When reimbursing employees for relocation costs, companies have a few different options. One of the more popular approaches in recent years has been to offer lump sum reimbursements. This method is growing in popularity, particularly within international relocations. However, every story has two sides, cons, and pros to consider before deciding upon lump sum reimbursements as a relocation strategy. In this blog post from IPM’s Operations Director, Scott Niven, he will explain everything from what a lump sum reimbursement is and the benefits and drawbacks of offering these for employee relocations. Scott will also provide high-level strategies for implementing these into your broader global mobility program.
What is a Lump Sum Reimbursement?
A lump sum reimbursement is a one-off (usually large) payment of money given to an employee in place of a monthly payment set up provided to an employee by an employer to move to a new destination. This payment is provided to the employee to cover expenses accrued during a relocation on behalf of a company, such as:
● Temporary living allowance as the employee settles into their new location
● Costs related to a home sale in their previous country of residence
● Necessary travel expenses, e.g. flights
● The purchase of a vehicle in the new location
● The removal and shipment of personal possessions to the new location
This all sounds great in theory, but companies considering this as an option need to consider the following aspects:
● Is a lump sum reimbursement strategy practical within your global mobility budget?
● Will it diminish or create unforeseen administrative burdens, incurring further costs?
● Does it reflect the culture of your business and enable you to best support your employees?
It is also worth noting that lump sum reimbursements are made regardless of whether or not the expenses are considered tax-deductible for an employee. This means the international assignee must commit to their state-adjusted gross income and report deductible expenses on the appropriate tax forms.
So let us review the pros and cons of this relocation method so you can make fully informed decisions for your company’s global mobility program.
The Upside to Lump Sum Reimbursements?
This approach ensures organisations reap the benefits of tax-deductible expenses and quicker administrative tasks. As companies are able to provide their international assignees with a single sum payment to manage their moves personally, it can save both parties from having to keep track of transactions associated with long-term assignments or permanent transfers. This cost-saving technique effectively controls the organisation’s expenditure while simultaneously providing employees with the financial flexibility they need to relocate without increased stress or finances.
Lump sum reimbursements offer tax-deductible benefits to those undergoing relocation while helping a mobility program remain within budget restrictions. Every company should create a carefully designed policy to determine lump sum amounts appropriately, so that assignment costs, employee support, and recruitment objectives are all considered. Having a pre-determined amount allocated for such expenses helps to work within the budget instead of having variable figures with no pre-established limits. In addition, this allows for an anticipated numerical outlook on the program’s budget before any commitments have been made.
The Downside to Lump Sum Reimbursements?
When transitioning to a lump sum reimbursement policy for a mobility program, it’s essential to consider the drawbacks and advantages. For example, while this approach saves money and can simplify settling in, it may also create additional stress for an employee who is relocating for an assignment. Suppose they need to familiarise themselves with organising international moves. In that case, the burden of responsibility is on them, leaving plenty of room for mistakes that could adversely affect their relocation experience and their ability to focus on their job. This makes carefully evaluating the pros and cons even more critical before deciding how to fund an assignee’s move.
While reimbursement can provide financial security to an employee relocating, instability in pricing may quickly render it inadequate if not calculated with precision. With the possibility of hidden costs due to miscommunication or otherwise overlooked elements leading to more significant expenses, such as additional storage or insurance, seeking out an urban housing plan could protect against this uncertainty. Ultimately, while lump sums provide a sense of certainty, they may fail to cover the entirety of the relocation, and alternative answers should be explored to ensure that this is the right strategy for your business.
The above is supported by this highly insightful article from north American moving services detailing lump sum reimbursements and how they can be applied to your business strategy.
Regardless of the process and policies, you decide on for your global mobility program, IPM is here to help. We are a multi-award-winning company established in 1995 and one of the UK’s leading corporate global mobility providers. Our highly experienced team offer over 25 years of insight, enabling us to provide high-touch services to clients worldwide. We strive to take our clients on a journey through a consultative yet friendly approach building trust and rapport ensuring you always know where to turn with your global mobility requirements.
To understand more about if Lump Sum Reimbursements are the right fit for your company’s global relocation program, contact the team today!