3 Ways Direct Bill and Lump Sum Benefits Can Work Together to Improve Your Relocation Policy

Posted by Lauren Decker on Apr 21, 2016 11:39:54 AM


When we hear about relocation policies broken into the three categories of expense reimbursement, direct bill, and cash benefits, it often feels like we’re talking about three different components that are in constantly in competition with one another.

As an HR or Mobility Professional, you probably hear things like: “Direct bill is best. Lump sum is only for interns. Expense reimbursement is the only way to save money.”

While there might be some truth to these generalizations we make, it’s important to keep in mind that these three benefits don’t always have to be in contention with one another. In fact, some of the most effective policies contain more than one benefit component.

A direct bill-based policy paired with a cash benefit is a great example of how two different policy components can work well together—given they are used together in the correct way. Policies that offer direct bill and cash benefits together are often structured with a core set of direct bill benefits and a cash benefit that can be used at an employee’s discretion.

This combination goes by several names, including “lump sum plus", “core/flex,” or (perhaps the most creative) “buck and a truck.” For the purpose of keeping it consistent, we’ll call it a core/flex policy in this blog. There are several names that this duo receives, even more proof that it’s a strong policy approach.

Let’s take a look at the top three reasons for choosing to offer a policy with direct bill and lump sum.

1. Provide Proven Process for Employees

Knowing how to most effectively use relocation benefits is one of greatest challenges for relocating employees, especially those who are relocating for the first time. When relocating employees are given a lump sum or a total allowance that they can submit expenses against, they are left to decide how and where to spend their relocation dollars.

Offering direct bill benefits as a component of your policy provides structure for your employees, empowering them to utilize their relocation benefits in the most effective way. Typically, employers leveraging a core/flex policy offer direct bill benefits for major relocation expenses, such as shipment of household goods, short-term housing, and final travel. Employers often work with a third party who has direct bill agreements with numerous relocation suppliers. This approach makes it easy for relocating employees to connect with and book quality suppliers, removing the burden of finding their own suppliers. Not too mention the fact that these employees aren’t required front costs to these suppliers.

This easy process for booking relocation services is supplemented by the cash benefit that employees receive from this type of policy. The direct bill benefits provide structure and a proven process for executing a move, while the cash benefits put them in complete control of a portion of their relocation package. Employees can use these dollars to cover smaller expenses at their discretion.

2. Creates Cost Efficiencies 

Employers reap major benefits from core/flex policies as well. Offering to cover the most common, and typically most expensive, relocation expenses with direct bill allows companies to take advantage of IRS relocation tax savings. When household goods, in-transit storage, and final travel are offered as direct bill benefits, they are considered tax excludable.

This means that neither your company nor your employee is required to pay taxes on these expenses. For some taxable direct bill benefits (such as short-term housing), employers can choose to gross-up the tax treatment or withhold the tax liability from an employee’s paycheck.

These tax savings can be especially impactful if you are moving to core/flex after only offering a lump sum. By making the switch to core/flex, you’ll remove a large amount of tax liability and greatly reduce it in other areas.

For example, let’s say you were previously offering a $8,000 lump sum (grossed up at a flat 25%). This means you’re paying a total of $10,000 for any given transferee. Now, you convert that to a core/flex policy where transferees receive $6,000 to book shipment of household goods, in-transit storage, and final travel as direct bill benefits and a $2,000 cash benefit (grossed up at a flat 25%).

You have eliminated the taxes owed on the $6,000 spent on excludable services and are now calculating the gross-up on a much smaller amount. The result is that you’re now spending $8,500 per transferee. That’s a savings of $1,500 per transferees. If you relocate 25 people per year, that’s a total savings of $37,500.

In this example, your relocating employee is getting the same value of relocation benefits, but you have greatly reduced the tax burden for them (and you), and they are provided with a better structure to plan their move. To sum it up, you’re offering them a better benefit while saving money. 

3. Easy to Scale

Whether you’re creating your company’s first relocation policy ever or are refreshing your existing policy, you want to make sure you don’t have to come back and do this same work again next year, and the next year, and the next year, and so on. You want to implement a policy that’s easy to maintain and easy to scale. Offering a policy with direct bill benefits and a cash component allow you to do just that.

Implementing a core/flex structure allows you to create a framework that all policy tiers can follow. Once you’ve established that you’re offering a core set of benefits (direct bill) and a flex (cash) component, you can simply add/remove direct bill benefits and adjust the caps to account for different populations within your company—from your executives to your interns.

To illustrate this, let’s again take a look at the policy we created above. Your employees receive $6,000 to cover shipment of household goods, in-transit storage, and final travel. They receive a $2,000 (grossed up) cash benefit to cover miscellaneous expenses.

We can apply this same framework to interns by reducing the caps and tailoring the core benefits to fit interns needs. The resulting intern policy might look like this:

$4,000 to cover final travel and short-term housing. $1,000 (grossed up) to cover miscellaneous expenses. (Remember that interns usually aren’t eligible for tax exclusions because they don’t meet the distance test).

On the other hand, you the same framework for your directors and executives by including direct bill benefits that fit their needs and raising the caps. Here’s an example of what your executive policy may look like:

$15,000 to cover shipment of household goods, in-transit storage, final travel, short-term housing, and home-finding trips. $5,000 (grossed up) to cover miscellaneous expenses.

A core/flex framework makes it easy to create policy tiers that fit the needs of the different populations without requiring you to start from scratch each time. This makes it a good fit for companies of all sizes and needs.

These are just three of the advantages of utilizing direct bill and cash benefits in the same policy. Combining the two results in a policy that is both structured, yet adaptable to meet the needs of different individuals, policy tiers, and companies. Consider implementing a core/flex policy to improve your employee experience, control costs, and scale your relocation program for the future.

lump sum for relocation

Topics: Lump Sum, Relocation Policy, Relocation Taxes

Why You Need to Get Out of Receipt Reimbursement (And What to Do After)

Posted by Aria Solar on Mar 28, 2016 2:50:04 PM

reimbursement plan for relocation

Being in the receipt reimbursement business is a tricky game. While using a receipt or reimbursement-based approach to your relocation policies is common, and certainly better than no support at all, we've seen a few common issues arise with this technique.

Luckily, there is a lot of research available and many solutions that can guide your team to a better program, creating a better experience for your transferees and giving your internal teams back a lot of valuable time. 

While the receipt reimbursement approach can be streamlined with better implementation of technology coupled by a strong, tax efficient relocation policy, there certainly are some scenarios where it might make sense to go this route—we aren't discounting reimbursement plans altogether. It's when the entire relocation program is based around receipts that the process becomes cumbersome and leaves room for potential issues in the future.

Additionally, the receipt reimbursement process is something that can never truly be automated, which should be the end goal for every part of our relocation program (and work process as a whole). 

The first potential issue we've seen come up with a receipt reimbursement plan is:

Making transferees front the money for their relocation

While this initially may seem like no big deal, there are a few reasons why having your employees front the cost of their relocation is problematic. 

The first is especially applicable to your entry-level, campus recruit, or mid-level manager employees. There's a pretty good chance that those who are just starting out in their careers aren't necessarily flush with cash. Between paying for rent, potential student loans, cost-of-living, etc, a lot of your younger employees may not have a few thousand dollars around to spend on their move—regardless if they are getting paid back or not. 

This scenario can mean the difference between a "yes" and a "no" from a cash-strapped candidate. If he or she is choosing between a job where they have to front thousands of dollars to move across the country, and another job that's either in their backyard or offers a more wholesome support solution, they're probably going to go the other route. 

Another problem we often see with fronting the cost is that a transferee often ends up taking the cheapest route possible in order to avoid spending too much money. As well know, this is relocation program pitfall #1. When you get a transferee who is hesitant to spend money and chooses cheap solutions, they probably opt-out on important things like homefinding trips and city exploration, things we know paves the way for a successful relocation and first experience with the company. 

If you instead set them up with a policy that guides them through their relocation and offers benefits like direct bill, you'll create a much more positive experience and end up saving your company a lot of money. 

The second problem is:

Receipt reimbursement creates a complex and tedious process for internal teams

For anyone who has had a hand in executing a reimbursement relocation policy, you know what a time consuming process it is. The teams responsible for the actual collection and documentation of receipts have to spend a lot of time (which is both valuable and expensive) haphazardly collecting receipts for everything from tolls, to travel, to short-term housing, and everything in between. 

Doing this for a few transferees is difficult enough, now try doing it for dozens, or even hundreds. 

Another way the this process can cause issues is because a receipt reimbursement-driven policy creates exceptions. We've seen first hand that the relocation programs with the most exceptions are ones with a reimbursement component or fully reimbursement based.

The reason for this is because if you give someone up to $5,000 to spend on their household goods, but their quote ends up being $5,300, they're probably still going to book it, submit an exception request, which then causes you to go through the process of approving or denying it.  

You put your HR and Mobility teams (or whoever is auditing the receipts against the policy) in a precarious position where they have to make judgment calls like the above situation. There are an unlimited amount of situations like this that can arise during a relocation—everyone has a special need or a special request. 

When you put HR in a position where they have to go hiring managers, recruiters, financial teams, and more, to dig up information and find out what's actually going on, it's not only frustrating but also a huge time consumer.

It takes on average 3.5 hours per transferee to audit receipts against the relocation policy, and when you look at the volume of transferees many companies have, this can take up the majority of someone's job. 

Let's look at a standard situation:

Sally spent $11 at McDonalds on 3/31 and she spent $45 for that night at dinner. There were two people traveling, and according to our policy, they get $100 for meals on day of travel. However, their actual travel date was 3/30, so which day do we count against? Is this in line with our policy? 

There is so much fact checking required with this type of policy and time spent finding out if the receipts meet or exceed the allocated amount for that category or day, that it is impossible to automate.   

How do I get out of receipt reimbursement?

We are so glad you asked! There are a lot of approaches for getting out of a receipt reimbursement plan for relocation. The first to direct bill everything you can (or that makes sense to) through a third party, and then use an MEA to supplement any additional costs or benefits that may not be specifically included in the policy. 

If you wanted to keep an element of receipt reimbursement, you could offer that solution for certain portions of the relocation that maybe not everyone would qualify for (for example, lease cancellation). Like we mentioned, there are scenarios where receipt reimbursement is a plausible solution, but using it as an all-in-one solution might not be your best bet. 

We are in a world where we no longer have to pigeon-hole ourselves into solutions that don't make sense for our teams. There was a time when a process like this was the only available solution, but now there are so many other technologies and approaches that can be taken. We have the resources to allow our internal teams to spend their time being strategic and doing what they came into their role to do, all the while creating a better experience for our transferees—so let's do that!

relocation management software


Topics: Lump Sum, Relocation Policy

Lump Sum vs. Miscellaneous Expense Allowance (MEA): What You Need to Know

Posted by Aria Solar on Mar 16, 2016 8:42:16 AM

lump sum vs MEA

There are a lot of terms we throw around in the relocation industry—HHG, containerized moves, third party vendors, core/flex, lump sum, MEA—we've become so accustomed to using these terms that the "buzzwords" become integrated in our day-to-day conversations.

However, what we may not realize is that the way we define these terms varies from business to business and industry to industry—especially as it relates to the way we refer to a "cash benefit." 

A cash benefit in relocation is simply a sum of money given by the employer to a transferee. Some companies call it a relocation allowance, some call it a move stipend, some may refer to it as a relocation voucher, a lump sum, a miscellaneous expense allowance (MEA), the list goes on. The truth is—there is no right or wrong way to refer to a cash benefit, but there are a few ways to clarify just exactly what you're talking about.

Focus Less on Terminology and More on Purpose

We tend to get hung up on all these different terms when, as we said before, everyone refers to processes and labels differently. It's important to focus less on the terminology and buzzwords, and more on the purpose.

For example, let's say that your company offers relocation packages using a core/flex approach. You subsidize the shipment of household goods and in-transit storage through direct bill, offer up to 2 flexible benefits (homefinding trip, pet assistance, spousal support, language training), and you provide a $1,500 cash benefit alongside of that to cover any additional relocation expenses. 

Instead of getting hung up on what you call that cash benefit, try to focus more on how you convey that cash benefit and its purpose to your employee. For example, you could refer to it as an MEA, you could refer to it as a lump sum, or you could simply say "Acme, Inc. is providing a $1,500 cash benefit to cover relocation expenses as it relates to x,y, and z." 

Your relocating employee isn't going to know the difference between the terms we effortlessly throw around, so by removing the nomenclature and focusing more on the benefit itself (and how you intend your transferee to take advantage of that benefit), you'll end up with less exceptions and a much clearer policy.

However, we have seen a few different trends and similarities as we reference these words, so let's take a look at what we've seen come up the most. (Keep in mind: there is no right or wrong way to reference these words, this is simply what we've seen to be most common among relocations.)

Lump Sum VS. Miscellaneous Expense Allowance (MEA)

There is no hard line drawn in the sand that categorizes the difference between lump sum and MEA. In fact, there are a lot of gray areas and similarities between the two. If the way that we explain these benefits below does not resonate with the way your team or company approaches your relocation policies, that is absolutely fine and you should keep on keepin' on!

That being said, the way in which we've typically seen companies differentiate the two terms is that a lump sum is what's offered as a stand-alone benefit, at a fixed amount, to help offset the cost of a relocation, and a miscellaneous expense allowance is offered as a sum of money in addition to other benefits.

Let's say you give your intern classes $5,000 to cover their relocation expenses and nothing else. In that case, you might describe your relocation program, at least as it relates to interns, as utilizing a lump sum approach. Once the intern gets their sum of money (beware of tax stipulations here), you're probably not too strict on how they spend it, so long as they get themselves from Point A to Point B (and then back to Point A again). 

Now let's say that you decide that you want to offer more benefits or you want to describe your relocation program for mid-level managers. For this group of people, you offer Relocation Management Software, a core group of benefits to cover HHG, final travel, and short-term housing, and you also offer an additional sum of money to cover any other relocation-related items. 

This sum of money is commonly referred to as a miscellaneous expense allowance, or MEA (although we've also seen it referred to as a variety of the other terms listed in the beginning of this article, so don't get too caught up in this if it's not how you categorize your cash benefits.)

MEAs are often given in an attempt to offset the manual work of expense reimbursement, as the process can be time consuming and expensive for internal teams to complete. Instead of employees submitting receipts for things like food/drink on final travel or homefinding trips, packing boxes, gas, getting out of leases or memberships early, they can instead use their MEA to cover those expenses and avoid the expense reimbursement process. 

There is No Be-All and End-All Answer

Whether you choose to say lump sum, relocation allowance, MEA, move stipend, or any other term as it relates to giving a cash benefit, the most important thing to remember is that there is no be-all and end-all answer. If what you're doing works for your company and your employees, then there is no reason to change that. 

This explanation is only meant to give insight into the trends we've most recently seen and try to give some context to terms which can often seem so interchangable.

The goal is to focus more on how you intend your employees to use whatever cash benefit or relocation support you give them, and be direct and clear with your language. Chances are, the more common language you can incorporate into your policy, the easier to understand it will be, translating to a more effective relocation program!

lump sum for relocation

Topics: Lump Sum, Relocation Policy, Relocation Taxes

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