term by supporting the organizational strategic goals of employee recruitment and retention.
How do I create an employee relocation policy?
Companies can customize their relocation plans based on their industry's competitiveness, budget, and employee need. Your relocation policy can include anything from a few resources you send to the employee to a white-glove concierge all-expenses-paid experience and everything in between.
Some questions and considerations to address when starting to draft your relocation plan, policy, and or program:
- Why is the organization drafting a relocation plan or program?
- How does relocating employees support the business growth or revenue goals of the organization?
- How does relocation fit into the overall talent management strategy of the organization?
- How many employees are we planning on moving?.
- What benefits should the employee expect to receive when being moved by the company?
- Are our relocation benefits competitive with other companies in my industry?
- What kind of budget is available to move an employee?
- Is the relocation policy fair? Is the policy equitable to all employees of a similar level or salary to comply with HR policy and employment laws?
- Is the policy tax compliant to avoid the risk of an IRS audit?
- Is the relocation policy and program set up to take advantage of the tax benefits afforded by the IRS?
How do I manage moving an employee?
Numerous organizations either designate an in-house relocation manager to help oversee the move from beginning to end or turn this complicated job over to a professional relocation management company (RMC). The benefits of using an RMC are:
Frees up HR or Management to focus on strategic talent management goals
It saves the organization valuable time and money.
Reduces risk from an IRS audit or employment discrimination lawsuit
Most importantly, it improves the employee experience, which will pay dividends with retention of the moved employee.
Successful employee relocations depend on competitive, thorough relocation plans. No matter the type and number of relocation plan elements, fulfilling both the employer and employee goals will always be the most critical relocation program achievement. Also, today's best-practice relocation policies allow for the flexibility to tailor them to the needs of either the company's budget or the employee's circumstances while being compliant with HR policy and applicable employment and tax laws.
How much does it cost to use a Relocation Management Company?
The short answer is (relatively) not much! Relocation Management Companies, like Paragon Relocation, specialize in reducing the organizational stress of moving employees while making the employee's move experience seamless so that they are happy and productive in the new job location. In addition to easing the relocation management stress, we also manage all aspects of the employee policy counseling, relocation supply chain, and employee expense reimbursements while keeping relocation costs as low as possible. That is not to mention staying on top of the latest tax and employment laws to ensure the program avoids costly mistakes. Managing a relocation program sounds like a lot - and it is! However, most RMCs can tap into their resources and experience to make the process easier on virtually any organization.
Furthermore, RMCs can spread the costs of administering an employee relocation program over many client's employee moves, leading to cost efficiencies using systems, technology, and supply chain management, actually making the relocation process cheaper for your organization overall. As part of that, RMCs get access to discounts from supply chain partners, of which we take a small percentage to cover our management fees. Also, if the employee move includes Homesale Assistance, for example, the upfront client fee to manage that move might even be $0. That's less than a cup of coffee at Starbucks! In this case, the client would only be responsible for paying for the direct relocation costs (after discounts). Beyond this, Relocation Management Company costs average about 2% of overall total costs to relocate an employee. Isn't that a great deal to make the employee relocation experience easier? We think so!
What Does a Standard Relocation Plan Include?
A typical Employee Relocation Plan includes these core benefits:
Complete pack and unpack services through a qualified and insured household goods moving company.
The staff member's household goods are loaded by a moving company, saving the employee time and stress. Quality RMCs only use moving company's with sensible insurance protection and 100% background checked employees. The difference in quality between trusted moving companies and those found scattered across the internet can be substantial. Keep in mind even the best moving experiences include some broken items from time-to-time. So it is essential to work with a partner who has a consistent claims management process and has a reputation for quickly making things right when things go wrong. When comparing moving quotes, keep in mind that moving charges are typically based on total weight, insurance for damaged or lost goods, the distance being moved, and the number of labor hours for moving company employees. When comparing household goods moving quotes for relocation, it is vital to get an apples-to-apples comparison. Today most RMCs use technology to provide clients with immediate access to quotes from high quality moving companies at the most competitive prices.
Homesale Assistance for Homeowners
Offering employees homesale assistance can help in a variety of ways. From company-sponsored compensation for cash lost on quick home sales, professional marketing assistance accelerates sales to the employer purchasing the house.
Rental Assistance for Renters
Renters can expect companies to pay charges for early lease termination. Other benefits for renters might also include support to help them find a new home in the new location. Guided Rental Tours is an option to consider for Renters to find a rental in the new area. Keep in mind, there is a client fee to pay the realtor who hosts the rental tour. As a bonus, most RMCs offer renters looking to buy a new home access to their preferred real estate broker network at no additional cost, or even with a cashback reward to the employee!
House Hunting or Home Finding Assistance Trips
Relocation programs frequently include at least one, preferably 2, company-paid home hunting trips of short duration to give the transferee and family opportunities to discover new homes in the neighborhood of their choice.
Home Purchase Assistance
Is your employee intending to buy a new home in the new location? Great! In this case, most companies offer some monetary support to defer the costs of buying a new home. This support comes in the form of handholding from start to finish with an introduction to local area expert real estate agents, starting the pre-qualification process with preferred mortgage lenders, and more. Also, companies often reimburse the "normal and customary buyer's expenses" on the new home purchase in the destination location for executives of a certain level or tier.
Temporary Living, Corporate Housing, or Extended Stay Reimbursement
Most standard relocation policies include 30 days of temporary housing for employees being moved by the company. Why do companies pay for Temporary Living when relocating employees? Companies pay for temporary housing when moving an employee so that the employee has time to search for a new home, get settled in the new location, and start work in the new location while other aspects of the move are taking place. Some organizations offer up to 60 days of Temporary Living (or more) to higher-level executives, thinking that it might take longer to find the right home in their budget.
Household Goods Storage
If you are offering your employee 30 or 60 days of temporary housing, where will they store their household goods just moved by the moving company? Household goods storage, most often managed by the moving company, is typically offered in conjunction with the same amount of days as the temporary living benefit. By offering storage, it allows the family's stuff to arrive safely in the new location, ready immediately to be moved into the new home when it is time to move in.
Final Move Benefits
The final move benefit relates to all expenses incurred due to the family's final move to the new location, such as travel, meals, and lodging along the way.
Auto Shipment
If the employee is flying to the new location, most companies will ship up to two cars to the new location. Suppose the distance of the move is relatively short. In that case, it is permissible to ship one vehicle and have the family drive the remaining distance, with mileage being reimbursed by the employer at the prevailing IRS mileage rate. Most relocation policies require that the mileage not include more than 10% of the direct route distance between the old location in the new. Why? The mileage reimbursement limit prevents the company from paying for the extra trip to Disneyworld or some other out-of-way location!
Miscellaneous Allowance
The Miscellaneous Allowance benefit is intended to cover all the "incidental" expenses that the family incurs related to the move. When families pick up and move their lives to a new location, many nominal charges come up. Rather than waste company time and resources on approving and reimbursing each one, the miscellaneous allowance is a great catch all for all other employee expenses. Most companies offer the employee $1,000-8,000 for this benefit depending on the employee's level in the organization. Keep in mind, this money is considered taxable income to the employee. If you intend to offer the employee the full amount of the allowance, you would have to "gross-up" the amount to cover the employee's taxable responsibility. Discussing gross-up in detail is beyond this article's scope, but your RMC can provide best practice recommendations to consider.
These are the most common benefits of typical relocation plans. Depending upon your industry and office locations, there might be other additional benefits to consider.
In addition to the above other relocation plan benefit options might also include:
- Spousal/Partner Assistance to help find work in the new area.
- Childcare expenses and Eldercare Assistance for transferees taking care of elderly parents.
- School Search helps school-age children to find the best-rated schools in the area.
- Loss-on-Sale allowance in the event your present house sells for less than its purchase cost (not unusual considering that the Great Recession).
- Home Visit Trips for executives who are spending an extended time away from family as part of the move.
Your standard relocation package may or might not consist of some or all of the noted features. Nevertheless, in all cases, you need to compare your package with those of your competition regularly. If your relocation policy is significantly deficient in some areas, make senior management familiar with the discrepancy, recommending them to think about upgrades to keep your standard package equal to your competitor's packages.
Do Most Companies Offer Relocation Packages?
In years past, organizations provided relocation help practically solely to higher-level staff members or specialized professionals. Today, with a more international economy and a better-educated international workforce, the competitors for the very best skillset are more vital than ever; thus, innovative companies are using relocation assistance to draw in and keep their best employees.
A recent survey by Atlas Van Lines reported an increase of 13 percent over the three previous years among businesses providing relocation assistance. Companies are finally figuring out that having a robust and attractive relocation plan makes outstanding business and branding sense and has become a reality for those companies that want to remain competitive.
How Has Relocation Services Changed Over Time?
What Kinds of Employee Relocation Plans are Available?
There are nearly as many types of employee relocation plans as employees who require relocation assistance and the companies that hire them. The business's financial resources, talent management strategy and the employees' needs play roles in identifying the size and support provided in a relocation package.
A core or standard employee relocation package generally covers the expenses of moving, help with selling an existing house and expenses incurred for home searching, temporary housing is essential, and all travel costs by the employee and household to the new location. In addition, today, companies are offering employees more freedom and flexibility than ever to choose the benefits that suit them within the employee's relocation budget. In conclusion, the best RMCs help organizations design custom-tailored, competitive, and compliant policies to meet today's talent management demands.
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