If your company relocates employees, you've probably at least considered using lump sum as a method of reimbursement.
In recent years, lump sum has become a popular method of relocation expense reimbursement because it's easy to administer, and offers flexibility to employees. However, it's not always the best relocation experience and can end up costing companies more than it should. Looking for alternatives? Check out these 4 relocation programs and the benefits and drawbacks for each:
What is Lump Sum?
When a company provides a relocating employee with a lump sum, they're basically giving them a signing bonus that's intended to be used for the relocation process. The company uses whatever method they choose, often based on past relocation expenditure, to determine the amount of the lump sum, then give that amount of money to the employee.
The employee doesn't have to use all, or any, of the money for relocation. In fact, a lot of relocating employees will spend as little as possible on their move so they can pocket some of the cash. While there's nothing explicitly wrong with doing this, it often leads to a bad relocation experience. That's why many companies prefer Capped Allowance Plans.
Capped Allowance Plans
Capped Allowance Plans let the company set a max amount that the employee can spend for relocation expenses, instead of just giving them a set amount of money. It's a more structured option for relocation reimbursement.
The company typically has a policy stating what services the employee can use the money for. Sometimes they’ll even provide them with a resource to guide them through the process. The big difference between allowance and lump sum, is that if the employee doesn't use the maximum amount in an allowance, they don't usually get to keep the remainder.
This type of plan can save money for the company, but employee satisfaction often suffers because it sometimes results in overspending, which means the employee is on the hook to cover additional costs.
Flexible Allowance Plans
Flexible Allowance Plans plans are just what they sound like - very fairly similar to Capped Allowance, but more flexible. Employers break down relocation expenses into categories, and assign a maximum budget per category.
For example, if the company decides they're willing to provide reimbursement for: shipping items, home sale and traveling expenses, they'll assign a max amount that the employee can spend in each category, and allow the employee to choose the categories they need.
This helps employees who need more direction with their relocation spending, and allows for your relocation program to better fit each individual employee. Again, if the relocating employee doesn't use the maximum value in a category, they don't receive the remainder of the sum. However, with a flex plan they can transfer the unused amount in one category to another. This helps ensure the employees' needs are met to the best of the policy’s capabilities.
Core/Flex Relocation Benefits
Core/Flex is becoming the most popular relocation package for employers who are focused on cutting costs while still providing a great employee experience. With a core/flex plan, basically "core" benefits are handled entirely by the employer - the cost is fully covered, and typically the vendor is provided and direct-billed, making it super easy and stress-free for the employee. This is most often used for benefits like housing and moving household goods. The "flex" part refers to a choice of benefits that relocating employees can choose from to best meet their relocation needs.
The benefit to employers is that they're able to reduce costs by leveraging buying power and building relationships with trusted suppliers, while also capping secondary (flex) costs. Employees get a great relocation experience because their primary needs are met, and they're able to build their package to best suit their situation.
All four types of reimbursement offer distinct advantages and disadvantages that should make it easier to decide which one is right for your company. Lump sum offers the most freedom for the employee - and the least effort for the employer - but it's hard to pinpoint the right amount, and if the employee doesn’t know much about the process they can feel overwhelmed and have a bad relocation experience.
Allowance plans can save your company money, but they're less attractive to new talent, and they don’t always satisfy the needs of the relocating employee. Core/flex plans are better at addressing the needs of each unique employee, and candidates tend to see them as attractive, but they can require a little more upfront effort from employers if you're managing it in-house.
PRO TIP: The best way to manage any of these types of relocation expense reimbursement, is with expert support. Relocation specialists deal with all types of mobility policies on a regular basis, and they know exactly how to maximize their efficiency. Relocation management companies are also aware of the various tax implications involved with these policies, and help ensure cost optimization for employers while creating a positive experience for employees. Using a relocation partner is a great way to maximize your relo budget and simplify relocation reimbursement administration.
