Understanding Why Managed Caps Are Better than Cash Disbursements

When it comes to structuring relocation management programs, employers have multiple plan design options—including managed caps and cash disbursements. Both are popular plan designs. But while lump sum plans are having a moment, relocation experts know that managed cap plans offer greater advantages, both to employers and employees.  

That’s because employers want two key things from their relocation programs. They want to:

  • Manage their programs as easily and cost-effectively as possible, and
  • Give their employees a great relocation experience, so new hires and transferees get off to a great start—and stay with the company. 

That’s the gold standard everyone wants to meet. Now, let’s consider these two relocation plan types and see how they measure up.  

Cash Disbursement Plans: The Good, The Bad and The Ugly 

A cash disbursement plan, also called a lump sum plan, is exactly like it sounds. The employer gives the employee a pre-set amount of cash, much like a signing bonus, and then…

Well, that’s it. From then on, employees are on their own. It’s up to them to:

  • Obtain quotes and choose a van line to move their household goods
  • Find realtors at both locations to help with home buying/selling or rental arrangements
  • Arrange their house-hunting trip(s)
  • Arrange travel to their final destination

…all while tracking their expenses and trying to get the most from their cash disbursement! 

Now, some people are naturally good at this stuff. But some are pretty awful at it. Which means relocating employees are at risk of screwing up their moving arrangements. Or spending too much and then asking their employer for additional funds—an awkward, unwelcome problem for everyone.

Compounding the issue: because employees get to keep any unspent cash, there’s an all-too-human tendency for some people to skimp on their relocation and pocket the change. The problem with that is, they may end up bungling their relocation and having a stressful experience—the opposite of what employers are trying to achieve. 

So, why do employers even like cash disbursements? Well, for one thing, there’s not a ton of administrative work on their end. For another, program costs are predictable and budgetable. And while some employers use relocation companies to manage their cash disbursements, others can and do handle it directly.  

On the other hand, there’s no opportunity for the employer to save money with cash disbursement—and that’s a big deal. Which takes us to the managed cap plan. 

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Managed Cap Plans: The Good, The Better and The Potential Savings 

Under a managed cap plan, the employer still sets a limit on relocation expenses, as well as what services they’ll cover.

However, employees don’t receive those funds up front. As expenses are incurred, the plan either a) pays vendors directly or b) reimburses the employee once funds are spent. Typically, this is handled by relocation management companies, which provide other services as well. 

Here’s how it works, and why it works so well: 

  1. Employees still have the flexibility to customize their moves, but there’s more structure around the process, which means they’re less likely to run into logistical issues. That’s where the term “managed” comes in.
  2. Because the programs are administered by relocation providers, employers still have minimal involvement—but, at the same time, employees get more support. This includes assistance from live relocation specialists, who’ll answer their questions and guide them through the complexities of their particular moves.
  3. Often, relocation companies refer employees to a proprietary network of pre-screened vendors, which greatly simplifies things. Not only must these vendors maintain good track records to stay in the network, some relocation companies negotiate volume discounts with them—so employers’ funds go further. 

Best of all, if employees don’t spend 100% of their allotted funds, the excess stays with the employer—so the potential for savings is there, especially when employers choose affordable tech-based relocation providers. Like UrbanBound! 

In addition, because the relocation company tracks all the expenditures—and tech-based companies do this better than traditional ones—employers have complete transparency into how their money is spent, allowing for accurate budgeting and continual program improvements. 

Finally, employee satisfaction with managed cap plans tends to run high. Employees can personalize their moving experience, while still getting help and support as needed.

So, that’s why managed cap plans are “better” than cash disbursements—they’re low-maintenance and cost-effective, but still result in positive relocation experiences for both employers and employees. And that’s exactly what employers want most. 

Got questions? Want more information? Start the conversation.  

Human Resources Today