Relocation Packages 101: How to Create, Manage & Negotiate Winning Relocation Benefits in the Era of COVID-19

Complete Guide to Employee Relocation

Any way you look at it, employee relocation is an essential component of modern business. Companies large and small, in the U.S. and on a global basis, use employee relocation as a tool to deploy their human assets strategically. The practice is so popular, it’s given rise to a $25 billion industry—the relocation management industry! 

In recent years, technological advances have added a whole new dimension to the relocation management industry. In fact, there are as many ways to approach employee relocation as there are employers.

There are nearly as many questions, too. As the first tech-driven relocation management company, UrbanBound has pretty much heard them all. For your reading pleasure, we’ve rounded up the top 20 questions we get most frequently from employers, along with our best, in-a-nutshell answers. If you have questions about employee relocation, this is a great place to start.

What is Employee Relocation?

Employee relocation is when an employer moves a worker, new hire or even an intern to a new location for business purposes. Many companies pay part or all of the employee’s relocation expenses and also help with the moving arrangements.

Companies do this via an internal mobility team or by outsourcing the work to a relocation management company, or RMC. Many companies consider their employee relocation program essential to meeting their recruiting goals. In fact, the top reasons employers utilize employee relocation are:  

• To fill positions internally by transferring and/or promoting proven employees
• To recruit specialized talent that can’t be found in-house
• To combat a talent shortage in the employer’s home city 
• To bring along key employees and executives when relocating headquarters to a new city or opening up a new location.  

What Relocation Statistics Should I Know?

So, the first thing you should know about relocation statistics is that they’re always changing. What was true just a few years ago is no longer the case today, and what we write here today may no longer be the case tomorrow. That being said, here are a few basic relocation statistics you probably should know: 

• Companies spend an average of more than $16,000,000 on employee relocation per year.
• It costs an average of $97,000+ to relocate employees who are homeowners.
• It costs an average of $24,000+ to relocate employees who are renters. 
• Roughly 60% of employers outsource their mobility function to relocation management companies.
• About 28.5% of job applicants are looking to relocate to a new metro area. 

Does Employee Relocation Vary by Industry?

Yes, it really does! Industries differ in terms of their recruiting goals, challenges and practices, and this is reflected in their approach to employee relocation. 

For example, the healthcare industry—which has traditionally offered fairly modest relocation benefits—is facing an urgent physician shortage. As a result, some forward-thinking healthcare organizations are ramping up their employee relocation programs.  

Another example is the technology industry, where recruiting is also fiercely competitive. While studies indicate that three-quarters of the tech workforce is willing to relocate for work, the high cost of living in established tech hubs like Silicon Valley create a hiring challenge. Furthermore, adopting cutting-edge relocation software has become an industry trend for tech employers, since they’re appealing to people who know and love technology.

What’s Involved in Employee Relocation?

While there are many ways to slice employee relocation, it basically boils down to four key activities: 

• Physically moving the employee to his/her new location
• Physically moving his/her stuff there, too
• Finding housing, whether buying or renting 
• Helping the employee acclimate to his/her new area  

Of course, within these four areas there are infinite subsets, such as moving spouses and families, transporting pets, and storing belongings until permanent housing is found. And at the end of the day, the acclimation process can be most challenging of all.

In short, because every relocation is unique in some respect, one hallmark of a well-designed employee relocation program is that it’s flexible enough to address all such variables.

What Are Some Typical Employer Relocation Benefits?

While employee relocation benefits vary, often they are organized around helping employees accomplish the activities outlined in Question #4. As a result, typical employer relocation benefits include assistance with:

• Moving (known in the industry as household good shipment)
• Short-term housing (some employers provide corporate housing)
• Home selling and purchasing—or, alternately, rental-related expenses 
• Transporting employees to their final destination (flights, rental cars, train tickets)

Although employer relocation benefits consist of similar components, employee benefit packages can be structured a number of different ways—i.e., lump sum benefits, managed budget plans, full reimbursement, etc.

What are Typical Relocation Expenses?

Typical relocation expenses include coverage for all the services and benefits mentioned above, plus applicable taxes. Depending on an employer’s relocation program, these may be paid for by the employer or employee—or, through some form of cost sharing. 

In addition, employers must pay for the expense of administering their employee relocation program, whether covering the salaries of an in-house mobility team or paying fees to a third-party relocation management partner. 

Are Relocation Packages Taxable?

Unfortunately, yes: relocation benefits are now taxable to employees. Furthermore, relocation programs no longer offer employers the tax advantages they did prior to tax reform. 

Before the Tax Cuts and Jobs Act of 2017, relocation benefits were not considered taxable income to employees, and employers could deduct many relocation expenses incurred on behalf of employees. 

Now, however, the opposite is true. Not only have employers lost a valuable business deduction, but employees must pay taxes on relocation benefits they receive. To keep their relocation programs competitive, many employers elect to gross up their relocation benefits to cover the additional taxes their employees incur. 

If you’re involved in employee relocation, it’s essential to have a good understanding of how relocation taxes and gross ups work—and we can help. 

How Much Do Employee Relocations Normally Cost?

Generally speaking, employee relocations are expensive, although it really depends on each employer’s relocation benefit package. As a rule of thumb, it costs more to relocate a current employee than a new hire and it costs more to relocate a homeowner than someone who rents—as borne out by these relocation statistics:   

Type of Employee Average Cost

Current employee – homeowner $97,166

New hire – homeowner $72,627

Current employee – renter $24,216

New hire – renter $19,309

What Are the Challenges of Global Relocation Compared to Domestic Relocation?

Global relocation is inherently more expensive and complicated than domestic relocations within the U.S. Beyond the greater distances involved and the potential of language barriers, there are other unique issues, including:

• Complex logistics – Including the successful navigation of visas, customs and tax implications. International relocations require more hands-on mobility support. 
• Length of assignment – Unlike domestic relocations, which may be open-ended or permanent, most global relocations are undertaken for a fixed length of time, which is specified upfront in a letter of assignment. The length of the assignment impacts many aspects of the relocation package, including what benefits the employer chooses to cover. 
• Higher risk of failure to acclimate - Assimilating to a new culture is one of the most difficult challenges employees face, and failure can be very costly to employers. For this reason, some global employee relocation policies offer assistance from a “destination service provider” that specializes in helping employees acclimate.

What’s a Good Relocation Policy?

Once again, this varies by employer (and employee). But generally speaking, a good relocation policy is flexible enough to meet each employee’s unique needs, yet is also cost-effective for the employer—not to mention relatively easy to manage. 

At the end of the day, the key question will be: did the employee have a positive relocation experience?  Did he/she arrive on Day One, ready to get to work? And did they employer feel the relocation was worth the expense?  

What Are Some Employee Relocation Best Practices?

Because employee relocation can get incredibly complex, and because misunderstandings can cost employers both money and goodwill, our essential best practices for employers include:

• Offering different tiers of benefits to different levels of employees. (See Best Practices for Relocating Different Types of Employees.)
• Communicating clearly and specifically regarding relocation benefits and expectations—i.e., how long it should take an employee to relocate, what is and isn’t covered, etc.
• Continuously looking for ways to improve the program and keep costs under control.
• Measuring the relocation program’s costs and effectiveness

What Makes a Good Employee Relocation Program?

A good employee relocation program offers transferring employees a nice balance of choice and flexibility, while providing employers with excellent value for their investment. While most employers aren’t there yet, analytics are playing an increasingly larger role in helping employers gauge just how “good” their relocation program is. In this regard, four key KPIs to measure include:  

• Program costs and cost savings  
• Employee satisfaction with the relocation experience
• Turnover rates for newly relocated employees  
• Effectiveness in achieving key initiatives  

What Are the Different Types of Employee Relocations?

There are a number of different ways to characterize the various “types” of employee relocations. For example, for many employers, relocating current employees vs. new hires are two different types of relocations. Similarly, relocating single employees vs. those with families are two different relocation arrangements—as is relocating homeowners vs. relocating renters. 

And of course, moving an intern or entry-level employee is typically a very different type of relocation than that of mid-level and C-suite employees. 

Often “types” of employee relocations comes down to different degrees of complexity and their corresponding costs. The good news is, employers can structure different relocation benefits to apply to different types of employee relocations however they see fit.

What is a Relocation Package and Should My Company Offer One?

A relocation package is the total of all the financial benefits you provide to relocating employees—i.e., moving benefits, housing assistance, transportation costs, even the tax gross up sum, if you’re paying it. A relocation package also includes any personalized support you provide to employees during their move, whether via your in-house mobility team or through an outside RMC. (Often the difference between an “average” relocation package and a “good” relocation package comes down to the quality of support that’s provided.) 

As to whether your company should offer a relocation package, that’s up to you. If your company is in a competitive industry, if your hiring efforts have been stymied by the current talent shortage or if you’re opening up in a new location, a relocation package can give you that competitive edge you seek. Many top employers depend on their relocation programs to help them maintain their leadership positions.   

How Should I Negotiate Relocation Package Options with My Employees?

It’s entirely normal for new hires to want to negotiate their relocation package. The trick is to negotiate benefits will entice them to accept your offer, but doesn’t break the bank on your end. Good negotiating involves achieving the balance of these three factors:

• Your new hire’s needs
• The cost of living in the destination city
• Your relocation budget 

Before you engage in negotiations, calculate what the actual cost will be for the employee. This can help you set your maximum and minimum offers. Be open to compromise, but try to avoid making program exceptions.