Lately, we’ve been getting a lot of questions about payback agreements. The COVID 19 Pandemic, and the resulting relocation delays, has rightfully prompted a closer look in regards to how – and, more importantly, when – relocation payback agreements should be applied.
As always, we do recommend payback agreements for employers as a means to protect them against major financial losses should a transferee resign before the contracted period is up. But, from an industry perspective, we are curious about what others do. As travel has opened up, we’ve been fortunate to attend local ERC meetings, including the Tennessee Relocation Council, Southeast Regional Relocation Council and Charlotte Metro Area Relocation Council meetings. At every meeting, this topic came up for discussion. Here are some of the takeaways:
Most employers continue the use of payback agreements for all of their newly hired employees.
That said, folks we spoke with were split on whether to include the payback for all relocation-related expenses, or a prorated portion of all relocation expenses.
The most common term of a repayment agreement is two (2) years in length and those employers who had two (2) year payback agreements included prorating.
Popular 2 Year Repayment Schedules:
100% up to 12 months, 50% months 13-24
Decreases 1/24 each month up to 24 months
100% up to 12 months, 75% months 13-24
100% up to 12 months, decreases 1/12 each month thereafter
100% up to 6 months; 75% months 7-12, 50% months 13-18; 25% months 19-24
So, what has changed? Trigger timing has changed. In the past, repayment agreements generally start on the day the employee officially starts in the new location. In a post-COVID world, we suggest that companies wait to start the clock on the repayment timeframe until the last invoice for the relocation has been paid. This way, any substantial delays in relocation timing will not impact the integrity of the payback window.
Here are some more best practices worthy of review:
1. Payback agreements should always include detailed information about which expenses you plan to reclaim for the employee. Will you be reclaiming expenses paid to the employee, such as lump sums? Or, will you be reclaiming expenses paid on behalf of the employee, such as temporary living? Will you be reclaiming both types of payments? As you can see, the language here makes a huge difference so you have to be crystal clear. If the intent is to collect expenditures for a compliant company-sponsored home sale assistance program (BVO, GBO, etc.), the agreement should not indicate “paid on behalf of the employee”. The real estate commission and closing costs are business expenses and are not paid “on behalf” but “paid by the company”.
2. Payback agreements should clearly define the length of time the employee will carry a repayment obligation and the starting point upon which the term is defined and repayment is calculated (i.e. transfer date). As noted above, pandemic lessons have taught us that companies may want to consider starting the clock when the last invoice has been paid.
3. Payback agreements should also include language about the methodology you will use to reclaim payments. For example, how should the employee make the payments? Who should they be working with to settle up? How long do they have to pay back the monies owed?
4. Finally, we recommend that you engage your legal department so that they can review your payback agreement to ensure it is enforceable.