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:
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 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 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.