Relocation & HR Trends

How to Adjust Employee Relocation Policies to Control Costs

At the end of 2017, Congress passed a new tax law that among other things, slashed the tax excludable status of many employee fringe benefits—effectively making those benefits more expensive. This includes the relocation tax deduction that under the old tax law, made relocation expenses associated with moving for a job, tax excludable. Under the new law, all moving expenses are taxable, and employers would be wise to revisit their relocation policies to see how they can contain relocation spend.

There are a number of different ways employers can do this. Here are 3 ways employers can control relocation expenses in the wake of the 2018 tax reform.

1. Include a Home-Finding Trip in Your Policy

One way to control your company’s relocation expenses is to offer to pay for a home-finding trip in place of other benefits. In the past, many policies offered to cover 3 major benefits: household good moves, final travel, and storage. Under old tax law, all three of these benefits had preferential tax treatment. While household good moves and final destination travel are necessary for almost any move, storage is not always needed. So, some employers have decided to remove storage from their policy, and along with that, any temporary housing benefits. Instead, employers are offering to pay for travel and a few nights at a hotel to find an apartment or house before their employee moves.

By removing these two benefits from the policy and including a home-finding trip instead, it encourages employees to plan ahead as much as possible to ensure they can have their belongings directly delivered to their new apartment or home, and in return employers don’t have to pay for storage or temporary housing.

2. Gross Up On Internal Moves Only

While grossing up will always provide relocating employees with the best moving experience, some companies have decided to gross-up the benefits for internal relocations only. This means any new hires would need to cover the tax liability for their move.

It’s important to note that this depends on the situation. If your company actively recruits someone outside of your location, it would provide a flawed experience for that employee to pay the relocation taxes. You would essentially be asking them to pay a fee to work for your company—when you actively sought them out! However, if someone has applied to your company and identified they are willing to move, not grossing up, could be a way to provide them with a relocation benefit while sharing some of the cost with the new employee.

3. Provide a Home Sell Benefit

While the relocation tax deduction is no longer applicable under new tax law, there are still tax savings associated with a home sell benefit. Because of this, it may be worth considering adding this benefit to your policy, especially for your higher level moves. In order to control relocation costs, you can reallocate the amount of money typically offered to cover moving, travel or temporary housing, and instead, use that same amount to cover closing costs on an employee’s home sell.. This way, your company (and your employee) can capitalize on the tax savings, while still offering a very competitive relocation benefit.

Conclusion

These are all great ways to control costs without fully sacrificing the employee experience. However, there are many other ways to adjust your company’s relocation policy. Check out UrbanBound’s recorded webinar, How to Control Employee Relocation Costs in the Wake of 2018 Tax Reform, to learn more.

UrbanBound is the smartest and easiest way for employers to manage employee relocation benefits online. Through software and policy guidance, UrbanBound has been helping Fortune 500 companies and fast-growing start-ups offer competitive relocation benefits regardless of their size and budget. Plus, robust reporting tools offer unleveled transparency into relocation program performance. UrbanBound is a tech-driven way to provide a seamless relocation experience for all employees.

This is a guest post, written by Darlene Mass, a writer for the apartment rental site, Zumper.com. 

When an employee is offered a promotion in another city or the company transfers and the employee needs to relocate, employers will often offer a relocation package. While employers are not obligated to provide relocation packages, it can incentivize a valuable employee to relocate to a new city and help to keep them working at your company.  

As an employer, one of your top priorities should be ensuring that your employee has a smooth transition during their relocation. Here are a few tips on how to make your employees’ relocations as stress-free as possible:

Provide an employee relocation package.

Corporate relocation is on the rise, and perhaps your business would benefit from relocating an employee to another city. If so, you need to start thinking about relocation packages for your employees.

There are many surveys out there that try to determine the average cost of a relocation package, and they can range anywhere from $20,000 to $100,000. However, your employees will appreciate whatever support you can provide. Smaller companies or companies who relocate a lot of mid-level or recent grads, tend to provide less valuable packages.

While it’s difficult to know the specifics of the relocation package until you know the employee and the assignment, it’s important to have an idea of what you want your relocation package to include. Here are a few examples of things commonly included in company relocation packages.

• Orientation Trip: Some employees, especially expats, will travel to the new location to familiarize themselves with the area and investigate accommodation options. The orientation trip costs generally include hotels, meals, airfare and ground transportation.
  
  
• Transportation and Moving Costs: Companies may reimburse travel expenses to the new location including airfare, cost of gas, or train tickets. Cross country movers and other moving-related expenses may also be part of the package. Some companies may even hire professionals to do a full packing and unpacking of the expat’s belongings.
  
  
• Home Sale / Lease Break Costs: Any costs associated with either purchasing a new home, selling a current home, or breaking a lease are sometimes included as part of a higher-tier relocation package.
  
  
• Spousal Support: Again, in some higher-level employee moves, if the relocating employee is married, a company will provide spousal support. Which can include: helping the spouse find a job or establish their own business.

Benefits included in the package for employee relocation vary greatly depending upon the circumstance, company or employer.

Additionally, some employers offer a relocation bonus. These bonuses are typically paid as an incentive for the employee to agree to relocation or if the employer recognizes that the cost of living is higher in the new location compared to the employee’s current area. Relocation bonuses are a one-time deal and oftentimes have to be paid back if the employee leaves the company before a certain period of time.

Even the most well thought out employee relocation package may need a little tweaking. You won’t know exactly what your employee needs until it’s time for them to relocate, so keep an open mind, and be willing to negotiate and adjust the package accordingly.Be willing to negotiate on the employee relocation package.

Most employers choose to negotiate relocation packages instead of salaries. Relocation costs are a one-time expense whereas salaries are recurring.

Know which method of relocation expense reimbursement to use.

There are three primary ways in which corporations disburse money to relocating employees: lump sums, capped allowance plans (also known as direct bill), or a core/flex program.

When a company gives a relocating employee a lump sum, they are essentially giving them a signing bonus to use for relocation purposes. If the employee does not use the entire lump sum, they get to pocket the rest.

Capped allowances set a limit as to how much the employee can spend on a relocation. The employer usually pays for these expenses by way of direct bill. If money is left over, the employee does not get to keep it.

A core/flex plan includes a combination of both direct bill and lump sum. This means companies have a policy that has some expenses covered through direct bill, like household good moves or temporary housing, and for things that can’t be direct billed, the employee is either reimbursed or simply given a lump sum.

Enlist help from a relocation technology company.

Looking for a place to live, hiring movers and flying to a new destination are all things that only add to the stress of an employee’s relocation. Technology companies, like UrbanBound, can help streamline this process by automating moving to-dos in one central platform.

Plus, relocation management software can also take the pressure off of your internal HR department.

Conclusion

A lot of behind-the-scenes work goes into successfully relocating an employee from one town or country to another. If relocation is in the air at your business, it’s time to start thinking about building out a relocation package!

As 2017 comes to an end, budgets are being finalized and growth plans put in place. It may be time to ask yourself:

Is your employee relocation program ready?

If your company has big plans for 2018, it’s important that your relocation program can handle them. As you launch new products, extend your geographic reach, and expand headcount, you’ll inevitably be relocating more people.

To hit company goals, your relocation program needs to be able to support your growth by helping you recruit and relocate top talent. That means building a competitive, scalable relocation program that doesn’t cost your company a fortune to administer.

Let’s take a look at three ways you can start to scale your program and get 2018 off to a great start!

1. Create Consistency within Policies

Whether you’re planning to relocate a couple employees over the next year or a couple hundred employees over the next year, you need to have a relocation policy in place to provide structure to your employees and internal teams.

Offering relocation benefits on a case-by-case basis is a huge roadblock to creating a scalable program. Internal teams and hiring managers are left to decide what benefits to offer, costs can easily get out of control, and monitoring the success of the program is nearly impossible. Not to mention, different employees receive different benefits without a clear understanding of why can be perceived as inequitable by employees.

Even if you’re only relocating a handful of employees today, it’s better to create a relocation policy early to prepare for an increase of moves. If you wait until you need you reach a volume that you believe merits a policy, you may find yourself scrambling to pull together a policy with numerous moves just around the corner. Creating a relocation policy now (as opposed to right before absolutely necessary) allows you to standardize the administration of benefits and create a benchmark for future relocations. As your company grows and more diverse populations are relocated, such as executives and interns, you can scale your policy up or down using tiers. Taking the first step of creating a policy, even a high-level policy, will set your company, and your relocating employees, up for success.

2. Save Time and Costs with Direct Bill Benefits

As you build your relocation policy, consider the internal costs associated with each benefit type: expense reimbursement, cash benefit, and direct bill. Some relocation benefits are more expensive and time-consuming to administer than others.

For example, let’s say you offer up to $5,000 for reimbursement of relocation expenses. For your internal teams, this means specifying which expenses are covered by the benefit, auditing the submitted expenses against this list, and processing the payment. If an expense is submitted that isn’t included in the policy, you’ll find yourself spending extra time trying to get an exception approved or communicating to the employee why the exception will not be granted.

Cash benefits such as lump sums may be easy to administer, but they an still result in unforeseen costs for your company. A cash benefit is considered fully taxable, thus your company must decide how to handle the tax implications. Companies either gross-up the estimated tax liability or withhold taxes on behalf of the employee (resulting in the employee getting the total amount less taxes). As a result, your company either ends up paying more in taxes or your relocating employee only receives a portion of the intended benefit.

Direct bill benefits are a third alternative that offer both time and cost savings for your company. Offering direct bill benefits mean that your company pays suppliers directly for employee relocation services—entirely bypassing the relocating employee. Companies usually work with third parties to facilitate this transaction because of their established direct bill relationships and expertise. The third party handles everything from understanding each employee's unique needs to soliciting quotes and securing suppliers. On top of the time savings, your company can take advantage of tax savings with direct bill benefits. When the employer pays suppliers directly for deductible relocation expenses (i.e. household goods shipment and final move travel), those expenses are considered tax excludable. This results in time and cost savings for your company, making direct bill benefits an attractive option as you grow your relocation program.

3. Drive Efficiency with Technology

Utilizing technology to power your relocation program creates efficiency that can’t be achieved or replicated by people. While it’s important to ensure relocating employees have a person they can reach out to for help throughout their relocation, there’s also an opportunity to automate a number of relocation tasks.

Here’s the good news: you don’t have to sacrifice employee experience to achieve efficiency through technology. Many employees today want access to online, self serve tools to manage their relocations. In fact, they expect it because it’s how they manage nearly every other part of their lives.

For your internal teams administering relocation benefits, technology can save valuable time while providing more insight into your relocation program than ever before. Bringing key processes online, like initiating benefits, signing documents, and distributing information to employees, cuts down on small back and forth tasks that can add up to a large amount of time. Freeing up this time allows your teams to spend time on more valuable tasks. And, by bringing relocations online your team will gain increased visibility into employee progress and relocation spend—enabling them to analyze data faster and make educated decisions about the future of your program.

Scaling Relocation: 2018 and Beyond

If 2018 is the year of growth for your company, make sure your relocation program is ready to meet those growth needs. If you don’t have guidelines or policies in place, consider implementing them before your company starts relocating several employees. Even if you do have a policy, evaluate your current benefits and the cost of administering them.

Scaling doesn’t just mean executing more moves, it means executing them in an efficient, cost-effective fashion. And, finally, don’t underestimate the value technology can add to your program. It not only helps drive efficiency, but it’s become a necessary component for employees executing their move. With these components in place, you can be sure to get 2018 off to a fast start!