Get the core elements of your relocation policy right from the start. You can avoid a bad employee experience and make managing your relocation program simpler if you always include the elements below in your relocation policy. A relocating staff member must understand if they're qualified for relocation benefits, what benefits they get approved for, and how to use them.
How we communicate those benefits and just what we communicate is the challenging part.
What should I communicate in my relocation policy?
The majority of companies start by communicating relocation benefits in an informal method, such as in an offer letter, and eventually move to a formalized policy document as they grow their employee relocation program. Even after relocating a handful of employees, it can be challenging knowing where to begin when writing a relocation policy. Even if you already have a relocation policy, examining it often is vital to ensure the language makes sense and clear. In some cases, small changes frequently get added to a relocation policy. With time, the document can become disjointed, difficult to administer, and confusing for employers and employees alike.
Whether you are merely beginning to write a relocation policy or are re-evaluating your present policy, remember that every relocation policy needs to address the following questions:
- Which employees are eligible for relocation benefits?
- What are the employee relocation benefits currently offered?
- Are all employees eligible for the same benefits?
- Are the benefits tiered according to the employee's level in the organization?
- What are the relocation tax implications for the company and for the employee being moved?
Let us take a look at each of these components!
Which employees are eligible to receive relocation benefits?
Obviously, company-paid relocation benefits are only offered to employees who are moving on behalf of the company for business reasons. Other questions to consider when determining employee eligibility include whether the move was voluntary or if the company asks an employee to move to a different location. For example, it can make a difference if an employee raises their hand to move to a new location voluntarily instead of based on company need. An employee relocation done at the company's direction or to fulfill a business need typically warrants more benefits to successfully convince the employee to move to the new location. While voluntary moves do not need as many benefits to convince the employee to move. (However, some companies offer the same relocation benefits for employees for both types of moves.)
Establishing eligibility parameters requires your company to specify the requirements that qualify an employee for relocation benefits. The criteria may take several factors into account such as: employee status, relocation distance, and worker position. Specifying these requirements helps you set correct expectations with employees and lower the number of exceptions to the employee's policy.
According to the IRS, employees and new hires are qualified for relocation benefits if the brand-new work area is at least 50 miles further from their house than their former work area. This is referred to as the 50-mile rule, an IRS requirement to receive relocation-related tax benefits. Employees and qualified dependents are eligible to receive benefits. A dependent is specified as a person who is declared on the employee's annual tax return.
What are the employee relocation benefits currently offered by the company?
You need to specify what the benefits include once you've determined who is eligible for benefits. The majority of your written relocation policy document will be about the employee's benefits and how they will actually use them for their move. A relocation policy needs to clearly articulate what relocation benefits are provided and how staff members can take advantage of them.
Like the eligibility section, this portion of the policy should help set proper expectations for employees and reduce any anxieties they might experience as part of the move. Also, understandably so, the employee might not understand standard relocation terms such as "buyer value option," "household goods shipment," "gross-up," or any relocation terms. Therefore it is critical to clearly explain what each term means and point the employee to helpful resources to explain how these benefits support their move.
It is also critical to explain how and when an employee must use these benefits during their relocation. To maximize the relocation policy's benefits, the employee needs to use their benefits at a specific time and remain consistent with tax rules. Managing the "when" and "how" of the employee's benefits will enable the employee to have a better relocation experience and remain compliant with IRS relocation standards. Other questions that should be clearly answered in the relocation policy should include:
- Is the employee responsible for finding their own moving companies and other suppliers for the move?
- Will a third-party Relocation Management Company (RMC) administer the benefits and facilitate their usage?
- Who will the employee talk to when they have relocation-related questions?
- How will relocation expenses be handled?
Answering these questions will make it simple for the employee and company to manage a successful relocation experience. Keep reading to see how we address each question below.
Is the employee responsible for finding their own moving companies and other suppliers for the move?
Yes, if the company does not have a formal policy or is primarily a flat lump sum employee relocation program. While this approach might work for a one-off move, it is not recommended for moving more employees. It is recommended for larger programs to use an RMC to make the process easier for all involved, which relates to our next question.
Will a third-party Relocation Management Company (RMC) administer the benefits and facilitate their usage?
If the program is managed by a Relocation Management Company (RMC), they should manage all aspects of the employee relocation from start to finish. The organization and employee would benefit from using an RMC in the following ways:
- Policy Administration – The policy benefits would be designed based on best practice recommendations and then clearly communicated with each employee before and throughout their move.
- Moving Company and Supplier Selection – The RMC will vet, source, and monitor the quality of all relocation-related services needed by the employee, including the most critical benefits such as moving services, selling a home, and finding a new home.
- Cost Containment – An RMC will closely monitor relocation budgets to ensure that each employee stays within budget and manage their spend for each move to make sure it complies with company policy.
- Risk Mitigation – An RMC will reduce company IRS tax risks by ensuring the program and policies comply with the most up-to-date standards and requirements of the IRS. Managing this aspect of your program reduces the risk of being audited and causing trouble for the employee come tax season.
- Expense Reimbursement – One of the most significant pain points of an in-house relocation program is managing the employee reimbursement of relocation benefits. They need to often be treated differently from a tax perspective. These benefits can also get intermingled with non-relocation expenses, which makes the process even more difficult. Our recommendation is to work with an RMC to let them take this complicated work off your desk and make your life easier.
- Trend Analysis & Reporting – An RMC will be able to crunch the numbers across all of your relocating employees to ensure that the policy is adequately addressing their needs when being moved by the company. Then they will make recommendations based on trend analysis to help make your program more efficient and improve the employee experience.
Who will the employee talk to when they have relocation-related questions?
With an in-house program, typically, HR or the hiring manager will have to take time away from their core responsibilities to address any relocation-related questions. These answers won't always come easy for most organizations, so employees are left to their own devices to research the correct answer themselves.
If the program is managed by an RMC, all employee questions will be directed to their RMC's assigned consultant. Unlike some RMCs, Paragon assigns a dedicated single-point-of-coordination Relocation Consultant to each employee to manage and guide their move from start to finish. We find this benefits the employee experience because they don't have to recover the ground they may have covered with other relocation-related suppliers all over again.
Do all employees receive the same relocation benefits? Or do different employees get different benefits based on employee level or status?
While some organizations offer a uniform relocation policy and relocation benefits to all employees, this is not the best practice. Instead, we recommend developing a tiered policy approach with benefits appropriate for the employee's life stage. For example, the relocation needs and budget for an intern new hire move will differ significantly from that of a long-tenured established executive. Your relocation policy program should reflect these differences as well. Similarly, you won't pay an executive the same salary as an intern, so why would you offer them the same relocation benefits? For example, it is common to offer reserve homesale assistance benefits for executives. But however not offer homesale assistance for lower-level employees being moved by the company because typically, most lower-level employees don't have a home to sell. Finally, one other benefit of offering a tiered policy plan structure is avoiding discrimination complaints. Suppose you can demonstrate that all employees of specific employee status (i.e., salary level, management level, etc.) had the same benefit eligibility. In that case, it would shield the company from the risks of potential discrimination lawsuits.
How will relocation expenses be handled?
How expenses will be handled is a big question to consider. Often companies will offer an employee a relocation lump sum to manage the entire move on their own. If the company takes this approach, the company must decide how to treat the lump sum (which the IRS views the same as a bonus) from a tax perspective. Will it be "grossed-up," or if will it be fully taxable to the employee? When the lump sum is grossed up, that means the company will be providing the employee tax assistance to receive the full amount of the lump sum. Grossing up a lump sum is recommended so that the employee does not have to pay taxes on money intended to cover the costs of their relocation.
From our perspective, a better approach is to utilize an RMC to manage your relocation expenses to make the administration of your program more efficient. Most RMC's, like Paragon, today offer seamless integration of their client's payroll with RMC apps that allow employees to submit receipts for reimbursement and policy approval. In addition to improving the employee experience, relocation expenses are not intermingled with other company expenses. Most importantly, they will be treated in an IRS tax compliant way to shield the company from risk.
Whether you are composing your business's very first relocation policy or evaluating your present policy, make sure these elements are included. You can consider various things when communicating to employees about relocation benefits. Including these elements in your relocation policy is crucial to guaranteeing your employees (and your organization) have a well-written relocation policy.
Do you need help writing your company's relocation policy?
Paragon Relocation has over 30+ years of experience helping organizations of all sizes write their relocation policies and manage their relocation programs.
Contact Paragon today to learn more!
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