Your company is smart to offer relocation benefits to attract talented candidates and retain current employees transferring locations. After all, it’s one of the critical factors top talent weigh when contemplating job opportunities. However, if the relocation package you’re offering is a modest lump sum—say, a $5,000 relocation allowance—it may not be sufficient to get the job done.
On the one hand, you may lose your coveted candidate to a competitor that offers more generous relocation benefits. On the other, you may land your talented new hire—only to promptly alienate them when they are saddled with excessive moving-related expenses your relocation allowance didn’t cover.
To ensure your relocation benefits are effective, it’s important to understand actual relocation expenses in full. That way, you can reason why maybe a $5,000 allowance or reimbursement program may not be enough to relocate your employee. Fear not! We’ll help you identify strategies for making the most of cash-only relocation programs (even on a limited budget).
A Cost Breakdown of Employee Relocation Expenses
Most long-distance relocations include three categories of expenses, not to mention negative tax consequences incurred by employees if the benefit is not grossed up. (More on that here).
Moving Your Employee’s Stuff
When it comes to transporting your employee’s belongings, there are two types of moves. First, there is a consumer move. This is what happens if your employee, as an individual consumer, makes direct arrangements with a local mover, often found through Google or word of mouth.
What are the potential issues with consumer moves? These types of moves likely do not include add-on services, such as packing help. In some cases, the move may not be insured. Consumer moves can be risky because moving fraud—where crooked companies hold your belongings hostage until you pay extra money, not in your agreement—is on the rise.
Corporate moves, on the other hand, are typically based on long-term relationships between employers (or their agents) and established moving companies that have already been vetted. Contracts generally including packing, loading and unpacking services, property damage insurance, and a guaranteed window of delivery—all conducted by thoroughly-screened, drug-tested movers.
While a corporate move delivers a much better relocation experience to employees, the cost may exceed your $5,000 lump sum right there. And if your cash-only relocation program doesn’t include a supplier network or at least some detailed recommendations, there are numerous pitfalls your employees can encounter.
If your relocating employees own a home, they will face a host of time-consuming home buying and selling tasks and fees. Even if they don’t, they may incur a lease breakage fee. Plus, few relocating employees can secure permanent housing in advance of moving. As a result, offering temporary housing is the best way to speed the move and ease the transition while employees ramp up in their new location.
The challenge: furnished housing costs 40% or more the cost of an unfurnished apartment. Hotel living can be even pricier and may translate to employees eating out every night. In which case, you’ll have to ask yourself, how far will that $5,000 relocation allowance really go?
Final Travel to the New Location
Chances are, you will be eager to get your new hire settled in at their work location as quickly as possible. Yet, according to one airline study, the most affordable way to book flights is to do so 70 days in advance. If your employee is on a tight relocation schedule, they can expect to pay more for their flights.
Tax Consequences of Relocation Benefits
When the Tax Cuts and Jobs Act went into effect on January 1, 2018, it changed the way the IRS treats relocation benefits. No longer are employee relocation benefits deductible to employers. Instead, they are treated as taxable income for employees.
This leaves employers with two unappealing options: gross up the relocation allowance paid to employees to cover their taxes (which drives up your cash-only relocation program costs), or let employees and candidates bear the burden—and risk driving them away.
Get More from Your Cash-Only Relocation Program
Once you consider actual relocation costs—not to mention the fact that most employees don’t know how to allocate their relocation dollars best—it’s easy to conclude that merely offering a cash-only relocation program may no longer be your best move.
Even if you’re not in a position to increase your relocation allowance right now, shifting to a managed lump sum relocation program may enhance your employees’ relocation experience. Under these programs, employees still receive a budgeted relocation allowance, but they also gain access to a preferred network of movers and suppliers, plus personalized guidance for making the most of their relocation dollars.
In short, any amount relocation package will likely be appreciated by your employee. However, it’s essential to be realistic about what amount will actually provide your employees with a great experience. While $5,000 upfront might seem like a generous amount, when you consider everything that goes into the cost of relocating, it may fall short and leave your employees frustrated and paying out of pocket. However, there may be a way to make your cash-only relocation program seem like a million bucks! You have to find the right partner. Next step: see how we do it at UrbanBound.