Lump Sum is a Long-Term Slump
Even in today's tax climate, there are three key reasons why lump sum programs can jeopardize your relocation program goals.
With today’s new tax laws, cutting a check to a relocating employee to cover relocation
costs, while reducing the amount of HR administrative work, sounds like a reasonable plan. After all, now that just about every relocation expense is considered taxable income to an employee, you might as well cut a check and “gross it up” to help offset the employee’s tax liability.
However, there are three key reasons why lump sum programs will still jeopardize your relocation program goals, even in today's taxable world.
Ongoing Administrative Adjustments. There's more to proper lump sum management than just cutting a check. First, it's important to figure out how to budget for specific transferee’s move. A relocation budget that supports a single transferee won't cover a family of four. Conversely, a budget that covers a family of four is too rich for a single transferee. There is no one size fits all approach when it comes to relocation. A successful lump sum program requires ongoing research and adjustments to keep up to date on relocation costs so the company can distribute fair and reasonable amounts across its population. Further, there will still be a significant amount of administrative work involved to update policies, manage the supplier relationships and consult with transferees on the recommended use of their lump sum budget.
Loss of all Relocation Expense Data. Although Lump Sum programs give transferees full control of their funds and the flexibility to choose the benefits that are most needed, there is a price to be paid for not knowing how the funds are spent. As mentioned previously, understanding current relocation costs and trends help a company make future program adjustments. Without tracking systems or management of the lump sum spend, all knowledge about actual relocation program costs will be lost.
In addition, as relocation programs continue to be evaluated in terms of performance, productivity and efficiency, there will not be enough adequate data available about how certain benefits may perform for different demographics of relocating employees. For example, did a certain benefit for relocating homeowners help make their transition easier than a renter population? Understanding a deeper sense of how each benefit in a policy can impact a program will certainly give corporations the knowledge to make strategic decisions on policy development and cost containment. With a lump sum program, the ability to evaluate specific benefits across various move types is simply lost.
Lack of Support Equals Lack of Control. As a long-time rule, the industry knows that just providing money to transferees, and in some cases, expatriates, is not going to make the relocation a success. Whether the transferee is a recent college graduate, middle management or the current, typical industry profile (male, age 36-40, married, not a first-time transferee and moving for a lateral position), the use of relocation counseling is inherently the key to proving a full level of support for your employee.
As relocation administrators, we must all remember that the lump sum funds are still the “corporate dollar” and, as such, we have a responsibility to make sure the funds are being used wisely and efficiently. The value of professional resources assisting them in understanding the relocation process, selecting a service provider, raising financial considerations and simply offering best practices cannot be underestimated.
Taking a Higher Road. Although at first glance, the use of lump sum may offer both the employee and company an easy solution for covering anticipated benefits, we have seen how “the grass isn’t always greener.” For companies who use lump sum, or are considering an increase in this policy type, there is no opportunity to cut costs when projected need exceeds actual need. Before going down this path, an employer might want to consider a managed cap approach. While this type program is still challenged to determine an effective and equitable cap (typically by salary, job level, own/rent status or family size), it offers more structure and captures the actual expenses, which can be used for future projections.
So, if you are currently using or contemplating a lump sum approach, remember that it’s not a silver bullet. Don’t forget about the cost containment and efficiency that is realized through a partner's watchful eye and knowledgeable counsel. Providing a vetted supply chain, real time reporting and best practices benefit auditing is critical and will result in cost savings.