Calculating the exact cost of relocating all your employees and their families can be challenging. While the more visible costs, such as real estate fees and travel allowances, can be budgeted for, it’s also essential to account for the unavoidable hidden costs.
There are many variables to consider, so providing a rough estimate of the costs makes creating a relocation budget much more straightforward. We’ve put this together to show you how much your organization should plan to spend on employee relocation.
Although the overall cost of relocating varies significantly from one employee to the next, the following points will help you estimate how much the business will have to pay.
Costs of Relocating Key Employees
Expenses for real estate: If your employee is a homeowner, you should consider the real estate costs associated with selling and purchasing a new home. If your employee rents, you can be charged for violating the contract.
House-hunting trips: Your employees will need a new place to live, so plan on them making a few trips before their move. During these trips, the employer pays for travel and lodging, so set aside money to cover these costs. Give your employee some downtime during one of their house-hunting trips (if your budget allows;) sightseeing will help them get excited about the move during this stressful period.
Hiring a moving company to store and move the contents of your employee’s home is one of the big expenses to consider. The type and number of objects to be transported and the distance is usually the determining factors.
On the final moving day, the employee’s entire family (including pets) would need to move. You can budget for airfare as well as transportation to and from the airport.
Temporary housing: Since your employee’s new home may not be ready by the time they arrive, short-term lodging in hotels or rental properties may be needed.
Relevant documentation: If the employee is relocating abroad or if you’re employing someone who doesn’t live in the United States, you’ll need to arrange work permits and visas.
Temporary storage: Since temporary housing also lacks storage space, you can have to pay for extra storage. Storage is a competitive market, so shop around before making a decision.
Help for your employee’s spouse: Your employee’s spouse could need assistance with a new business venture or funding for a job search.
Dependents and children: Your employee’s children will be searching for new schools or nurseries. This can include things like financial aid or statistics on local schools.
Cultural support: Everyone who has moved knows how difficult it can be to adjust to a new environment. Provide language lessons to your employees, or enroll the whole family in an introductory course focused on their adopted culture.
Insurance: Some moving firms have insurance for the objects being moved. It’s a good idea to protect your employee’s personal belongings, even if it’s a small cost.
Miscellaneous costs: Fees for driver’s licenses, pet registration, cleaning services, and utilities set-up all apply to the bill, and they can easily add up.
Because of a new shift in tax law, you can no longer deduct employee relocation expenses. It also means that your employee would have to pay tax on their relocation benefits, so factor it into the moving allowance you offer them.
Employee relocation expenses, like taxes, can be managed in a variety of ways. Some employers tend to provide their workers with a lump-sum relocation plan, which is taxable income. Since the employee would be responsible for this fee, several businesses want to ‘gross up’ their relocation plan.
Consider the following scenario:
Bob’s new employer has given him a one-time relocation package.
Bob’s gross lump sum plan is $5,000, with a net cost of $3,400 for the relocation lump sum if he falls into the 32 percent income tax bracket. This equates to a tax loss of $1,600.
Bob With a Gross-Up
Bob’s new employer has agreed to pay him $5,000 as a lump sum, but they have increased his payment to $7,352 to offset his tax burden.
Taxes are deducted from Bob’s payment in the amount of 32%, but he still receives the full $5,000. This costs the organization $2,352, but Bob receives the entire $5,000 and avoids an unnecessary tax bill.
Packages for Relocation (Summary)
Since each employee is unique, there is no such thing as a “one-size-fits-all” relocation package, but as a starting point, let’s look at the most popular relocation packages we use.
Lump-Sum Packages are the most common way to cover the costs of employee relocation. The employee is given a set sum and is in charge of making the necessary arrangements for the relocation. This is convenient for the employer, however there are some drawbacks: the employee will spend the money as they choose, and any money left over will not be returned to the company.
Tiered Packages are thought to be more cost-effective. The cost of employee relocation is dictated by the employee’s status in the organization as well as their living situation. An executive with children would need a higher-tier package than an intern without children.
In the same way that a Lump Sum Package is given to the employee to manage, a Managed Budget Package is given to the employee to manage. The difference is that the costs are broken down into categories such as housing, transport, and moving expenses, with any money left over being returned to the employer.
A Fully Covered Relocation Package, which is often used to move high-level workers, helps the organization to direct spending and recover any funds that aren’t used. This kit is also used by relocation consultants to help handle high, volatile employee relocation expenses, as it allows for more flexible spending.
A relocation budget should be in the back of your mind, regardless of which package you choose. Knowing the cost of relocating an employee is useless unless you have a strategy in place to use the money wisely.
Track your spending: Once you’ve settled on a budget, divide it up into sections and keep track of where the money goes.
Adjust the budget: Much like relocation packages, each company’s budget is different. Adjust your budget based on the size of your organization or industry; smaller businesses may need to be more flexible in their spending.
Understand your expenses: One of the most important things you can do when creating a relocation budget is to keep track of your spending and assess how well you understand each part of the budget. Openly communicate with the employee to learn what they want and what they do not.
On a tight budget, there are ways to save money on employee relocation without sacrificing the employee’s experience.
Make it clear what the relocation strategy entails. Defining the scope of the policy helps to keep unexpected costs to a minimum.