Each year, companies relocate to save money on operation costs or hire people from other cities. Employers need to consider moving current employees to their new locations or paying for new employees to relocate. When employers are thinking about relocating their office or one of their valued employees, a lump sum relocation package is a great incentive.
Lump sum relocation packages are affordable and provide flexibility for relocating employees. Lump sum packages are adjustable according to your company’s needs and are becoming more popular as companies move all over the world.
Employees should have clear communication with their employers before signing up for a lump sum relocation package. If they are not careful, employees can face difficulties with an inadequate lump sum package or a hefty income tax bill. We’ve put together a guide to address all your questions about lump sum relocation programs.
Lump sum relocation payments are a single payout in a certain amount designed to cover the cost of relocation for employees, especially when the company requires its employees to relocate. Lump sum packages include costs related to long-distance corporate moving, both nationally and internationally. This might include temporary housing, closing costs of the current home, lease agreement early termination fees, and the move itself.
While any employee benefits from lump sum moves, these types of packages are useful for entry-level employees or recent college graduates. Lump sum relocation packages became popular in the 1980s and are now one of the most common methods of providing corporate moving expenses.
Lump sum relocation processes offer three main advantages.
Lump sum payments offer more flexibility for the employee. Employees have the freedom to spend money as needed. Lump sum programs give employees more control over this new stage of their lives.
When employees are in control, they have a sense of ownership over their relocation moving process. They can best provide for their families and assure their loved ones that a stressful process will be handled with ease. Employees make their own wise decisions regarding their transition.
Buying and selling a home is stressful enough without the added pressure of moving on someone else’s schedule. Lump sum relocation allowances help employees transition to an unfamiliar location without additional financial stress.
In addition to easing the stress of relocating employees, lump sum payments also ease the stress of administrative staff. Giving lump sums to employees takes out much of the grunt work for employers. If the company is relocating internationally, employers do not have to deal with:
Employers prefer this type of payment because they have less responsibility in the moving process, providing better use of their resources. The human resources department can use its energy to assist employees in other areas more effectively. Employers can have less stress when dealing with long-distance corporate movers.
Lump sum payments also retain good employees and build trust between employees and their companies. Employers who provide such payments for their employees demonstrate that the employees are valuable assets to the company. Employees receiving lump sum payments for relocation are worth the company’s time.
Lump sum payments require less cost upfront for employers. Employees should look into whether or not their company offers support programs and professional guidance during this process. Employers should research bundle plans because not all lump sum payment plans offer benefits or are cost-effective.
Lump sum payments allow the company to make better use of its budgets. Lump sum allowances provide relocation benefits for employees without employers having to spend too much money. Lump sum programs can also provide tax benefits.
Although lump sum payments can be budget-friendly, both parties should practice good record-keeping and keep track of all spending. Employees need to research whether they will have to pay taxes on the money they receive.
Depending on a company’s needs, employee relocation packages can take various forms. Different lump sum payment allowances provide more control for the employer, more flexibility for the employee, or more money saved. To determine which is the best fit for their companies, employers use factors such as:
Here are the four most common types of lump sum programs.
This payment type offers a fixed rate — typically between $1,000 and $7,500 — for all employees, whether entry level or executive. Flat lump sums for all employees even out the playing field and demonstrate that moving costs the same, no matter the employee’s experience level.
Unlike the flat lump sum payment plan, with the variable lump sum payment type, the employer decides how much money to give each employee based on experience with the company and the needs of the employee and their family related to relocation costs. A married executive-level employee with six kids would have different needs from a recent college graduate. The variable lump sum puts more responsibility on the employer but still adequately provides for the employee.
With the alternative lump sum, the employer pays a specific amount upfront and then reimburses the employee based on receipts and documentation submitted. Employers have the final say on what they will reimburse their employees. Alternative lump sums give much more responsibility to the employer and typically save the company more money.
While employees do not have as much control as they would with other lump sum relocation allowances, they still can enjoy peace of mind knowing that employers will cover most of their relocation costs, such as shipping household goods and closing on the current home. This type of payment also relieves the employee from the tax burden that cash would create.
A managed lump sum is when employers offer a capped lump sum to their employees. With this payment type, employers are the most in control. The company also saves the most money with managed lump sums.
However, employees must provide receipts for reimbursements. They also don’t have the flexibility they get with other lump sum programs. Employers are encouraged to assist employees in the relocation process through recommended suppliers and advice.
Companies provide employee relocation packages in one of three forms. Based on the needs of the employee and the budget of the employer, companies can choose how to reimburse their employees.
The employer could give the lump sum payment directly to the employee, who can spend the money on whatever relocation costs arise. With this form of payment, the employer is completely responsible for all corporate moving expenses. Although cash provides flexibility and more peace of mind for the employee, the employee will have to pay income tax on the lump sum allowance.
To avoid paying additional taxes, some employers offer gross up on relocation. Employers will pay an additional amount to cover the taxes accrued.
Employers may also cover moving expenses by dealing directly with corporate moving companies. As opposed to the employee paying the movers for relocation expenses, the moving company bills the employer instead. Employers directly paying a moving company relieves stress on the employee but also takes away employee flexibility.
The employee initially pays for all moving costs, and the employer reimburses the employee for all relocation expenses. Employees must keep all receipts of expenses so that their employer knows what they spent. The reimbursement option provides flexibility for both the employer and the employee, and the employee avoids paying additional taxes.
Both the employee and the employer need to practice clear communication with one another in order to establish their expectations. Employees should be clear about what they need, and employers should be clear about what they can offer and what they can expect from the employees’ new role.
Most companies follow one or more of these guidelines:
The following items should be included in a good employee relocation packages. Some are standard, but some will require negotiation.
Employers should cover the shipping of whatever their employees transport to their new location from the employees’ previous residence.
If employees are not able to buy a house right away, employers should provide for the cost of rent for any time between 90 days and six months. With negotiation, employers may also pay for weekend trips back home.
The employee relocation package should include provisions for employees who must travel in order to look for a house. Employers should also provide trustworthy realtors for their employees to help them find a home and navigate through new territory.
Employers should pay for closing costs and realtor commission fees. They should also pay for any value loss that occurs when an employee’s home is sold for less than the asking price.
Employers use various factors, such as experience level and family size, to determine employees’ lump sum amount. Before receiving a lump sum payment, employees should ask the following questions:
Although lump sum relocation packages provide benefits to the company, they also come with some challenges.
Employers may cover items such as shipping, the moving company, or closing costs and fees. However, they do not cover the miscellaneous fees that arise along the way.
Typically, lump sum packages don’t cover:
The money employees receive to relocate also does not cover the emotional cost on the family that no amount of money can repay. While employees go to their new jobs, their family members look for new jobs, sign up for school and create new social circles. Employees also will need to pay income tax if their employers offer relocation assistance in cash.
Lump sum programs are typically time-consuming for employees. While these programs provide more flexibility for employees, now these employees have the added stress of finding moving companies to help them relocate. Lump sum payments could add stress to employees that would distract them from work responsibilities.
Employers who hand out lump sum relocation packages, especially in cash, have a more difficult time keeping track of their spending. Lump sums could end up costing more if employers are not careful. Companies often underestimate moving costs, so they end up paying more in the long run.
Employers and employees can reduce the stress that often comes with receiving a lump sum payment by openly communicating with one another. Both employees and employers need to have a secure plan before they move forward with their lump sum package agreement. Written agreements between the employee and employer would also make relocating more efficient and comprehensive for both parties.
Employees must consider what they need and have open communication about their expectations with their employers. Employees who are asked to relocate for jobs need to know all the information before signing up to move. Employees can also negotiate their lump sum relocation packages if they are not satisfied with how much the company is willing to pay.
With lump sum repayment plans, much of the responsibility falls on the employee, but employers can offer support through an online portal or a relocation consultant. Employers can also provide resources, such as local moving companies in the area, to help their valued employees relocate successfully. Experienced corporate moving companies can also help relocating employees save time and money.
Hiring a corporate moving company that understands lump sum payments can lessen the challenges of receiving such a payment. Corporate moving companies have unique packages that can accommodate any amount given in a lump sum relocation package. An employee should use an honest moving company that can explain all the upfront costs and can provide an accurate estimate.
Since 1962, Transtar Moving Systems has made customer care our top priority. We are familiar with the stress of moving, and we will help you each step of the way. From packing and temporary storage to moving into your new office, Transtar Moving Systems will give you the support you need to succeed on your moving day. Our previous customers in Southern New Jersey speak highly of our above-and-beyond service. Contact us for a quote or for more information about navigating the lump sum relocation process.
Employees being relocated to new locations by employers may receive a lump sum employee relocation allowance to cover the cost of such a move. This payment allows employees to move their household and family on their own or seek the help of local corporate moving services or long distance corporate moving companies. To maximize this lump sum payment will require good management and the help of experienced corporate moving services that understand how such financial packages work.
A lump sum relocation package is an allotted amount of money that a company provides to employees when a corporate relocation is required. This amount of money is provided to cover any packing, moving, and storage expenses as determined and agreed upon by employees and employers, both working within the allotted amount. This is sometimes challenging and may require working with expert long distance moving companies who understand the limitations of such packages and can provide a comprehensive service for the allotted sum.
When employees receive lump sum relocation packages, how such benefits are paid is important. There are typically three ways in which moving benefits are provided:
Payment to the Employee As Cash – A lump sum paid to the employee is a simple way for employers to pay this benefit; however, employees are then required to file this amount as income that is compared to the actual moving costs. Any amount of money received that is over the actual cost will be listed as employee income and be subject to taxes having to be paid on that amount.
Direct Payment to Moving Company – When long distance and local corporate moving companies bill employers directly, the employee does not have to deal with paying the moving company for their services directly, which eliminates the problem of it being income subject to taxation.
Refunded to the Employee As An Expense – Submitting moving expenses for reimbursement avoids taxation and covers when moving companies are unwilling to direct bill an employer. The downside is that the employee must initially pay for their own move.
It is important for employees to understand the differences in these three methods before starting to search for the best corporate moving services.
The most experienced corporate movers understand how to plan a relocation move on a required schedule and can design a plan that meets the amount allowed by lump sum relocation packages. It is best to work with reputable corporate moving services that handle lump sum moves. This will avoid the dilemma of movers that provide a low estimate and then are ‘forced’ to charge extra for things not covered on the original contract.
For the most trouble-free company relocation, employees should find a corporate moving service that offers various options that work within a relocation package amount. Many long distance corporate moving companies and local corporate moving services are efficient at completing employee moves faster and less costly than other movers. Employees receiving some type of relocation benefit should always look into these services first when shopping for the best moving service to help them with their move!